As natural gas continues to be viewed as a 20th century energy source by many in the industry, a recent academic research study takes a deep dive at the expenses natural gas customers may be left with as more commercial and residential buildings use and transition from gas to electricity.
The study, titled "Who Will Pay for Legacy Utility Costs?" and authored by University of California, Berkeley Business and Technology Professor Lucas Davis and University of Michigan, Ann Arbor Associate Professor of Public Policy Catherine Hausman, used gathered information from almost 250 utilities that had at least five consecutive years of decline in their customer base. The researchers studied fixed income costs, billing trends and demographic shifts to predict the ways customers' natural gas bills will increase in the future based on different levels of electrification being adopted in residential buildings.
The findings were scattered and dramatic, as potential shifts in energy consumption could have a wide effect on the fixed costs passed to consumers in the form of higher prices. A decrease of 15 percent in the number of residential gas customers only increased the bill about $30 per year for remaining customers. However, a 90-percent reduction in residential gas customers increased each individual bill by more than $1,500 per year.
The study identifies the industry's movement to reduce carbon dioxide emissions by eliminating natural gas—a movement led by California—but questions the long-term ramifications of a shrinking customer base that is required to carry the burden of fixed costs in natural gas energy, especially pipeline and infrastructure costs.
With municipalities implementing regulatory policies that incorporate electrification while minimizing the use of natural gas, the study is a detailed look at the cost burden that could face the remaining gas customer base, which tends to skew to lower-income individuals in rural and inner-city demographics, along with minorities, according to the study.
"Who Will Pay for Legacy Utility Costs?" analyzes hundreds of utility companies that had substantial and sustained customer losses from 1997 to 2019. Geographically, these companies tended to serve Sun Belt and Appalachian rural locations or inner cities—sometimes both—either before gentrification or after mass suburban flight had concluded. Alabama Gas Corp., for instance, has dealt with customer loss in both its rural area of service and in the Birmingham metropolitan area.
Despite shrinking consumer bases, the majority of fixed capital, maintenance and operational costs remain the same, resulting in higher monthly bills for remaining consumers, many of whom are already in low-income situations, making barely enough to pay their bills.
Although the study's findings might seem contradictory to the overall 25-percent increase in total natural gas customers in the U.S. during the nearly quarter-century it covers, the skewed statistics represent the overall migration patterns in the country during that time period.
There is nothing utility companies can do to "reverse-engineer" the changing migration patterns, and they are left with infrastructure from one-time dense population areas that likely will never experience a resurgence. Davis and Hausman's study found that a 10-percent increase in the number of residential customers results in a 4-percent increase in distribution network length. The study goes on to note that utility companies rarely remove pipelines, even within a market that is experiencing a rapid rate of population loss.
The study acknowledges that in the short term, skyrocketing prices are not an issue, but says that if current regulations to electrify are implemented, remaining customers might be left with a lighter wallet and no alternative. Davis and Hausman conclude the report by reviewing several different financing alternatives for utility companies, including having fixed costs paid for from general taxes.
The ability to alleviate financial burdens from remaining natural gas consumers is an issue that utility companies need to solve before the next decade or risk being left in a cloud of symbolic electrical dust.