When Gov. Dannel P. Malloy first unveiled his draft “Comprehensive Energy Strategy” last October, he suggested building 900 miles of natural gas lines, but the first draft of the plan was silent about who would pay for the expansion. Would it be state taxpayers or ratepayers?
On Tuesday, he answered that question: ratepayers.
The final plan calls upon Connecticut’s utilities to detail how to make natural gas available to hundreds of thousands of residents and 75 percent of the state’s businesses in the next seven years. It also includes a proposal to offer a $500 tax credit to consumers who switch to natural gas.
The plan would offer financing options to homeowners and businesses to eliminate the upfront cost of converting furnaces, boilers, and other appliances from oil to natural gas. The average cost of about $7,500 would be paid back over a decade through the utilities, but funded by banks and capital markets.
In an effort to promote the release of the final report, Malloy and Department of Energy and Environmental Protection Commissioner Daniel Esty made two stops Tuesday. The first was to Royal Ice Cream in Manchester, which recently converted to natural gas, and the second was to La Plaza Del Mercado in Hartford, which installed energy efficient refrigeration and lighting systems.
The proposal to expand the use of natural gas in Connecticut was the most controversial part of the plan and prompted home heating oil dealers to turn out in large numbers for the public hearings on the plan last year.
“The question left open in the draft about how to pay for the build out of natural gas has been answered by saying we won’t do it with tax money. We don’t do it by bonding. We’ll do it through the gas companies, and various classes of ratepayers repaying,” Esty said Tuesday.
Chris Herb, vice president of the Connecticut Energy Marketers Association, an organization that represents 600 heating oil companies in the state said “at least they heard half of our argument.”
He said the heating oil dealers were adamant about making sure taxpayers didn’t foot the bill for the two utility companies that serve natural gas customers in the state.
There are three natural gas utilities in the state. Connecticut Natural Gas and Southern Connecticut Gas Company, which are owned by United Illuminating, and Yankee Gas, which is owned by Northeast Utilities.
Malloy said the state is creating an environment that invites the gas companies to extend those lines, make connections, and recapture those investments within a 15-year period.
But Herb doubted that the natural gas companies would be able to assume the cost of expansion simply by placing the burden on ratepayers.
“Why haven’t they already done it then?” Herb wondered.
If there are all these people clamoring for natural gas then the utilities should be looking to expand without a “handout from the state,” Herb said.
Michael West, spokesman for Connecticut Natural Gas and Southern Connecticut Gas, has said the utility planned to expand its customer base by 30,000 to 35,000 customers over the next three years before it even knew about the state’s energy plan.
Only 31 percent of Connecticut homes heat with gas today, compared with 47 percent in Massachusetts and 48 percent in Rhode Island. The percentage of commercial and industrial entities with access to gas is only slightly higher. Of the 300,000 residents and businesses Malloy hopes to reach, about 217,000 are within 150 feet of existing gas lines now, but they are not connected and heating with gas. The cost savings are less for the remaining 83,000 customers who are not close to a gas main.
Malloy said Royal Ice Cream in Manchester paid about $3,500 to convert to natural gas and saved enough to break even from that investment in five months. He said the annual $8,000-a-year in savings will be poured back into that business.
“These kinds of stories are real,” Malloy said. “And if we can multiply them by tens of thousands we’re talking about making Connecticut substantially more competitive,” Malloy said.
Ramon Flores, owner of La Plaza Del Mercado, said he was able to reduce his energy consumption by 40 percent and save $18,000 a year from the changes he made to his store.
“That’s a substantial amount of money,” Flores said.
Esty said some heating oil dealers have embraced the changing landscape and have branched out into doing natural gas furnace installations. He suggested that many were “transitioning.” But Herb said only about half the heating oil dealers in the state offer those types of services.
“By using the word transitioning, he means he wants us to stop selling oil or do something else,” Herb said. The industry would lose about 4,000 workers, if this plan makes it through the legislature, he said.
But Rep. Lonnie Reed, co-chair of the legislature’s Energy and Technology Committee, seemed to agree with Esty.
“I think there’s an even bigger role for the fuel oil dealers in terms of installing gas furnaces and maintaining gas furnaces,” Reed said. “It’s clearly something we’re going to talk about.”
Reed said she thinks there’s a place for the heating oil dealers who have forged relationships with their customers over the years. But she warned that none of Malloy’s plan is set in stone and the committee is looking forward to a robust discussion of the issues.
The more than 200-page report also highlights issues about natural gas supply.
“Reliability of natural gas supply is also an important consideration in an expansion planning process, as increased demand will naturally increase the need for regional natural gas supply capacity,” the report says. “The interstate pipeline system that supplies Connecticut’s natural gas is already constrained, and there is limited liquid natural gas (LNG) capacity in Connecticut. At current use rates, there will not be enough interstate pipeline, storage, or peaking capacity to serve a large-scale addition of new customers. Natural gas pipeline supply projects typically take 3-4 years to develop, meaning that capacity must be purchased based on projections of customer demand several years in the future.”
Environmental organizations are concerned that the report doesn’t go far enough toward encouraging the use of renewable energy sources and continues to rely too much on fossil fuels.
“Rather than tethering ourselves to more fossil fuels, Connecticut should maximize investments in regional renewable energy sources,” James McCaffrey, a representative of the Sierra Club’s Beyond Coal Campaign, said in a statement. “Long-term contracts for safe, reliable clean energy like wind and solar will protect our families from more Superstorms like Sandy while boosting our regional economy and creating jobs.”
Mark LeBel, energy fellow for the Connecticut Fund for the Environment, said his organization is pleased the final report contains “an even more robust commitment to incentivizing energy efficiency than the draft strategy.” LeBel’s group believes the state could be doing much more when it comes to encouraging conservation, which has its perks.
Environment Northeast said that even if Connecticut invested all its efforts just on energy efficiency alone, the group found that over the course of 15 years, Connecticut would see an increase in economic activity of $40 billion (in 2008 dollars), as consumers spend energy bill savings in the wider economy.