Regulators across Cascadia should end line extension allowances, the subsidies ratepayers finance that expand utilities’ pipeline infrastructure.

To meet climate commitments, the natural gas system across Cascadia must begin to shrink. Even sooner, it must plateau. But a widely used regulatory policy called “line extension allowances” (or “line extension subsidies”) authorizes gas utilities to promote just the opposite. These allowances, offered by gas utilities and paid for by current gas customers, encourage steady growth of the polluting system by subsidizing the cost of fossil fuel infrastructure build-out.

In 2023, California will become the first state in the United States to eliminate line extension allowances because of their harmful climate, economic, and health impacts. Some regulators in Cascadia have taken steps to reduce the subsidies, but they remain on the books throughout most of the region. Regulators in the Northwest would be smart to follow their California counterparts’ lead and eliminate these counterproductive subsidies entirely.

Line extension allowances perversely incentivize gas system growth

Without any subsidies, a developer or homeowner could expect to pay thousands of dollars to hook up a building to a gas distribution pipeline. This hefty price could encourage homeowners or developers to forgo polluting gas appliances (like gas furnaces) and instead opt for cleaner electric alternatives (like heat pumps).

But in a perverse incentive for the climate, regulators allow gas utilities to eliminate some or all of the cost of new gas connections through line extension subsidies. Even worse, existing gas customers (ratepayers) foot the bill for the subsidies, most likely without knowing it.

All gas utilities in Cascadia offer line extension allowances of varying amounts and with different structures. Say a developer needs to hook up a new home or business to gas service, and it’s going to cost $5,000. The chart below shows the estimated percentage of this cost that each gas utility in the region would subsidize under its current policies. The percentage subsidized is in blue, and the percentage the new gas customer or developer would pay out of pocket is in orange. Most Cascadian utilities would subsidize at least half of a $5,000 hook-up. Five, including Avista and Cascade in Oregon, would fully cover it through ratepayer dollars.

Due to line extension subsidies, Cascadian gas pipes continue to proliferate, adding thousands of new customers every year. Utilities in Oregon and Washington alone connected 61,000 residential customers to the gas system in 2020 and 2021, a roughly 3 percent increase from 2019 customer counts. Ratepayers in these states likely paid more than $100 million a year to cover the cost of the subsidies that made those new connections possible---and further entrenched the gas industry in our energy future.

The arguments for line extension allowances are stale

While justifications for the subsidies vary by region and utility, the typical economic rationale is that connecting more customers to the gas network is better and cheaper for everyone. That’s because utilities can spread fixed costs for the entire system over more households, thereby lowering rates for all and more than offsetting the price existing customers pay to subsidize new ones. State utility commissions have also touted the subsidies as necessary to boost “economic development” and “promote equitable access among residential ratepayers” to the gas system.

But the arguments supporting line extension allowances crumble in light of growing knowledge about the health and climate hazards of gas and corresponding anticipated declines in its use. As gas utilities’ customer base shrinks, which it will with widespread electrification, the costs of maintaining and operating a larger gas footprint will drive rates higher for those still connected to the system. That means line extension allowances incentivize customers to conne...