Who Will Pay for Legacy Utility Costs?
Energy Institute Webinar
Wednesday, July 7, 2021
Professor at Berkeley Haas and Energy Institute Faculty Affiliate
University of California, Berkeley
Associate Professor of Public Policy
University of Michigan
Lucas Davis and Catherine Hausman will discuss their new research that examines historical evidence from growing and shrinking natural gas utilities and reflects on the implications for electrification–the transition from natural gas to electricity in homes and businesses.
The growing “electrify everything” movement aims to reduce greenhouse gas emissions by transitioning households and firms away from natural gas toward electricity. This research considers what this transition means for the natural gas customers who are left behind. To understand this dynamic he researchers use historical evidence from growing and shrinking utilities. They show that in the U.S. during the period 1997-2019 there are many growing utilities, but also hundreds of utilities that experienced sustained periods of customer loss. The project then studies how the loss of customers impacts utility operations and finances. Utilities that lose customers maintain their pipeline infrastructure even as the customer base financing their operations is shrinking. As a result, historical capital cost recovery and some operations and maintenance costs do not decrease. In keeping with this, the researchers observe that utility revenues shrink, but less than one-for-one – indicating higher bills for remaining customers. The study highlights resulting equity implications – both across income levels and across racial groups – of the current push for building electrification and other energy transition policies. The research concludes by discussing alternative utility financing options, such as recouping fixed costs through taxes rather than rates. Full Paper
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