Davis, Lucas and Hausman, Catherine “Who Will Pay for Legacy Utility Costs?” (Revised March 2022) (Revised version published in the Journal of the Association of Environmental and Resource Economists) | WP-317R | Blog

Abstract:
The growing “electrify everything” movement aims to reduce carbon dioxide emissions by transitioning households and firms away from natural gas toward electricity. This paper considers what this transition means for the customers who are left behind. Using historical evidence from growing and shrinking U.S. natural gas utilities, we show that utilities add pipelines but rarely remove them, even when the customer base from which to recover costs is shrinking. Correspondingly, we find that utility revenues decrease less than one-for-one when a customer base is shrinking, consistent with higher bills for remaining customers. We then use our empirical estimates to predict how customer bills might increase in the future for different levels of building electrification. We highlight the equity implications of our results and conclude by discussing alternative utility financing options such as recouping fixed costs through taxes rather than prices.