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Price cut approved for Renewable Natural Gas

Bill Andrews
Thursday, September 1, 2016

In early August, the BC utilities commission approved a cut in the price of Renewable Natural Gas purchased by gas customers. BC Sustainable Energy Association and Sierra Club BC supported the move in a lengthy proceeding initiated by natural gas utility FortisBC Energy Inc.

Renewable natural gas is Fortis’ marketing name for biomethane: pipeline quality natural gas produced at several facilities in BC that decompose organic wastes from farms, sewage, landfill gas and municipal organic waste collection. Any Fortis gas customer can buy renewable natural gas instead of fossil-fuel natural gas for anywhere between 5% and 100% of the customer’s gas consumption.

Fortis’ renewable natural gas sales began in 2010 with Commission approval of a two-year pilot project that BCSEA and SCBC supported. Renewable natural gas has substantial environmental benefits over fossil-fuel natural gas. Sales of renewable natural gas increased quite quickly for the first few years. However, sales then began to stall because the price was much too high, especially in comparison with the super low cost of fossil-fuel natural gas.

In August of 2015, Fortis applied to the commission for approval to cut the price of renewable natural gas in order to boost sales volumes. The regulatory proceeding began in September 2015 and went on until May of this year. How could it take so long to approve a simple price cut, one might ask. Well, to the utilities commission, “price” is never “simple”!

Generally, the commission requires Fortis to price its services, whether renewable natural gas or fossil-fuel gas, at no more than Fortis’ cost of providing the service (plus a markup for “return on equity”). Renewable natural gas costs more than fossil-fuel natural gas, because it’s more expensive to produce a gigajoule (GJ) of biomethane than to buy a GJ of fossil-fuel natural gas on the natural gas market.

In addition, the commission has a fundamental aversion to anything it considers to be cross-subsidization between different customers. Much of what the commission does on a daily basis involves determining what particular costs incurred by a utility should be assigned to one type of customer rather than another. So, to prevent any perception that customers who didn’t buy renewable natural gas were financially supporting renewable natural gas, the commission required Fortis to include an exhaustive list of types of expenses in the cost – and hence the price – of renewable natural gas.

As a result, the price of renewable natural gas got so high that potential customers like UBC, that wants to buy huge amounts of biomethane to be carbon neutral, balked at buying. Residential and commercial customers weren’t signing up for renewable natural gas. And existing biomethane customers were buying smaller quantities – say, 5% instead of 10% of their consumption – to keep the extra cost down. The whole program was close to spiralling downwards when Fortis applied for the price cut.

To make a long proceeding short, the commission eventually agreed that the only way to sustain and grow the renewable natural gas program is to reduce the price to a point where customers will choose to buy it. Technically, the new price is aimed at maximizing the net revenues from the program rather than covering the program’s costs. To give credit where it’s due, the commission found a way to give the renewable natural gas program a new lease on life. The commission noted that the program fosters several B.C. energy objectives including reducing GHG emissions, developing innovative technologies, encouraging switching to lower carbon energy, and reducing waste biomass.

Renewable natural gas has two substantial environmental benefits over fossil-fuel natural gas;

First, creating biomethane prevents the atmospheric release of methane and carbon from the breakdown of the organic waste. The eventual burning of the biomethane does release carbon, but methane is a worse greenhouse gas than carbon (methane has higher Global Warming Potential).

Second, using biomethane (burning it as natural gas) displaces the use of fossil-fuel natural gas, and avoids the upstream GHG emissions and environmental issues (e.g., ‘fraccing’ and water usage) from the production, processing and transportation of fossil-fuel natural gas.

To be clear, biomethane and fossil-fuel natural gas release an equal amount of carbon when they are burned. But the organic waste that goes into biomethane would have released carbon and (worse) methane when it decomposed anyway; and substituting biomethane for fossil-fuel natural gas avoids all the upstream problems caused by fossil-fuel natural gas.

For information on buying renewable natural gas, click here. 

For BCSEA’s February 2016 article on the renewable natural gas price proceeding, click here.

For the BCUC’s decision approving the price cuts, click here.

 

Bill Andrews is legal counsel for BCSEA and SCBC in BC utilities commission proceedings.