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Renewable natural gas program examined by utilities commission

Bill Andrews
Tuesday, February 23, 2016

BC Sustainable Energy Association and Sierra Club BC having been weighing in on the future of FortisBC Energy Inc.’s Renewable Natural Gas program at the BC utilities commission. Renewable natural gas is a non-fossil fuel alternative to fossil-fuel natural gas that FEI customers can voluntarily purchase. In this article I’ll explain how the renewable natural program works, and then highlight the debate at the utilities commission.

Renewable natural gas is Fortis’s marketing name for biomethane. Traditional fossil-fuel natural gas is mostly methane gas (and some other hydrocarbons) that was produced by the decomposition of organic material eons ago. “Biomethane” is pipeline quality natural gas produced by the decomposition of organic material here and now.

In BC, the important sources of biomethane are agricultural waste, sewage, landfill gas and municipal organic waste collection. Landfill gas is collected in pipes as it seeps up from below. The other systems involve collecting the organic waste and then digesting it. Either way, the initial product is usually called “biogas.” The biogas is then cleaned up in an upgrade facility: impurities are removed and an odorant is added to produce the distinctive natural gas smell. The result is called biomethane. Biomethane then goes to an interconnection facility on one of Fortis’s gas pipelines where it is injected into the gas system. At that point, biomethane works in exactly the same way as traditional natural gas.

Fortis’s renewable natural gas program has three basic steps.

First, Fortis buys biomethane from third-party suppliers and injects it into the natural gas pipeline system.

Second, Fortis sells renewable natural gas to FEI customers who choose to buy it.

Third, Fortis maintains a complicated system to keep track of the volume (in gigajoules -- GJs) and dollar value of biomethane bought and sold.

The tracking system is crucial, because the molecules of biomethane injected into the system at one location are not the same molecules burned by the customer who buys renewable natural gas at some other location. Obviously, Fortis can’t sell more renewable natural gas than it purchased from the third-party suppliers.

BCSEA and SCBC have supported the Renewable Natural Gas Program since the commission first approved it as a pilot project in 2010.

Current biomethane suppliers are: the Salmon Arm Landfill, Fraser Valley Biogas (agricultural and food processing waste), Glenmore Landfill (in Kelowna), and Seabreeze Dairy Farm in Delta (dairy cattle manure and Metro Vancouver organic waste collection). Two more have been approved and are being developed: Dicklands Farm in Chilliwack, and the Lulu Island Wastewater Treatment Plant in Richmond.

cow.jpgFortis and the City of Surrey have a large biomethane project now before the Commission for approval. If it is approved (BCSEA and SCBC supported it) Surrey will use the organic waste collected from residents and businesses to create biomethane for sale to Fortis, and then buy renewable natural gas (at the same price) to fuel the trucks that do the municipal waste collection. An elegant, full circle solution!

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.

What’s the issue at the utilities commission?

Money. It costs a lot more to produce a GJ of biomethane than to buy a GJ of fossil-fuel natural gas, particularly with the low market price of natural gas these days. How much should Fortis charge on a $/GJ basis for renewable natural gas?

When the commission approved the program in 2013, it said the rate for renewal natural gas must be high enough so that if all the biomethane bought by Fortis was sold to program participants the revenue would fully cover the cost of buying the biomethane plus the costs of running the program. BCSEA and SCBC had argued that the costs of running the program should be covered by all Fortis ratepayers, not just renewable natural gas purchasers, but the commission disagreed.

pipeline.jpgUnfortunately, setting the rate for renewable natural gas on this full-cost recovery basis resulted in a rate that is too high. Between October 2010 and July 2015, the rate for renewable natural gas rose from roughly $10/GJ to over $14/GJ at the same time as the commodity rate for fossil-fuel natural gas dropped from about $5/GJ to slightly over $2/GJ. Not surprisingly, growth stalled in the number of residential and small commercial customers choosing to join the program. And, potential purchasers of large volumes of renewable natural gas, such as UBC, balked at the high price. Unless something was done, the amount of unsold biomethane would continue to grow.

In the Fall of 2015, Fortis applied to the commission for approval to reduce the price of renewable natural gas. Fortis asked that the price be aimed at maximizing sales, rather than full cost recovery. The proposal was that the price of renewable natural gas would be tied to a fixed premium over the price of fossil-fuel natural gas. There would be a slightly lower price for renewable natural gas purchased in large quantities for long term contracts. (Regular purchasers of renewable natural gas can choose to leave or rejoin the program whenever they want.)

The BCUC has been holding a regulatory proceeding on the application.

BCSEA and SCBC are actively intervening in support of the renewable natural gas program and the lower, more realistic price for renewable natural gas. After written information requests and a day-long oral hearing, final written arguments are almost finished.

The proceeding involves an alphabet soup of acronyms and the Byzantine world of regulatory accounting. But the debate boils down to a choice between (a) the simple approach of a price cut, long term contracts for large volume purchasers and improving the marketing (which BCSEA and SCBC have argued is the best way to revitalize growth in renewable natural gas sales), (b) a complicated approach involving changing the program (boo, hiss), and (c) retaining a cost-recovery-based price for renewable natural gas (that causes the sales problem in the first place). A decision should be issued in a month or two.

Meanwhile, for information on participating in the renewable natural gas program click here.

To read BCSEA and SCBC’s final argument about reducing the price of renewable natural gas click here.

For all the documents in the BCUC proceeding, go here.

 

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