Maryland utility regulators end subsidies to connect new gas utility customers

On Friday, utility regulators at the Maryland Public Service Commission (PSC) announced it would end the practice wherein existing customers subsidize the cost of extending gas utility service to new customers. 

New customers can still connect to the gas system, but will be responsible for the full cost of doing so. The PSC will issue regulations to implement the order by December 1, 2025. The PSC order came in response to a petition from the Maryland Office of Peoples Counsel (OPC), which represents Maryland’s residential utility customers. 

The order is an important, positive step for Maryland gas utility customers as state policy makers grapple with changes in technology and the state’s long-term goal of transitioning to safer, cleaner all-electric buildings.  

What is a “gas line extension”?

When someone requests gas utility service for a new household or business, the utility will need to connect the building to the utility’s existing underground network of pipes. At a minimum, this will require extending a service line to the property and installing a meter. At times, the utility will also need to extend gas mains to serve one or more new customers. 

What is a line extension subsidy?

In many states, new gas utility customers do not pay the full cost of extending service to their property. Instead, some or all of the cost is charged to all other customers on the gas system. 

These costs are shared by all existing customers, and are paid back over years, even decades. Gas utilities earn a profit on new gas line extensions because they pay for the cost upfront and profit of the interest as customers pay it back. The monthly bill impacts of any single service extension are very small. But in aggregate, the costs add up. For example, OPC estimates that in recent years BGE customers have been paying roughly $70 million for service extensions.

Why did state policy allow for line extension subsidies?

When a utility is in a growth and expansion phase, subsidizing the addition of new customers can make economic sense and benefit existing customers. While existing customers pay a little more to add the new customer, that new customer will in turn help pay for shared system costs for decades to come. When the costs of operating the utility are shared by a greater number of customers, the cost per customer declines. 

Why does it make sense to end line extension subsidies now?

It is no longer reasonable to assume the continual and ongoing growth of gas utilities. That means the costs to existing customers of subsidizing gas line extensions likely outweigh the benefits. 

Advances in highly efficient electric heat pumps make them an increasingly attractive choice for consumers that want a safer, healthier option to heat their homes. In fact, heat pumps sales already outpace sales for gas furnaces in the U.S. And Maryland has adopted a number of policies which aim to reduce pollution for polluting fossil fuels like methane gas. 

As gas customers adopt more efficient appliances and partially or fully electrify their homes, gas utilities will have fewer customers using less gas. That means the costs of the gas system will be shared by fewer customers, and will cost more per customer. In this circumstance, public policy should support lowering the overall cost of the gas system, not raising it, as gas line subsidies do. 

Maryland joins Colorado, California, Massachusetts, Oregon, Minnesota, and Washington as states that have ended or are currently considering ending or reducing gas line extension subsidies. 

What else is in the PSC order?

The OPC petition also recommended a holistic examination of utilities’ gas procurement policies, changes to the STRIDE program which allows gas utilities to charge customers a surcharge for certain gas pipeline spending, and more. 

In its Friday order, the PSC declined to initiate an examination of procurement practices, citing regular opportunities for the PSC and stakeholders to review utility procurement plans. It also opted not to take action on STRIDE because the Maryland legislature recently enacted reforms to the program. 

The PSC said it would consider other elements of the OPC petition in future orders.