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Using ratepayer funds for utilities' renewable gas projects is risky regulator from SNL Energy Finance Daily Using ratepayer funds for utilities' renewable gas projects is risky regulatorByline: Tom DiChristopher Allowing gas utilities to invest in renewable natural gas plants without policy guardrails in place exposes ratepayers to unacceptable risk, according to Paul Kjellander, president of the National Association of Regulatory Utility Commissioners. The association chief said the risk is especially acute in states that do not have a renewable portfolio standard or decarbonization policy, such as Idaho, where Kjellander is president of the Idaho Public Utilities Commission. Without those policies or a subsidy program in place, Kjellander said he cannot be certain that that the forces currently propping up the renewable natural gas market will continue to make RNG projects viable. "As a regulator, I'm risk averse," he said May 20 at the American Gas Association's virtual Financial Forum. "I hate the thought of stranded investments and associated stranded costs recovery. So without something that resembles a stable subsidy or policy mandate, as an economic regulator, a pure economic regulator, no matter how much I like a resource, I probably can't jump on that bandwagon too quickly." Several states are considering legislation to allow utilities to invest a portion of rate base in RNG investments and procurement, following Oregon's lead in creating rule for utilities to recover those costs from ratepayers. Kjellander is skeptical of allowing utilities to rate base RNG plant investments, despite the opportunities presented by Idaho's growing dairy industry. Dairy farms are increasingly seeking to process their methane waste into RNG, he noted. That activity could increase as contracts for methane digesters currently used to produce electricity expire, he added. Those operators are increasingly considering using the equipment to process RNG, he said. Kjellander noted that the federal Renewable Fuel Standard is driving those investment decisions. Under the program, RNG produced for the transportation sector generates biofuel credits known as renewable identification number, or RINs. Today, trading RINs is lucrative enough to make RNG projects viable, despite the low cost of standard natural gas, Kjellander said. But he worries about a potential crash in the RINs market. "The risk to ratepayers if the existing RINs support dramatically drops or goes away is something that is a little troubling as a regulator," he said. Kjellander's concern is not without precedent. The RINs market experienced a period if heightened volatility under President Donald Trump. Prices peaked and dropped on uncertainty over the administration's biofuel policy as it sought to support both farm states, which back biofuel blending requirements, and small refiners, who oppose them. In February, DTE Energy Co. CEO Jerry Norcia said RINs stabilization under the Biden administration would make RNG investments more attractive. He also noted that California's Low-Carbon Fuel Standard biofuels market has remained stable. The California program also aims to decarbonize the transportation sector, and that underpins another of Kjellander's concerns. If momentum among fleet operators shifts decisively to electric vehicle adoption, that could make RNG projects less viable, Kjellander suggested. "Since most of the RNG is going to the transportation sector for compressed natural gas fleet vehicles, I kind of have to ask myself this question: Where is the innovative effort going into creating the next generation of fleet vehicles? Is it going to the advancement of RNG vehicles, or is that focus on electric vehicles?" he said. |
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