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Don't repeat natural gas fueling mistakes

My View • California's vehicle plan stuck ratepayers with big bill
by: CHRISTOPHER ONSTOTT, NW Natural's Honda Civic runs on compressed natural gas that costs around $2 a gallon, half the price of traditional gasoline.

Regarding the Tribune's May 17 article in the Sustainable Life section, "Public can't fill up on cheap natural gas," a NW Natural representative asked whether it is fair to raise utility rates for everyone to benefit the relatively few who wish to fill up their natural gas vehicles at public fueling stations. The answer is a resounding "no."

Prior to my retirement in 2000, I was chairman and president of Southern California Gas Co., and chairman of San Diego Gas and Electric Co. Southern California's Low Emission Vehicle program was developed under my direction and cost the ratepayers upwards of $40 million to deploy approximately 50 natural gas vehicle stations in the early 1990s.

The intent was to jump-start the natural gas vehicle market. The result was an absolute failure, as the "build it and they will come" model didn't work.

By order of the California Public Utilities Commission in 1995, all of the stations were ultimately sold for less than $3 million (a $37 million-plus loss to the ratepayer) to a private enterprise that quickly learned that those stations had no sustaining natural gas vehicle customers.

Fast forward to today. The country has more than 1,200 natural gas vehicle stations, including 440 locations throughout California, largely due to private firms that made sure they had natural gas vehicle customers before they risked their own capital.

Today, there are 39 private firms aggressively building out natural gas vehicle infrastructure, including Clean Energy, which owns and operates 298 station locations nationwide and has committed to building a 150-station natural gas fueling network along our national highways by the end of 2013 to support the U.S. trucking Industry.

Dallas, Texas' AmericaCNG announced in late April its intent to construct 400 natural gas fueling stations in strategic locations across the country in the coming year.

And General Electric has teamed with Chesapeake Energy's subsidiary, Peake Fuel Solutions, to build out 250 stations by 2015.

The availability of private capital is sufficient to ensure the development of the needed natural gas vehicle fueling infrastructure in Oregon and the rest of the country without utility ratepayer funding of utility-owned stations. Why should utility ratepayers bear the costs and assume the risk of refueling station success or failure when non-utility enterprises are willing to bear those costs and their shareholders are willing to bear the risk?

Clearly, the proper role of a regulated utility would be to "enable" the natural gas vehicle market, not "compete" in it. There are many ways a regulated utility can play a supportive role. Such actions would include customer education and information programs, vehicle demonstration programs, utility fleet purchases of natural gas vehicles and providing timely service to private firms that are building natural gas vehicle fueling stations.

Of course, if the parent company of a regulated utility wanted to compete in the natural gas vehicle fueling space by forming an unregulated affiliate relying on shareholder (not ratepayer) dollars, private firms in the business would welcome such competition, because those companies would participate in the refueling marketplace on a "level playing field."

Two companies that are serving as a model for this type of market participation are Integrys and Questar, which own regulated utilities but have formed third-party affiliates to compete in the natural gas vehicle refueling market.

Fast-growing interest in natural gas vehicles -- besides the fact that they are clean, displace foreign oil and save consumers up to $1.50 per gallon -- is due in large part to private firms whose sole focus has been the promotion and advancement of the industry.

Allowing a utility to now use its monopoly power to enter into this competitive market would not only harm the investments of the very private firms that got us where we are today, it would discourage further investments by these private firms.

The result would be Oregon traveling down a path only to relearn California's lesson in the 1990s.

Warren Mitchell is the former chairman and president of Southern California Gas Co., and former chairman of San Diego Gas and Electric Co. He serves as the chairman of the board for Clean Energy Fuels Corp.