NW Natural customers could see bills jump 25% in one year

NW Natural provides methane gas to about 2.5 million people in Oregon and Southwest Washington. Regulators approved a 13% rate increase last year, and now the company is asking for a similar hike. If approved, that would mean customers would see their bills rise by about 25% over a one-year period. Independent journalist Nick Cunningham covers climate change and the oil and gas industry. In his recent article in DeSmog about NW Natural’s latest request, he highlights some of the controversial elements of the proposed rate hike: funding bonuses and a promotional ad campaign. Cunningham joins us to share more details about NW Natural and how the industry is attempting to hold its own amid the movement toward electrification.

Editor’s note: NW Natural Appliance Center is among the underwriters of OPB.

This transcript was created by a computer and edited by a volunteer.

Dave Miller:  Northwest Natural provides methane, commonly known as natural gas, to about 2.5 million people in Oregon and southwest Washington. Last year, regulators approved a 13% rate increase. Now the company is asking to be able to charge its residential customers 12% more, meaning ratepayers would see their bills rise by about a quarter over a one year period. Nick Cunningham is an independent journalist covering the oil and gas industry, climate change and international politics. He’s a reporter for DeSmog and has been featured in Oregon Business, Sierra, Gas Outlook and other energy news outlets. His recent article in DeSmog highlights some of the controversial elements that Northwest Natural proposed rate hike would pay for, including executive bonuses and a promotional ad campaign. I should note before we start that Northwest Natural Appliance Center is among the underwriters for OPB. As I noted in my intro, the company is currently asking for a 12% rate increase on top of the 13% bump that was approved late last year. What was the reason behind that earlier increase?

Nick Cunningham:  Yeah, that 13% increase was related to rising commodity costs - so rising natural gas prices, which is something that’s occurred around the world, including here in Oregon.

Miller:  But now we’ve got another ask in front of the Public Utilities Commission for a 12% increase. The company’s given a number of different reasons that they need to increase prices again. And we can go through the more controversial ones in just a bit. But which ones are environmental groups and other groups not taking issue with?

Cunningham:  From what I’ve heard, they’re not taking issue with what to be clear seems to be the bulk of the ask, which is investments in an IT upgrade, overhauling the IT system, seismic upgrades for some of its facilities and upgrades to its distribution and storage centers.

Miller:  That’s the bulk of the reason for the company’s proposed rate increase. But as you know, there are other ones that have gotten some attention. So that’s the focus of your recent article. Among them, the company says it needs $11 million dollars more to pay its executives, including bonuses. What did the company tell you about its approach to executive pay?

Cunningham:  Northwest Natural says that it needs to reward its executives and some of its employees to improve the financial performance of the company which would then, the logic goes, benefit ratepayers. Now it’s not clear that it’s a big increase necessarily in executive bonuses. But what they are asking the Public Utility Commission, the PUC, to do is to sort of change its policy to allow ratepayers to pick up the tab rather than shareholders. And that’s what the experts I talked to say is a big change.

Miller:  How does the Public Utility Commission think about executive pay in general?

Cunningham:  From what I understand, it’s traditionally supposed to be paid for by shareholders. If they want to reward their executives, then shareholders need to pay for that. So the ask for ratepayers to pick up the tab is kind of seen as a little out of bounds.

Miller:  Am I right that Northwest Natural also wants to give its shareholders, it’s investors, higher returns?

Cunningham:  Yeah. And that’s supposed to be about $1 million dollars they’re asking for. So they’re asking for a higher profit margin. And the logic for that from Northwest Natural’s perspective is that if the returns to the company are more attractive, that will attract more investors, which will lower the cost of capital, thus benefiting the ratepayers. Obviously that’s not how environmental groups and watchdog groups see it.

Miller:  The issue that you devoted the most attention to in your reporting recently has to do with advertising. What kinds of advertising can utilities ask ratepayers to pay for?

Cunningham:  Yeah, that’s a good question. And it’s pretty complicated. But in general, there are very legitimate and reasonable purposes that utilities can go to the PUC and ask ratepayers to cover the costs for. And those include a list of things such as the office hours of a service center, information about repairs, safety, those ads that “call before you dig”, information about rate structures, why people are being charged what they’re being charged. All this sort of basic information is very normal for a utility to go to the PUC and say, ‘hey, we have these costs, we want ratepayers to cover them.’

But there are things that are generally not supposed to be approved, in terms of advertising, by the PUC. And that falls into a category that can loosely be defined as promoting the corporate image, promoting the image of the company or merely promoting operations of the company in order to make the company look better. And the problem is that what they’re asking the PUC to approve, advocates and watchdog groups say, those ads are promotional and that’s where the problem with, with what they’re asking for is. And I can run through some of these examples if you’d like.

Miller:  In a second. I do wanna hear that. But just so we’re clear, the argument or the point here isn’t that Northwest Natural is not allowed to put out an ad saying Northwest Natural is awesome. It’s that if they do that, they theoretically can’t then turn to the Public Utility Commission and say ‘we’d like to charge more because we need our ratepayers to pay for that ad’. Instead, they compared an ad saying ‘here’s how to know how to turn off your gas main in the case of an earthquake’ and that’s the kind of ad that historically you could have been reimbursed for. Is that right?

Cunningham:  Exactly. And so if they put out an ad that says ‘Northwest Natural is awesome’. That’s something that the company needs to pay for and ultimately its shareholders need to pay for.

Miller:  So could you describe an ad that Northwest Natural put out last year about cooking and indoor air pollution?

Cunningham:  Yeah, they spend a lot of time on these ads, digital ads and mailers. And they have these ads where people are cooking and they make it look sort of really attractive and fun. They say ‘gas gives you quote unquote ‘more control’ or ‘a house isn’t a home without natural gas’ or ‘home buyers prefer cooking with natural gas’, ‘home buyers prefer living with natural gas’. They say natural gas is cozy, quote unquote, ‘cozy and on demand’. And these are the sort of ads that don’t strike me as being based basically about information. When it comes to air pollution, no matter what source of cooking you’re using - electric or gas, - there is some air pollution that comes from that cooking. But gas has additional pollutants that harm human health and contribute to asthma. Those ads don’t include those caveats. So the experts I spoke with said that these ads are not about providing information. They’re more about promoting the image of gas in general.

Miller:  That line you noted - a house just isn’t a home without natural gas - is the company arguing that there is important information embedded in that message as opposed to either opinion or propaganda?

Cunningham:  I imagine that the company would say it is providing information. That is not what critics of these ads say. They say that this is about spin and about promoting the image of gas in order to compete with electricity and electrification, which I can go into more. But yes, this is about promoting the image of gas.

Miller:  Well, let’s go into that first. So that line - a house just isn’t home without natural gas - or the other ones you mentioned, you’re saying this is not really just about gas. This is about the fear of electrification. What do you mean?

Cunningham:  Right now we’re in a climate crisis and the science is very clear that we need to be winding down fossil fuel operations. It’s going to take time but it needs to happen. And one trend is sort of sweeping the country and largely on the West Coast. Some cities are enacting restrictions on new gas connections to new homes and buildings. So whenever a new house or a new office building is built, it needs to be electrified and not connected to the gas system. Those restrictions have passed in more than 50 cities. And Washington state just passed a phase-out on gas in new commercial buildings, California and New York are also looking at it. In Oregon, Eugene is on the leading edge of that. The city has been looking at banning gas in new homes and businesses. They’ve delayed that action under pressure and lobbying from Northwest Natural. Multnomah County has banned gas in new county controlled buildings. And activists are calling on them to go further. So this is a trend that is growing in popularity.And the logic is we need to be winding down the fossil fuel system over time. And one way to do that is to at least stop the growth of the system. And that’s something that Northwest Natural fears very much.

Miller:  The company also ran an ad campaign focused on what’s called “renewable natural gas”. What is RNG?

Cunningham:  Yeah, renewable natural gas is methane that’s captured from things like landfills and feedlots in industrial agriculture. It’s captured from these sites and then it’s plugged in basically to the gas system. Northwest Natural features its investments in RNG very heavily in its advertisements. And there’s a couple of problems with renewable natural gas despite its name. It’s still methane. It still creates pollution when it’s burned. And it is also providing a new revenue stream for industrial agriculture, for example. It is problematic. It’s a very polluting industry and you could do a whole separate show on industrial agriculture. But it provides a new revenue stream for that polluting industry. But more importantly, the impression in the ads that Northwest Natural runs that say quote unquote “renewable natural gas is on the way home” - the impression is that Oregonians are receiving renewable natural gas in their homes. But that’s not the case.

Northwest Naturals  flagship project partners with Tyson Foods on an agricultural project in Nebraska which captures the methane and the methane stays there in the Nebraska system. Northwest Natural then claims renewable thermal credits which are just basically like an offset program, a carbon offset program. Then in that way, they say that they’re cleaning up their operations. They have a handful of other projects and in total their RNG operations amount to less than 2% of their gas sales in Oregon. And they hope to get to 5% by 2025.

Miller:  Which is, I understand you’re saying, so no renewable natural gas is actually going into Oregon. It’s a financial relationship that is equivalent to carbon credits. But even when you look at the equivalent of the credits, it’s about 2% of the total natural gas or methane used in Oregon?

Cunningham:  Yeah, that’s correct.

Miller:  But the company says that renewable natural gas is ‘on the way home’?

Cunningham:  Yeah, that’s their ad campaign. So that’s ‘on the way home’. And the experts I spoke with say this leaves the impression, misleadingly, that Oregonians are receiving renewable natural gas. And the point of this is that, as I mentioned earlier, there’s a trend towards electrification and electric utilities. Unlike Northwest Natural, which is a gas utility, electric utilities can generate electricity from a variety of sources. It could be hydro, it could be coal, it could be natural gas and it could be renewables. And as policy pushes them to clean up, they can generate more electricity from renewables. Gas utilities have a different problem. Northwest Natural has a spider web of pipelines across Oregon that simply carry gas and they can’t put, for example, solar energy into a gas pipeline. They can only ship gas. And so their advertisements about renewable natural gas, critics say, is sort of a play to justify the existence of their gas pipelines and the expansion of the gas pipelines, which as I mentioned, we need to be winding down fossil fuels, not expanding it.

Miller:  Northwest Natural sent us a statement responding to your article that gets to what you were just talking about. But I want to give you a chance to respond to their response. They said this:

From the Northwest Natural Gas statement:   “Electricity is currently responsible for nearly three times more emissions than gas delivered directly to residential and commercial customers”.

This was a point about electrification and their argument against electrification, if I understand them correctly. What’s your response?

Cunningham:  So you take the example of heat pumps which generate heat and cooling for homes. My understanding is that heat pumps, even when they’re run on electricity that is generated from natural gas, actually use less gas than compared to a home that is using gas in the first place because they’re extremely efficient. Exactly. And the other point, which is arguably a more important point, is that we’re going to be cleaning up the grid as we go anyway. So the electricity system is going to be getting greener as we go. So, assuming that electricity is always going to be produced from natural gas I think is incorrect.

Miller:  You noted that the company has been active in trying to sway public opinion. I mean, obviously the ads we were just talking about are examples of that. But you also said they’ve been active in places like Eugene, which was at the forefront, municipally, in Oregon and trying to ban new gas hookups or gas hookups in new buildings. Is the company asking ratepayers to pay for its political activity?

Cunningham:  Yeah. In some ways they’re asking for rate pairs to cover the costs for some of its correspondence. So, for example, they sent emails out to their own customers asking them to sort of take action and weigh in on climate regulations that were pending at the Department of Environmental Quality, that correspondence that’s seeking recovery from the PUC. Another example is their membership in the American Gas Association, which is a national lobbying group. They’re asking their ratepayers to cover the costs for their dues to the American Gas Association. So that would be baked into our bills. And lobbying is an example that the opponents, in this case, the environmental groups who oppose this rate increase, say is inappropriate.

Miller:  Is it fair to see all of these efforts on Northwest Natural’s part, the advertising, polling encouraging people to fight more regulation on methane. Is this all evidence that the company is extremely concerned about their future?

Cunningham:  Yes, clearly. I think it’s very obvious that they’re concerned about their future. And one example of that is that they have been conducting internal polling quarterly to sort of weigh public opinion to see which way the wind’s blowing. And they ask questions about the public’s opinion on certain climate related policies, how clean the public views natural gas, whether they whether they viewed renewable natural gas as clean and also what their opinion is on bans on new gas connections, which I think is sort of a tip off that they’re very concerned about this growing wave of restricting the growth of the gas system.

Miller:  What’s next in terms of the Public Utility Commissions deliberation and decision about this proposed rate increase?

Cunningham:  This is a very opaque process. It’s mostly obscured from the public. It’s a semi- judicial process. Northwest Natural goes to the PUC. They present a very lengthy legal and technically complicated analysis. The opponents in this case which, in this case, represent a very lengthy list of environmentalists present their analysis and why Northwest Natural is incorrect. There’s a back and forth for the next few months and then in the fall, the PUC kind of makes a decision.

Miller:  And am I right that the PUC’s decision is not going to be based on extreme concern for humanity’s future or for the climate, but rather the narrow ways in which they can either allow or not allow a utility to increase the rates to customers. I mean, their mandate isn’t about climate change, right?

Cunningham:  No. Yeah, that’s right. There’s a variety of law that they have to follow when they’re making this decision. And in some cases it’s very narrow. But, for example, I spoke with Bob Jenks at the Oregon Citizen’s Utility Board. And he talks about how he viewed a lot of these requests as problematic, but he views it through the lens of ratepayers. All depending on climate regulation and policy and the need to cut emissions, That means that the gas system needs to slash emissions roughly in half by 2035. So the growth of the gas system does present economic risks to ratepayers and any growth, he said, “growth harms the system”. So the PUC may not be interested in climate per se, but to the extent that Northwest Natural is trying to grow its gas system does present risks that they would have to take into account.

Miller: Nick Cunningham, thanks very much. Nick Cunningham is an independent journalist covering the oil and gas industry, climate change and international politics. You can read his most recent article in DeSmog.

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