[BETA] Fortnightly

According to the Natural Gas Vehicle Coalition (em a national organization of local natural gas distributors, pipelines, and equipment manufacturers promoting natural gas vehicles (NGVs) (em the U.S. government supports our country's continued reliance on petroleum-based fuels for transportation through billions in subsidies and tax incentives. A new study by the Domestic Fuels Alliance claims that the amount of total subsidies could reach $300 billion if one considers the Persian Gulf War a "hidden cost for petroleum." The Coalition's point, however, is that the petroleum industry is trying to hinder the development of NGVs to the detriment of U.S. air quality and energy independence.

A different version of this publicity battle over subsidies and unfair trade practices has been playing out before state regulatory commissions for some time now. Natural gas local distribution companies (LDCs) have been seeking ratepayer funding of vehicle refueling facilities and promotional rates for gas supplies. The California Public Utilities Commission (CPUC) has moved from unfettered promotion of low emission vehicles (LEVs), to a more restricted approach under a new law that prohibits use of ratepayer funds for activities not directly related to utility service. The CPUC's shift might reflect the direction regulators will be forced to take where energy prices are under pressure. The move toward a more competitive environment in both the gas and electric industries has reinforced the argument that utility rates can no longer carry the burden of broad social policy objectives.

Nevertheless, other state commissions have approved experimental NGV programs. Massachusetts has concluded a major generic investigation of NGV programs and approved some funding of incentives for market development. While not often faced with programs as ambitious as those initiated by California utilities, regulators across the country have generally kept programs experimental and designed measures to ensure that ratepayers are protected from most program costs (see box on p. 44).

California (em Smog Drives NGV Rate Debate

In 1991, the CPUC authorized Pacific Gas and Electric Co. (PG&E) to establish a ratepayer-funded program designed to achieve "substantial market penetration" of motor vehicles fueled by compressed natural gas. PG&E's program included both vehicle and refueling station incentives and subsidies. The utility claimed that the incentives should result in the market becoming self-supporting after 1995. Re Pacific Gas and Electric Co., 124 PUR4th 107 (Cal.P.U.C.1991).

In its decision, the CPUC cited growing concern over air quality and increasing energy imports. Given consumer indifference, the low cost of gasoline, the lack of oil company participation, and the lack of financial incentives, the CPUC found it unlikely ("practically nil") that an NGV industry could survive without some form of initial public assistance.

The CPUC noted that the state legislature had directed it to encourage gas and electric companies to develop and market the LEVs. As part of the mandate, the legislature authorized charging program costs to ratepayers under certain conditions. The state law permitted ratepayer funding for investment in infrastructure, such as refueling stations, but also asked the CPUC to determine whether the program was in the ratepayers' interest. Further, the legislation outlawed using low-cost fueling tariffs