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Malloy's savvy move toward natural gas

Published October 08. 2012 4:00AM

The administration of Gov. Dannel P. Malloy seeks to move Connecticut in the right direction with its plan to encourage the conversion of many businesses and homes in the state to cleaner and cheaper natural gas. The natural gas proposal is the centerpiece of the state's new Comprehensive Energy Strategy, released in a draft form on Friday.

"Our challenge is to give our residents and our businesses a choice - the option to choose cost-effective opportunities to convert to natural gas for heating and to run appliances and equipment," Gov. Malloy said in addressing the Connecticut Business and Industry Association's Business Energy Conference.

The high cost of energy in Connecticut has long stood as one of the greatest impediments to economic growth. Large increases in the availability of domestic natural gas supplies, due largely to the accessing of shale gas, provide the opportunity for Connecticut to drive down energy costs. While no such shale gas deposits appear to exist in Connecticut, the nation's largest reserves of this gas, the Marcellus Shale, is located in nearby New York and Pennsylvania.

Natural gas is now far cheaper than oil and all indications are that gap will only widen in the coming decades. It now costs about half as much to heat a home with natural gas as it does with oil. As the governor noted that means the heating bill for an average natural gas customer is about $1,600 annually, compared to $3,400 for family using heating oil for warmth. Natural gas also has the potential to cleanly and economically fuel large fleets of retrofitted vehicles - taxies, buses, delivery trucks and the like.

According to the Energy Information Administration, natural gas produced by drilling in shale formations will grow from 25 percent of the market today to about 50 percent by 2035, keeping prices low.

Yet Connecticut is not now in a position to take advantage of the tectonic change in energy markets. Only about 31 percent of homes in Connecticut use natural gas, compared with about half the homes in neighboring Massachusetts and Rhode Island, 72 percent in New Jersey and 53 percent nationally.

The energy plan announced Friday seeks over the next seven years to make natural gas available to upwards of 300,000 additional Connecticut homes and businesses, bringing Connecticut in line with the national average. The administration would like to fast track 217,000 customers that are on gas mains now but not heating with gas. It also proposes installing about 900 miles of new gas mains with an emphasis on access to large users - including factories, hospitals and educational institutions.

The plan envisions commercial customers using natural gas growing from 35 percent to 75 percent and the industrial sector from 50 percent to 75 percent.

Thankfully, the administration's plan seeks to largely utilize the private sector, and historically low-interest rates, to drive this expansion, as opposed to driving up state indebtedness.

The average residential natural-gas conversion cost of about $7,500 could be repaid as part of the monthly gas bill, with financing (expected to total $3 billion) provided by the banks and capital markets, which recognize that defaults when loans are paid through utility bills are extremely rare. Even with the repayment included in the bill, an average household could expect $800 savings per year, according to the administration's estimates.

The $815 million required to connect those on or near gas mains would be financed by the gas companies. Less clear is how the $1.4 billion in expanded gas mains would be paid for, though the governor in a conference call told us he expected the bulk of that money will come through the private sector (though the plan also refers to bond funding).

In addition to long-term energy savings and reduced carbon emissions, the move to natural gas would create thousands of construction, technical and other related jobs.

While only one portion of the comprehensive energy plan, it is a portion to get excited about.

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