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Utah Drops CNG Subsidy, Opens Up Market

The popularity of natural gas vehicles (NGV) in Utah may take a hit this summer when the price of the fuel, which had been subsidized for nearly 20 years, will be allowed to rise to reflect its actual cost.

A recent decision by the Utah Public Service Commission in a Questar Gas rate case (07-057-13) calls for the removal of the subsidized rate for compressed natural gas (CNG), which had remained at a gasoline equivalent of 80 cents per gallon. That price will rise July 1 to reflect the actual costs of the fuel, which the Commission has estimated at a gasoline-equivalent price of about $1.43 per gallon.

All parties to the rate case generally agreed the price of CNG vehicle fuel should not be subsidized by other utility customers, especially since CNG sales are not a traditional utility service. The rate had originally been set in a 1989 case to recover some of the costs of compressing the fuel and had not been reexamined since.

With the high gasoline prices in the past year demand for CNG-powered cars had increased exponentially and Questar, which operates 21 refueling stations (19 in Utah and two in Wyoming) has had trouble providing enough fuel.

“The dramatic increase in the number of NGVs is putting a strain on existing NGV fueling stations,” Questar said in a note on its website to CNG customers. “Existing stations that have provided adequate service for years are not able to keep up with the increased demand. In some cases, NGV owners aren't able to completely fill up their tanks with natural gas due to the lower pressures caused by the heavy demand.”

Questar said the economic feasibility of owning and operating the refueling stations “is complicated by the current high demand, the limited availability of new compressors and tanks to add new stations or improve existing stations, and the lack of new NGVs.” The company supported the commission's decision to remove the subsidy.

The company said it expects the cost of CNG to go higher than the public service commission estimates to also cover the cost of building new refueling capacity. Currently there are about 6,000 NGVs operating in the state, Questar estimates.

There is only one dedicated NGV, the Honda Civic GX, that is currently manufactured. Conversion kits are available, however, and regular cars have been converted, both legally and illegally, which makes it difficult to estimate their numbers.

In arguing for an end to subsidized rates, consumer groups said that because Questar has been able to charge an artificially low subsidized rate, no other private business can get into the market and compete. Allowing the Questar CNG rate to achieve a market level, besides enabling others to get into the business, will give NGV owners and prospective owners a clear picture of the actual costs of operation, they said.

Now that the rate case is completed, the Utah commission plans to open a new docket for a broad policy discussion of the role natural gas will play in the future as a vehicle fuel source and how best to balance the supply-demand paradigm.

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