Regulators in Connecticut gave preliminary approval on Wednesday to a plan that would allow three investor-owned utilities to carry out a large-scale expansion of natural gas service throughout the state, adding 280,000 customers over the next 10 years.

The plan targets two types of customers: “on-main,” or those that currently have gas service available on their street but have not yet connected; and “off-main,” those that are interested in gas service but are not close enough to existing facilities to connect.

Under a 65-pagedraft ruling, the state Public Utilities Regulatory Authority (PURA) has proposed making it more economical for the three utilities — Connecticut Natural Gas Corp. (CNGC), the Southern Connecticut Gas Co. and the Yankee Gas Services Co. — to consider the customer conversions, which the utilities estimate will collectively cost them between $8 million and $23 million over the next three years.

“The action today by utility regulators is great news for Connecticut consumers,” Gov. Dannel Malloy said Wednesday. “Part of our plan to provide cleaner, cheaper and more reliable energy is to expand natural gas service to people who are interested in lowering their energy costs. The approval of this expansion and our efforts to increase energy efficiency will mean lower monthly bills, a more competitive posture for our businesses, and new jobs and improved air quality.”

Malloy signed legislation to expand the state’s gas distribution system in July. One month earlier, the three utilities submitted a joint gas expansion plan with PURA and the state Department of Energy and Environmental Protection (see Daily GPI,July 11;June 18).

According to PURA, CNGC and Southern — both units of UIL Holdings Corp. — have proposed converting 29,500 low-use, non-heating customers to heating by 2023. The two utilities would also add 113,700 on-main customers, plus 54,000 off-main customers, by that time.

Meanwhile, Yankee, a subsidiary of Northeast Utilities, has proposed converting 10,000 low-use customers to heating by 2023 and adding 41,296 on-main customers and 31,125 off-main customers.

“The companies have the challenge of adding approximately 280,000 new customers in the next 10 years, on average approximately 28,000 a year; significantly greater than normal,” PURA said. “An incremental ‘business-as-usual’ approach will only build upon the less-than-optimum existing processes and not maximize the potential opportunity at hand.”

The proposal includes a new hurdle rate model designed with a 25-year payback period, with no requirement to run a hurdle rate test for customers that are less than 150 feet from an existing main. There would also be a “portfolio view” approach to hurdle rate modeling projects in a common geographical area.

“The portfolio view approach includes three to five years of forecasted revenues in the hurdle rate analysis to capture anticipated customer conversions not initially supported by firm commitments at the time of signing, and an adjustment to the imputed revenues in the hurdle rate model to account for ‘societal benefits’ of limited expansion projects,” PURA said.

The plan calls for a three-tiered system expansion rate, over a 10-year term. Beginning Jan. 1, a 10% premium would be applied to all new on-main customers. There would be a 20% premium for all new off-main residential customers, and a 50% premium for all new off-main commercial, industrial, and multi-dwelling residential facilities.

The three utilities said they plan to acquire additional capacity from three sources:

? Long-term agreements from two pipeline expansion projects: the Tennessee Gas Pipeline (TGP) Connecticut Project and the Algonquin Gas Transmission (AGT) AIM Project, both of which are due to be in-service by Nov. 1, 2016 (see Daily GPI, Oct. 30);

? Expansion of the daily output from existing liquefied natural gas (LNG) facilities connected to the CNGC and Southern systems, also to be in service by Nov. 1, 2016; and

? Use of some existing capacity on the Iroquois Gas Transmission system.

Several municipalities, as well as the Connecticut Construction Industry Association (CCIA), support the expansion plan. According to PURA, the agency received letters of support from Darien, East Hampton, Ellington, Ledyard, Stamford and Wilton, as well as the CCIA during the public comment period.

Conversely, the Connecticut Energy Marketers Association and the Propane Gas Association of New England told PURA the plan would put them at a competitive disadvantage. Another group, Competitive Natural Gas Suppliers, urged state regulators to be cautious not to harm market competitiveness.

PURA will accept written comments on the proposal until Nov. 12 and will hear oral arguments on Nov. 14. The agency plans to issue a final ruling on Nov. 21.