More gas utility operators are taking steps to incorporate renewable natural gas into their distribution systems, a review of quarterly earnings conference calls showed.

Previous reviews by S&P Global Commodity Insights have documented the expansion of existing renewable natural gas, or RNG, programs and strategies by several local gas distribution companies. Executive commentary during the latest reporting period illustrated how the push to invest in the alternative fuel is broadening to a wider group of gas distributors.

Executives at DTE Energy Co., which develops RNG production facilities through an unregulated subsidiary, took note of the rising interest from fellow utility operators. "As we're seeing more [local gas distribution companies] put RNG goals into their system ... it feels like [demand is] going to be rising," DTE CFO David Ruud said during an April 28 conference call.

As the initiatives ramp up, some utilities reported resistance from state regulators over the cost and prudency of RNG investments.

But there is a strong incentive for gas utilities to persist. RNG is processed from methane waste at farms, landfills and other sites. That creates an opportunity for local gas distribution companies to reduce carbon intensity and preserve a role for their infrastructure through the energy transition.

Northeast local gas distribution companies pursue RNG frameworks

Eversource Energy will seek to initiate an RNG program in Massachusetts as part of its proposal to align its business with the state's climate goals, Eversource President and CEO Joseph Nolan said during a May 5 conference call. The company put forward the proposal in March as part of an ongoing proceeding into decarbonizing the gas grid at the Massachusetts Department of Public Utilities. (20-80)

Eversource plans to work with policymakers and regulators to develop frameworks to facilitate RNG uptake, according to the filing. The company requested that the department allow utilities to identify ways to accommodate customers that want to procure RNG and to recover the cost of RNG purchases and infrastructure investments.

Assessing the market for RNG produced within Massachusetts and outside the state will be critical, Eversource said, noting that New England has limited access to RNG feedstocks. Following a 2020 request for information about potential in-state RNG opportunities, Eversource is exploring an opportunity to source the fuel from a landfill.

Fellow New England gas distributor Unitil Corp. has evaluated RNG supply opportunities as the New Hampshire legislature advances a bill that would allow cost recovery for RNG purchases and infrastructure investment, executives said on a May 3 conference call. Under New Hampshire Senate Bill 424, the state would allow RNG to account for up to 5% of utilities' total annual gas volume deliveries.

Unitil recognizes an opportunity to prove out the economics of RNG, Unitil Chairman, President and CEO Thomas Meissner told Commodity Insights at the American Gas Association's Financial Forum on May 18. The company believes those economics are better than many policymakers think, and demonstrating that could prompt them to increase the cap on RNG purchases, the CEO said.

Such evidence would also help Unitil in the debate over restricting natural gas use in buildings, Meissner said. Some progressive communities that support gas bans do not understand that RNG supplies can be carbon negative, the CEO added.

"It's a great opportunity to start engaging in those conversations and explain to them what our long-term pathway is to meet our decarbonization goals," Meissner said.

Regulatory resistance in Michigan

Executives at Michigan multi-utility CMS Energy Corp. highlighted on a May 3 call their plan to add RNG to the Consumers Energy Co. distribution system. The effort would help Consumers Energy achieve net-zero greenhouse gas emissions in its gas grid by 2050 and a 20% reduction in customer emissions by 2030, the executives said.

In its latest gas rate case, Consumers Energy asked to recover the cost to build, own and operate an RNG production facility at a dairy farm in Michigan. Consumers Energy would flow the RNG into its system and use renewable fuel credits generated by producing RNG to reduce the project's revenue requirement.

However, Michigan Public Service Commission staff did not support the proposal. (U-21148) Staff said the project presents unnecessary risk to ratepayers and is not part of Consumers' core regulated business. In particular, staff worried that fluctuating prices for renewable fuel credits and potential changes to federal and California credit markets could limit Consumers Energy's ability to offset the project's cost.

CMS President and CEO Garrick Rochow said the company is seeking to mitigate staff's concerns.

Other regulators have voiced concern over the industry's reliance on the federal and California renewable fuel credit markets to offset RNG's cost premium over standard natural gas.

National Fuel Gas Co. President and CEO David Bauer told Commodity Insights that a New York credit market would give him greater confidence in making RNG investments. Eversource also said a regional market would help support RNG uptake.

Some local gas distribution companies pursue voluntary RNG programs

Some gas utilities have opted to pursue voluntary RNG tariffs instead.

Black Hills Corp. planned to file for RNG tariffs in Colorado, Kansas and Nebraska that would give customers the option to replace all or part of their gas consumption with biogas or RNG. The tariffs would give the company's agrarian customers a pathway to achieving their own company and community sustainability goals, Black Hills President and CEO Linden Evans said during a May 5 conference call. The tariffs would also give Black Hills "a launching pad for future RNG opportunities through our Midwest territory," Evans said.

NiSource Inc. filed in Pennsylvania and Virginia for the approval of opt-in programs that would allow customers to reduce the carbon intensity of their gas use with RNG and carbon offsets, President and CEO Lloyd Yates said on a May 4 conference call. (R-2022-3032167, PUR-2022-00036) The company has since filed in Maryland. (9680) Under the programs, certain customers would be able to offset their carbon emissions by either 50% or 100%.

The proposals are part of the company's plan to "further develop and outline our long-term energy plan for the future across NiSource," the company said in an email.

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