A city council meeting in Eugene, Ore., produced mixed results for Northwest Natural Holding Co., as lawmakers moved to resolve a dispute with the gas utility operator, but signaled they would soon consider restricting gas use and infrastructure expansion.

The Eugene City Council passed a motion June 16 authorizing city staff to advance a compromise agreement with Northwest Natural that would end a standoff over a franchise renewal. Yet several councilors also said it was time to resume talks on previously identified climate policies to regulate gas distribution in Eugene and transition buildings to electricity and renewable energy.

Northwest Natural has been waging a campaign to stave off building electrification in Oregon, as local governments in neighboring Washington and California prohibit gas use in new buildings. The company's gas utility Northwest Natural Gas Co. accounts for 90% of its net income and mostly serves an area of western Oregon running from Portland to Eugene.

In 2018, the Eugene Sustainability Commission asked city council to direct staff to explore Eugene's authority to regulate natural gas service. A city-commissioned gap analysis studied the potential for 12 building decarbonization policies to address outstanding carbon emissions and help Eugene achieve its climate goals and targets for reducing fossil fuel use by 2030. Those options included restricting new gas hookups and infrastructure, banning incentives for gas utility service and gas-fired appliances, and levying a fee on Northwest Natural to transition gas customers to electric heating.

Closing the gap

At the June 16 meeting, at least half of Eugene's eight-person city council and the mayor expressed support for holding a work session to revisit the gap analysis and consider the policies.

"I'm wondering what oversight we have as a municipality to provide guardrails for the fossil fuel industry to voluntarily reduce emissions," Councilor Matt Keating said. "That's what I would like our work session to explore — what we can reasonably and legally do to meet our carbon reduction goals, provide proper oversight and transition off of fossil fuels for the future of our planet."

Councilor Claire Syrett said the council will have to grapple with the idea of prohibiting natural gas infrastructure in new developments, though she doubted Eugene residents are ready for that conversation. She nevertheless said the council should challenge itself to address the topic, perhaps before the end of the year.

Councilor Emily Semple said her biggest concern was the continued expansion of gas infrastructure, despite the city's adoption of science-based climate targets. "I would like to have a work session on the possibilities of what we could do about infrastructure. I think enough people have been clamoring for it long enough," she said.

A coalition of environmental groups called Fossil Free Eugene has recently demanded that the city place a moratorium on new fossil fuel infrastructure construction and require all utilities to transition to 100% renewable energy by 2030. It also wants Eugene to levy a fee on carbon emitters that would fund gas-to-electric conversions for low-income and marginalized communities. The Eugene Sustainability Commission and the Democratic Committee of Lane County have recently endorsed the demands. Eugene is located in Lane County.

"I think today was a huge win in that our council is recognizing the fact that this voluntary agreement that they might make with a fossil fuel corporation isn't going to be enough," Dylan Plummer, a grassroots organizer with Cascadia Wildlands, said. "And so hearing a majority of council discuss the need for a work session to explore more regulatory approaches and to look at data-driven approaches to limiting fossil fuel emissions in our city is really heartening."

The Eugene Sustainability Commission has consistently urged city council to make a decision on the policies presented in the gap analysis, arguing that Eugene should be using data to select the most affordable and expedient decarbonization pathways. "I was very heartened by many of the councilors' statements in support of being serious about meeting our goals and promises made to reach those goals," Commission Chair Zach Mulholland said in an interview. "I'm overall happy with the fact that we're getting the ball moving on the gap analysis."

Eugene and Northwest Natural reach compromise

Since 2019, the Eugene City Council has instead focused on negotiating a plan with Northwest Natural that would collect 2.5% of the utility's annual sales revenues. That would have mostly funded energy efficiency investments to help Eugene meet its emissions and fossil fuel reduction goals.

But talks hit an impasse in February, prompting the city council to allow Northwest Natural's franchise to lapse on May 12. The franchise gives utilities blanket permission to conduct routine infrastructure work within the city's right of way. In return, the company has paid 5% of its gross annual revenues to Eugene since 1999, generating about $1.4 million per year for the city in recent years, according to the city.

At the June 16 work session, the city manager presented an alternative. Northwest Natural would make two carbon reduction investments of at least $900,000 each over four years, utilizing a program established by the state legislature in 2013. The city and Northwest Natural would separately enter into a four-year franchise agreement that increases the franchise fee to 6% in the first two years and 6.5% afterward. Previously, they considered a 10-year franchise with a smaller fee increase.

Northwest Natural clarified that its goal is to develop a two-year pilot that both parties support, after which the parties will assess the program's performance and any needed changes before the company files for a second cycle of investments. The company would aim to file for a second two-year investment, provided the pilot was successful and the Oregon Public Utility Commission approved a second filing, according to Northwest Natural public information officer Stefanie Week.

City council voted 6-2 in support of a motion authorizing the city manager to negotiate the new franchise and emissions reduction program, with a focus on energy efficiency for low-income residents.

Northwest Natural Senior Vice President of Operations Kim Heiting said the company was pleased that the council supported the approach. Eugene and Northwest Natural had been at loggerheads over the city's plan to make the franchise renewal contingent on climate-related measures.

"This decision is a win for collaboration and a drive to innovative solutions that help reach climate goals in the fastest, most affordable and reliable way possible. Our focus now is to work with the city to get those positive results for our customers and the community," Heiting said in an email.

Syrett said the increased franchise fee could allow the city to start a just transition fund and facilitate fuel switching. Mayor Lucy Vinis added that she saw the compromise agreement as being aligned with the city's goals, but said the plan alone would not achieve those goals. She said it was important to keep the door open to the gap analysis proposals.

Asked whether efforts to electrify its load would prompt the company to exercise the franchise's termination clause, Northwest Natural did not directly respond. The company previously objected to the city using funds collected through a carbon reduction fee for electrification initiatives. The company had also sought a clause that would allow it to terminate the carbon agreement if Eugene, any city in its service territory, Oregon or the federal government restricted or prohibited gas utility service.