Takeaways
- Line extension allowances—the term of art for the utility customer-funded subsidies for new gas pipes—are finally, slowly on their way out of Cascadia, as the economic logic behind these perverse subsidies for new gas infrastructure crumbles.
- As more people leave the gas system for cleaner, healthier electric alternatives, line extension allowances threaten to add hundreds of millions of dollars’ worth of stranded gas assets across the region—costs that customers stuck on the gas system could end up paying for.
- And line extension allowances, which make increasing emissions cheap and attractive, directly undermine the goal of Cascadia’s strongest climate policies, which seek to decrease emissions by making them more expensive.
- Regulators in Oregon and Washington have nearly eliminated all line extension allowances, but the subsidies persist across the rest of Cascadia, costing legacy gas customers millions and undermining climate progress.
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Line extension allowances—the term of art for the utility customer-funded subsidies for new gas pipes—are finally, slowly on their way out of Cascadia. This is thanks to regulators who recognize the contradiction of, on the one hand, utility customers subsidizing the proliferation of carbon-intensive gas infrastructure and use, and on the other, utilities’ obligations to reduce their carbon emissions over time—to say nothing of the general need to protect customers from the high costs of future stranded assets and bloated energy bills.1
On January 1, 2025, two Washington state utilities, Avista and Puget Sound Energy (PSE), fully eliminated costly line extension allowances—a first in Cascadia. And Oregon regulators have put Avista and NW Natural on a schedule to ratchet down their allowances annually and ultimately eliminate them in 2027. Similar phaseouts are in the works for Cascade Natural Gas’s gas infrastructure subsidies in both Oregon and Washington.
Still, regulators have not yet done away with the line extension allowances offered by the 11 other gas utilities across Cascadia, including three in Oregon and Washington. And as more customers every year choose to reduce their gas use or go fully electric, for financial or health or climate reasons, they’re leaving a shrinking number of customers on the hook for paying off those gas pipe extensions over time. Plus, new evidence suggests gas utilities that are getting rid of line extension allowances may have overcharged customers already, on the order of millions of dollars in excess of allowed amounts.
Regulators across the region can do away with these costly subsidies to obsolescing fossil fuel-based systems once and for all (something California regulators did in 2023). And they can do one better by investigating utilities’ possible overcharges to customers to fund these subsidies.
The old logic: Endless gas expansion, funded by ratepayers
Line extension allowances, as Sightline wrote about in 2023, were once a good deal for both new and existing gas customers—that is, before the world learned of the incontrovertible evidence about the climate and health hazards of burning gas in homes. Without the subsidies, a developer or homeowner could expect to pay thousands of dollars to connect their building to a gas distribution pipeline. So, regulators allowed utilities to subsidize the cost of installing new gas service lines, a cost utilities then recouped by adding them to their “rate base.”2
Financing these subsidies though a rate base works like a home mortgage. Every month ratepayers pay back to the utility some of the original investment plus an interest charge (i.e., profit for the utility). Once the investment is fully paid off (say, in 50 or 60 years for a gas service line), the amount ratepayers have paid is many times the original subsidy amount. In Oregon and Washington, the total cost of line extension allowances over the depreciation life can be four to ten times the initial subsidy price.3
In Oregon and Washington, utilities will roll into the rates they charge their customers roughly $91 million in costs for gas line extension allowance offered in 2022-23 alone. Sightline estimates that figure balloons to more than $570 million over the new pipelines’ “book life” when accounting for utility profits, taxes, and operational and maintenance expenses.4,5 In British Columbia, FortisBC padded its rate base with an estimated C$139 million in line extension allowances in 2022–23, which will cost British Columbians more than C$1.5 billion over the 60-year book life of these assets.6
Historically, existing customers of a utility benefited from this arrangement, even though they were footing the bill for the subsidy. That’s because more total gas customers meant further spreading out the costs of maintaining expensive pipeline infrastructure, which lowered everyone’s bills.
But as Cascadians opt for reliable electric appliances like heat pumps for heating and cooling and induction stoves for healthier indoor air while cooking, the economic logic behind line extension allowances crumbles.
As more people opt for electric appliances, subsidizing gas expansion makes less sense
More and more people are opting for electric appliances when they can, dialing back their usage or leaving the gas system altogether. They’re spurred on by federal and state incentives, a desire for healthier homes and workplaces, and concerns around climate pollution from burning gas in homes. In 2023, Cascadian utilities added 29 percent fewer new gas customers than they did in 2020. In Oregon and Washington, that figure is even higher: utilities added 36 percent fewer new customers over that same time period.7
The region’s gas utilities are still adding customers, but fewer over time, even for utilities that offer line extension allowances. These additions are likely to slow further as energy- and cost-efficient building codes and other forward-looking policies help customers who wish to cut gas from their everyday lives.
Indeed, PSE, Washington state’s largest utility, saw its 2023 levels of annual customer gas use dip below 2019 levels, even when adjusted for yearly temperature differences. It was these declines—and the anticipation of a loss of gas customers—that led the utility to work with state lawmakers to pass HB 1589 in early 2024. The law was intended to help the company plan for a transition of its customers off the gas system. (Washington state ballot initiative 2066 partially repealed HB 1589 in November 2024.)
In this likely future of accelerating gas customer attrition, today’s line extension allowances only worsen tomorrow’s crisis of millions of dollars’ worth of stranded gas assets. If new customers incentivized to join the gas system by line extension allowances opt to shut off their gas a few years later, the gas infrastructure that served them will not have been paid off yet—not by a long shot—by those customers or the ones left on the gas system.
Climate policies or no, ratepayers face hundreds of millions of dollars in stranded assets
Customers in places that have committed to reducing their carbon emissions may sooner opt for electric as they take advantage of policies that help them transition off gas. Sightline estimates that if the new gas users who hooked up to gas in 2022 and 2023 quit the gas system by 2050, utilities in British Columbia, Oregon, and Washington will grow their stranded asset risk by $662 million.8 And financial responsibility for these stranded assets, ultimately, falls to remaining ratepayers.9
While the stranded asset risk may not arrive so soon in places lacking any statutory obligation to reduce carbon emissions, line extension allowances are every bit as expensive for ratepayers in those states, if not more. That’s because Alaska, Idaho, and Montana gas utilities offer even more generous incentives for system expansion than utilities in the rest of Cascadia. (Most of these utilities require existing ratepayers to foot the entire bill for new customers joining the system.) And gas customer growth is slowing down in these states as well: 19 percent fewer new gas customers connected to the system in 2023 compared to 2020, suggesting that growing consumer preference for electric appliances is just as real in these three states.10
Put simply, costly line extension allowances proliferate and subsidize soon-to-be-obsolete gas infrastructure, which people facing the highest barriers to getting off gas—think renters and low-income households—will have to pay off in their monthly utility bills for decades.
The challenge to energy affordability that line extension allowances poses is even worse in areas of Cascadia with a price on carbon. Gas consumers in these places (British Columbia, Oregon, and Washington) pay twice when new gas customers join the gas system—first to extend the pipes to serve these new customers and second to pay for carbon allowances or taxes to cover the new customers’ carbon emissions.
In Oregon and Washington, the law requires gas utilities to purchase carbon allowances to pay for the pollution from new customers, unless the companies reduce their own emissions in line with state targets.11 Utilities then pass along the cost of purchasing allowances to their customers. While gas utilities in these states receive some free carbon allowances, those freebies do not increase as utilities add customers, and they ratchet down over time to encourage gas utilities to decarbonize.
Washington’s gas utilities have each indicated that their preference for compliance is, by and large, to purchase allowances and pass along the costs to customers rather than reduce company emissions through electrification. Oregon utilities, too, are planning to rely heavily on purchasing “Community Climate Investment” credits, which work like allowances—a cost they, too, would then transfer to customers.12
Eliminating line extension allowances spares present-day gas customers having to pay for the carbon pollution associated with would-have-been new customers. For example, that 36 percent fewer new gas customers getting added to the rolls in 2023 versus 2020 in Oregon and Washington? That meant gas customers in those states were spared having to pay for an estimated $5.25 million in carbon allowances in 2023, whose cost their utilities would have turned around and added to their bills.13 Once utilities fully end their line extension allowance programs in these states, new gas customer growth will slow further, delivering more savings for existing gas customers.
British Columbia also puts a price on carbon. But unlike a growing number of utilities in Oregon and Washington, British Columbia’s major gas utility, FortisBC, offers a line extension allowance that makes extending the pipeline nearly free for new customers, a cost again borne by existing ratepayers.14 If BC officials want to accelerate emissions reductions in line with the province’s climate goals and keep gas bills in check for British Columbians, they would be smart to harmonize these two incongruous policies: one that makes increasing emissions cheap and attractive, and one that seeks to decrease emissions by making them more expensive.
Oregon and Washington lead Cascadia in phasing out perverse incentives, but regulators can stamp them out for good
Utility regulators have phased out line extension allowances at four of the seven gas utilities in Oregon and Washington, which service 83 percent of gas consumers in the two states. (See Appendix 1 for the status of line extension allowances in each state and province of Cascadia, by utility.) In summer 2022, Washington regulators took up line extension allowances in the general rate cases of both Puget Sound Energy and Avista, zeroing out the subsidies effective January 1, 2025.
Later in 2022, Oregon regulators reformed NW Natural’s line extension allowance, ratcheting it down by 20 percent annually for three years. And since Sightline last wrote about this topic, Oregon regulators put a sunset date on the subsidies for both Avista and NW Natural, effective January 1, 2027, and November 1, 2027, respectively. Oregon regulators also seem poised to phase out the last of the gas line extensions in the state, according to a recent order for Cascade Natural Gas.15
Cascade Natural Gas is in the final stages of its general rate case in Washington. If the commission approves a proposed settlement agreement, line extension allowances for the utility will be phased out entirely by March 1, 2027.16 Washington regulators would be smart to open a proceeding to eliminate NW Natural’s line extension allowance, thus ending the gas infrastructure subsidies across the state.
In addition to eliminating the allowances, regulators in both states can investigate unauthorized overspending for line extension allowances. Consumer advocate Oregon Citizens’ Utility Board (CUB) estimates that NW Natural overspent on line extension allowances by more than $16 million between 2018 and 2023. Using similar methodology, Sightline estimates Avista may have overspent on line extension allowances by more than $2.4 million between 2017 and 2022.17 Gas customers foot the bill for this overspending. If utilities have subsidized pipeline extensions in excess of approved levels, regulators can remove those expenditures from the rate base, saving customers money.
For all the reforms underway in Oregon and Washington, other places in Cascadia have yet to start phasing out line extension allowances. The eight gas utilities in Alaska, British Columbia, Idaho, and Montana continue to offer these costly subsidies to encourage expansion of the gas system—a system that customers are shifting away from—and that those stuck on gas will likely have to pay for.
Ending line extension allowances is a win for the climate and consumers
Affordability is top of mind for households across Cascadia, and leaders are eager to reduce energy costs. For decades, gas consumers have been paying to grow the gas pipeline system. This pursuit is now at odds both with consumer trends and preferences and with the climate-protective policies on the books in much of Cascadia—even as that gas system expansion is costing residents and businesses millions of dollars.
Regulators can examine the new economics of the region’s energy system, accounting for the costs of carbon emissions, declining gas use, and mounting customer attrition, to justify eliminating gas line extension allowances all across Cascadia. Doing so will not only result in immediate savings from ending the subsidies but also help Cascadia achieve its climate goals.
Editor’s note: The estimate for Avista’s overspending has been corrected due to a calculation error. The previous amount, $3.4 million, was erroneously calculated using line extension allowance equal to one times the annual revenue. However, the Avista tariff allowed for a line extension allowance equal to three times the annual revenue. Using the correct multiplier, the overspending is estimated to be $2.4 million.
Appendix 1
Line extension allowances by utility
| Utility | Subsidized amount of new gas connections as of January 2025 Line extension allowance |
| Alaska | |
| Enstar Natural Gas | Full cost of gas line extension, less $1,082 contribution from customer |
| Interior Gas Utility | Full cost of gas line extension, less $225 deposit from customer |
| British Columbia | |
| FortisBC | Full cost of gas line extension, less C$15 deposit from customer |
| Idaho | |
| Avista | Full cost of gas line extension |
| Intermountain Gas | $1,032 |
| Montana | |
| Energy West Montana | Full cost of first 100 feet onto property |
| Montana-Dakota Utilities | Full cost of gas line extension |
| NorthWestern Energy | $890 |
| Oregon | |
| Avista | $1,250 (will be reduced to $0 by Jan. 2027) |
| Cascade Natural Gas | Full cost of first 40 feet onto property |
| NW Natural | $1,725 (will be reduced to $0 by Nov. 2027) |
| Washington | |
| Avista | $0 |
| Cascade Natural Gas | $1,560 (may be reduced to $0 by Mar. 2027, pending Washington Utilities and Transportation Commission order) |
| NW Natural | $2,875 |
| PSE | $0 |
Source: Utility rate schedules, data as of January 1, 2025.
Note: Actual costs of a line extension differ depending on variables such as length of line extension, pipe installation technique, composition of fill surrounding the service line, size of service, and prevailing construction costs in an area. Sightline estimated the line extension allowances above based on average household (residential) gas usage.
Appendix 2
Methodology: Calculating the lifetime cost estimates of line extension allowances issued in 2022–23
Lifetime costs of line extension subsidies were computed adapting models created by John Barrett of Oregon CUB for the Avista and NW Natural rate cases before the Oregon Public Utility Commission. These models estimated the annual depreciation, taxes, operational/maintenance (O&M) costs, and utility profits of an average line extension allowance over a 60-year time horizon (an estimate of the typical life of a new service). The value of each line extension subsidy was entered into the model and depreciated at an annual rate. The undepreciated value of the asset was used to calculate property taxes and profits for each year. Profits were, in turn, used to compute federal and state taxes due. Annual O&M costs were added to these other costs to yield a total annual cost to customers for the subsidy.
Average line extension allowance: The value of line extension allowances in 2022 and 2023 was sourced from general rate cases and other regulatory proceedings before the British Columbia Utilities Commission, the Oregon Public Utility Commission, and the Washington Utilities and Transportation Commission.
Depreciation rate: Book life estimates for the distribution service lines, meters, and house regulators were sourced from each utility’s most recent depreciation study.
Tax rates: The model included state/provincial, federal, and property tax rates as well as other miscellaneous taxes that affect revenue, sourced from most recent general rate cases.
Operational/maintenance (O&M) costs: Sightline used a flat $80 annual cost per line extension across all utilities analyzed. This figure matches the values used in the Oregon CUB analysis for Avista and NW Natural. Annual O&M costs include meter reading, meter accuracy testing, leak surveillance, customer service, billing, supporting information technology, emergency response, and other miscellaneous O&M activities associated with a service line and its customer(s).
Utility profits: The model used each utility’s regulated weighted cost of equity and debt from its most recent general rate case.
Model inputs
| Utility | Average line extension allowance in 2022–23 | State tax rate | Federal tax rate | Misc. tax rate | Depreciation rate | Weighted cost of equity | Weighted cost of debt |
| Avista (OR) | $6,409 | 7.6% | 21% | 3.1% | 2.0% | 4.8% | 2.5% |
| Avista (WA) | $2,143 | 0% | 21% | 4.4% | 2.0% | 4.8% | 2.5% |
| Cascade (OR) | $2,000 | 7.6% | 21% | 3.1% | 3.1% | 4.7% | 2.4% |
| Cascade (WA) | $1,579 | 0% | 21% | 4.9% | 2.6% | 4.7% | 2.5% |
| FortisBC | $6,700 | 37% (across all 3 tax categories) | 2.4% | 3.4% | 2.8% | ||
| NW Natural (OR) | $2,300 | 7.6% | 21% | 2.7% | 1.7% | 5.0% | 2.1% |
| NW Natural (WA) | $2,875 | 0% | 21% | 4.2% | 1.7% | 4.6% | 2.2% |
| PSE | $1,736 | 0% | 21% | 4.8% | 2.0% | 4.8% | 2.7% |
Model outputs
| Utility | Average line extension allowance in 2022–23 | Line extension allowance cost with taxes/profit over 60 years (asset lifetime) | Number of customer additions 2022–23 | Line extension allowance total cost with taxes and profits over 60 years (asset lifetime) for LEA issued 2022–23 |
| Avista (OR) | $6,409 | $23,892 | 1,121 | $26,782,932 |
| Avista (WA) | $2,143 | $12,092 | 3,332 | $40,290,544 |
| Cascade (OR) | $2,000 | $10,541 | 2,925 | $30,832,425 |
| Cascade (WA) | $1,579 | $16,118 | 4,480 | $72,208,640 |
| FortisBC | $6,700 | $22,069 | 69,708 | $1,538,368,371 |
| NW Natural (OR) | $2,300 | $15,431 | 11,522 | $177,795,982 |
| NW Natural (WA) | $2,875 | $15,211 | 4,340 | $66,016,282 |
| PSE | $1,736 | $10,980 | 14,268 | $156,662,640 |
Note: Sightline was unable to find filings by Cascade Natural Gas that detailed its actual line extension allowances. Therefore, a $2,000 average cost was used, consistent with the estimate provided in Sightline’s earlier research.
Appendix 3
Stranded asset risk of line extension allowances issued in 2022–23
Sightline estimates that utilities in British Columbia, Oregon, and Washington would pile on $662 million in stranded asset risk if the new gas users who connected to gas in 2022 and 2023 quit the gas system by 2050, as would be consistent with climate targets. Sightline computed this by multiplying the number of customers added in 2022–23 by the undepreciated value of the line extension allowance at the end of 2050 (inclusive of taxes, profits, and expenses) using the methodology in Appendix 2.
| Utility | Estimated stranded asset risk for line extensions added 2022–23 and abandoned in 2050 (inclusive of taxes, profits, and expenses) |
| Avista (OR) | $8,494,248 |
| Avista (WA) | $14,869,016 |
| Cascade (OR) | $9,673,159 |
| Cascade (WA) | $18,718,760 |
| FortisBC | $459,623,451 |
| NW Natural (OR) | $66,390,341 |
| NW Natural (WA) | $25,805,122 |
| PSE | $58,873,288 |
| Total | $662,447,385 |
