The Massachusetts Department of Public Utilities has directed the state’s gas distribution companies to revise their line extension policies and require new customers to cover the cost of new hookups, with limited exceptions.

Issued on Aug. 8, the order is poised to end the longstanding utility practice of charging to the rate base the costs of connecting new gas customers. The practice assumes the new customers eventually will pay back these costs through distribution fees (20-80-E).

The ruling likely will significantly increase the upfront costs associated with new natural gas hookups in the state and reflects the DPU’s increased focus on phasing out natural gas use for heating. In 2023, the DPU required the utilities to consider gas alternatives, and in 2024 state lawmakers required the department to consider the state’s emissions limits and risks of stranded assets when authorizing requests for gas system expansion.

The DPU first proposed the change in February, expressing concern that existing line extension policies are misaligned with the state’s efforts to decarbonize and do not account for risks of stranded assets as customers transition to electric heat pumps. (See Mass. DPU Proposes Major Shift in Gas Line Extension Policies.)

The proposal was supported in comments submitted by climate advocacy groups, the Department of Energy Resources and the Massachusetts Attorney General’s Office. Investor-owned gas utilities pushed back, arguing that ending line extension allowances may push some customers to higher-emitting heating methods like oil and propane.

In its ruling Aug. 8, the DPU agreed with the AGO that the gas utilities assume “unrealistically long” payback periods for new customers and do not account for declining gas usage because of decarbonization.

The DPU also wrote that the gas companies’ existing formulas for calculating upfront payments for new customers fail to account for “the environmental impact of the additional gas combustion facilitated by the expansion of the gas distribution system through line extensions.”

The department rejected arguments that the policy change will push customers toward fuel oil or propane heating systems, writing that “no evidence is offered to suggest that such a situation is anything more than a rare or isolated circumstance.”

Responding to utility concerns about cost barriers to electrification, the DPU referenced a 2024 report sponsored by environmental groups that found all-electric new construction has reached near-cost parity with fossil construction. (See Report Outlines Cost Savings of All-electric Buildings in Mass.)

“It is a better course of action to address in other proceedings the claimed barriers to electrification than to maintain a line extension policy that locks in continued growth in the natural gas distribution system that is contrary both to the commonwealth’s climate goals and to the minimization of potentially stranded costs,” the DPU added.

The department stressed that the policy change does not deny customers the ability to connect to the gas network but requires customers to assume the costs and stranded-asset risks associated with these connections.

“Eliminating line extension allowances neither incentivizes nor disincentivizes new gas extensions,” the DPU wrote, citing AGO testimony that the change “only removes an unwarranted incentive.”

Under the proposal, the department would allow utilities to socialize the costs of new gas connections only if a customer “can demonstrate that it has no technically feasible alternative to the use of natural gas, including electrification.”

The DPU wrote that exceptions likely will be limited to “hard-to-electrify” commercial and industrial customers. It said gas utilities will be responsible for demonstrating the need for any exception.

The department required the utilities to file revisions within 30 days in the dockets for their climate compliance plans (CCPs). It noted that stakeholders will have the opportunity to file briefs and evidence within the CCP dockets on the DPU’s revised proposal and the utilities’ compliance proposals (25-40 through 25-45).

“This order is another great step in the right direction toward an orderly transition off of the natural gas system,” said Kyle Murray, Massachusetts program director at the Acadia Center. “It also shows that the natural gas system has traditionally only been able to expand thanks to massive subsidies from existing ratepayers. This order is simply removing that subsidy and requiring natural gas to compete on an even playing field.”