Southwest Gas is facing regulatory barriers to increasing its renewable natural gas purchasing despite a goal set by the Nevada legislature to raise the amount of RNG in public utility portfolios.

Southwest Gas, which is a major gas provider in the state, is asking the Public Utilities Commission of Nevada (PUCN) for authority to buy renewable natural gas without going to the commission for approval of each individual RNG purchase.

But PUCN staff have recommended that the commission deny the application. The RNG market is still in its early stages, and Southwest Gas could become locked into a long-term contract with fixed or escalating prices, PUCN staff said.

“The proposed purchase authority could not only negatively impact the company’s financials, but also harm its ratepayers,” Yasuji Otsuka, manager of the Resource and Market Analysis Division for the PUCN, said in written testimony.

PUCN staff have recommended that the commission require Southwest Gas to seek approval for any RNG contract of three years or longer.

In addition, staff recommended that Southwest Gas be required to file a report by the end of 2023 regarding the company’s RNG activity as well as the status of the RNG market in Nevada and elsewhere.

PUCN held a hearing on the Southwest Gas proposal on Sept. 13. The next step is for PUCN staff to write a proposed order regarding the application, which the full commission could vote on. A date for full commission review has not been set.

Flexibility Sought

Southwest Gas said the purchasing authority is needed to give the company flexibility as it tries to meet a goal of 3% RNG in its portfolio by January 2035.

Nevada’s 2019 Senate Bill 154 set the 3% RNG target for natural gas utilities, with interim targets of at least 1% by January 2025 and 2% by January 2030.

Southwest Gas is seeking purchasing authority for up to 3% of its projected 2035 sales; under the company’s proposal, it would need to return to the commission for approval of any RNG purchases above that amount.

Southwest Gas said some RNG facilities produce relatively small amounts of renewable gas each day. Therefore, the company may need to make many small purchases of RNG to meet the targets.

“Obtaining the commission’s approval for short-term agreements, which can take up to 180 days after filing of the company’s application, is inefficient and will likely lead to RNG suppliers being unwilling to sell RNG to Southwest Gas because of the lengthy approval process,” John Olenick, director of gas supply at Southwest Gas, said in written testimony.

In other cases, Southwest Gas might be working on an agreement with an RNG provider that hasn’t yet built production facilities. Those suppliers would also be looking for a speedy purchase commitment so they could move forward with financing and construction.

If Southwest Gas is granted RNG purchasing authority without the need for PUCN review of individual purchases, costs and prudency of the purchases would instead be reviewed during annual rate proceedings.

This could result in rate proceedings that are “unnecessarily complicated and contentious,” Otsuka said.

The proposed RNG purchase authority “provides only alleged but not proven benefits and may result in more RNG purchases than necessary while involving speculative activities,” Otsuka said.

In addition, Otsuka said, Southwest Gas is proposing to skip the 1% and 2% milestones set by the legislature for RNG procurement and “leap” to the 3% target set for 2035.

That’s in contrast to the legislature’s “gradual and stepwise approach,” which was possibly a recognition of “the nascent stage of the RNG industry and market,” he said.

Second Attempt

Southwest Gas first filed its request for RNG purchasing authority in January. The commission rejected the proposal, saying the company hadn’t shown that the RNG purchases would have environmental benefits as required by SB154.

The company filed a revised application in May, proposing to buy only RNG that is eligible for D3 or D5 credits under the federal renewable fuels standard program.

The program classifies fuels based on their feedstock. D3 fuels are considered “cellulosic,” and feedstocks include corn stover, wood chips and biogas, according to the Environmental Protection Agency. D5 is the “advanced biofuel” category, with feedstocks including sugarcane, biobutanol and bionaptha.

The categories also include a minimum reduction in greenhouse gas emissions over the lifecycle of the fuel. The reductions for D3 and D5 fuels are at least 60% and 50%, respectively.

With its commitment to buy only D3- or D5-eligible RNG, “the company’s proposed RNG activity could provide environmental benefits relative to fossil fuel alternatives to the state,” Otsuka said.

Environmental groups remain unconvinced that RNG purchased by Southwest Gas would have environmental benefits.

Dylan Sullivan, a senior scientist with the Natural Resources Defense Council, said that the EPA classification system for biofuels does not require that RNG produced at specific facilities be analyzed on an ongoing basis for amounts of GHG reduction.

And the federal program assesses greenhouse gas emissions of biofuels relative to gasoline, Sullivan said in written testimony on behalf of NRDC, the Sierra Club and Western Resource Advocates.

“‘Sixty percent better than gasoline’ is insufficient given Nevada’s policy of reducing methane emissions and reaching zero or near-zero GHG emissions by 2050,” he said.

Arizona Attempt

Southwest Gas applied to the Arizona Corporation Commission for approval of a similar RNG program, with a 1% RNG target in 2025, 2% in 2030, and 3% in 2035. In a December order, the ACC denied the request.

“We find that there are too many unknown variables associated with RNG to support the adoption of the proposed RNG program at this time,” the commission said in its decision. “We note that the proposed RNG program involves a high-risk, speculative activity, and we do not believe it would be appropriate to pass the associated risks and costs on to ratepayers.”

The commission also ordered staff to open a generic docket on the role of RNG in Arizona and schedule at least one workshop on the topic. ACC held an RNG workshop in May.