Electric-to-Gas Substitution: What Should
Regulators Do?
Ken Costello, Principal
The National Regulatory Research Institute
Presentation before the NARUC Committee on Gas
Seattle, WA
July 20, 2009
1
Abstract
With concerns over global warming and energy sustainability increasing, policy
options have broadened to include fuel switching, or as it more correctly termed, electric-
to-gas substitution. Electric-to-gas substitution, as defined in this presentation, refers to
the decision of small, generally residential consumers, to use natural gas rather than
electricity for certain end-use applications. The decision can involve conversion from
electricity to natural gas in an existing home or installation of gas-burning equipment in a
new home. In each instance, the consumer must decide on the appliance or energy-using
equipment she wants to purchase. End uses for which electric-to-gas substitution is
common include space heating, water heating, cooking, and clothes drying.
This presentation highlights the recent NRRI paper of the same title. It starts with
a question: Have market or regulatory barriers prevented or discouraged socially
beneficial electric-to-gas substitution? Electric-to-gas substitution, more than anything
else, involves consumer choice. In almost all energy and nonenergy markets in the U.S.,
even those heavily regulated on the supply side, the market is the primary institutional
arrangement in which consumers to make decisions. Consumers’ responses to the market
determine what they buy and what benefits they receive from a purchase. An energy
consumer’s major concern is the capital equipment and energy costs she must incur to
enjoy the level of heating comfort and other energy services she desires.
This presentation recommends that regulatory intervention in consumer markets
should pass some cost-benefit test: There should be evidence of market problems
(defined by consumers making poor choices for themselves) serious enough t