Peco extends gas lines to customers who long to tie into the shale boom

A utility's announcement that it is about to rip up a neighborhood's streets typically generates dread among the locals.

But the mood was festive Monday in a section of Tredyffrin Township, where Peco Energy Co. had a ceremonial groundbreaking to mark the site where it will dig trenches in seven streets over the next three months to bring natural-gas service to 160 homes.

"This was a long time coming," said Melinda Taylor, a resident of Saunders Drive in Wayne and one of the principal organizers of the effort to enlist Peco to extend gas service in the neighborhood of mid-century homes.

The Saunders-Wayne project is the largest of 10 gas-main extensions  Peco has approved this year, after the Pennsylvania Public Utility Commission signed off on a pilot project designed to reduce the upfront cost to customers of extending gas mains into a new area. The new mains reach 290 customers, of which 93 have signed up for service.

As natural-gas prices plunged in the last eight years with the development of shale gas in the state, those who lived in areas bypassed by utility gas mains and heated their homes with oil, propane or electricity could only look enviously on neighborhoods whose developers had installed gas infrastructure.

The problem was cost. Peco, saying it was restrained by regulations that required the customers who would benefit from a new gas line to pay for it, initially quoted a price per household that was so high most residents declined to sign up. Peco says a new gas main typically costs from $500,000 to $1 million a mile, and if only a few customers sign up, the cost per customer is prohibitive.

"The initial price was pretty daunting," said Bob Handler, Taylor's next-door neighbor.

Peco's pilot project allows the utility to use a new formula to spread its costs out over more potential new customers, and allows customers to finance their share through the utility over 20 years. The PUC has approved similar arrangements for three other Pennsylvania gas utilities, including UGI Utilities, a subsidiary of UGI Corp. of Valley Forge.

The result for Taylor and her neighbors is that Peco's initial quote per household declined from an upfront payment of about $15,000 to $8,563, or $65 a month over 20 years.

"Peco's proposal makes it a really accessible monthly cost," said Taylor. Forty residents of the 160 households in the area signed contracts, exceeding Peco's go-ahead threshold of 20 percent, or 32 customers.

The Saunders-Wayne project involves about 12,000 feet of new gas mains, or more than two miles. The project will tie into an existing gas line near Woodlynde School on Upper Gulph Road and travel up West Valley Road, and then into six side streets between West Valley and Old Eagle School Roads.

Peco has allotted $10 million to finance the gas-main extensions under the project, which will be evaluated after three years to measure feedback from customers and gauge cost-effectiveness, said Ronald Bradley, Peco's vice president for gas operations.

"It would be great if this continues on, if it's a win-win for everybody," said Bradley. "My strong sense is that it will be, but you never know. ... I'm optimistic that customers will see the beauty in this."

Monday's groundbreaking was attended by Peco chief executive Craig Adams, PUC Chair Gladys M. Brown, and State Rep. Warren Kampf, whom several residents credited with applying pressure to the utility and state regulators. Kampf said the neighborhood's experience was "a great study" in how constituents can influence public agencies to change policies through perseverance.

Adams also singled out the neighbors for their diligence. "Your contribution is the most important piece for today," the Peco CEO said. "You being here, without you being willing to work with us for gas, helping us to reach out to other neighbors to get the number of neighbors we needed to make this happen. So a heartfelt thanks to you."

Even with the new financing mechanism, the individual price to install a gas main remains steep, and it does not include the cost for homeowners to connect and swap out their old furnaces, stoves, water heaters and dryers for new natural-gas appliances. Customers who sign contracts with Peco agree to connect at least one appliance in the first year.

Indeed, the cost of installing the gas mains under Peco's new formula is still so high that many neighborhoods that explored the project could not muster the necessary number of subscribers to move forward.

Jennifer Walsh, of the 200 block of Warrior Road in Drexel Hill, had been holding off replacing her old stove with a new gas range while her neighbors considered whether to accept Peco's offer to extend a gas line up her street. But Walsh gave up after an insufficient number of residents accepted the $11,800-per-household cost, or $90 a month over 20 years.

"I just told my husband to go buy an electric stove," she said.

Harry Nothacker, who lives on Timber Lane in the Shand Tract neighborhood of Tredyffrin, just a half-mile from Saunders Drive, stood wistfully at the periphery of Monday's groundbreaking. Not enough customers in his neighborhood had enlisted in Peco's gas-main proposal at $10,000 per house to get the utility to commit.

"It's sad, because we have all this gas in Pennsylvania," Nothacker said.