Less-costly natural gas? Not for some in Pa.

Amid the Marcellus Shale natural gas boom, Melinda Taylor has watched with growing frustration as the price of natural gas plunged, but not the heating bills in her neighborhood in Tredyffrin Township.

Taylor and her husband, Bill Bailey, use oil to heat their Saunders Drive home because there is no gas service in their 60-year-old Wayne development. They calculate that they could lop $3,500 a year from their annual $5,000 heating bill - 70 percent - by switching from oil to natural gas.

Last year, she and her neighbors organized 120 households to ask Peco Energy Co. to install gas mains on six streets in the development. The utility came back with shocking news: Each household would have to cough up more than $6,400 to build the mains. If fewer households signed up, the cost would be higher.

"At that price, it was not going to happen," said Taylor. Their group includes some families with young children and retirees living on fixed incomes.

"The irony is that we're sitting here practically in the Saudi Arabia of natural gas in the United States," she said, "and I can't get any of it to my house."

Gas utilities say they're hearing from a growing number of customers who want to make use of the dramatic price advantage that gas has gained over oil and propane. According to the Energy Information Administration, a family of four in an 1,800-square-foot home can save about $1,500 a year, or 60 percent, by switching to gas.

But unless customers live along an existing gas main, it can be very expensive to extend the pipeline (and that doesn't include the cost of buying a new gas furnace and other appliances).

Peco is picking up more than 2,000 new customers a year, but most of them live along an existing main. In the last 18 months, Peco picked up only 56 new customers from line extensions. The average customer paid $7,827, said Ben Armstrong, a Peco spokesman.

Pennsylvania officials say they are rethinking long-standing rules that serve as barriers to extending gas lines to developments that were built during eras when gas supplies were curtailed and utilities weren't taking on new customers. They're also looking at ways to extend lines in rural areas.

"We have to find some way of expanding the use and getting natural gas into underserved and unserved areas," said State Rep. Robert W. Godshall (R., Montgomery), chairman of the House Consumer Affairs Committee, which held a hearing in March on gas-service expansion.

A bill sponsored by State Sens. Dominic Pileggi (R., Delaware) and Gene Yaw (R., Lycoming) would require utilities to create plans to extend their gas-distribution systems. A companion bill would provide $15 million to defray the costs of extending mains to large institutional "anchor" customers, allowing smaller customers to piggyback on the main.

As a rule, it costs $500,000 to $1 million a mile to extend gas mains.

"If you're making $400 to $600 a year per residential customer, it just doesn't add up unless you sign up a lot of customers," said Joe Swope, a spokesman for UGI Utilities, which serves 587,000 customers in Pennsylvania. UGI converted 9,000 new customers last year, nearly triple the rate from 2010.

By law, utilities in Pennsylvania and New Jersey must extend gas service to customers who request it. But the utilities are not allowed to make existing customers subsidize the expansions. Most utilities apply an economic test: The new customers have to pay any cost above the utility's break-even point.

How the break-even point is calculated can vary dramatically. In New Jersey, utilities credit a customer for 10 years of estimated revenue from the non-gas portion of their bills. In Pennsylvania, most utilities give customers an allowance of only five years of non-gas revenue, which means the new customers pay more of the construction cost.

Tanya J. McCloskey, Pennsylvania's acting consumer advocate, suggests the Public Utility Commission should consider extending the allowance to 10 years, because the pipes and the new customers will be generating revenue for the utility for decades. "I think we may be viewing more of this as a subsidy than it actually is," she said.

Some states allow utilities to finance the projects through monthly surcharges on new customers' bills, reducing the up-front outlay.

Pennsylvania's rules also create a perverse situation in which customers can connect to a gas main for free after their neighbors have paid for the extension (some states provide an elaborate accounting system to equalize the charges so there are no free riders).

"It's very seldom that a whole block is ready to convert at the same time," said UGI's Swope.

To remove some of the barriers, UGI last month applied to the PUC to launch a pilot program in which UGI would extend mains into unserved areas where it assumes it can convert at least half the customers over the next decade. Customers would make no up-front commitment or payment.

The utility would charge customers who connect to the new main a $65.89 monthly fee for 10 years, but it estimates that customers would save an average of $100 to $120 a month in fuel costs.