Cutting These Subsidies Could Save States Millions of Dollars

Eight states are starting to phase out gas line extension allowances, saving up to $750 million in utility bills annually.

Across the country, many utilities, regulators, and policymakers are looking for solutions to lower energy bills while advancing a transition to cleaner energy. One solution is gaining momentum, with action in eight states and counting: phasing out utilities’ gas line extension allowances. These are free allowances for new gas utility connections that help expand the gas system, funded through utility bills — putting the cost on existing customers.  

How the process works

1. A developer constructs a new building or neighborhood and applies to the utility for a connection to the natural gas system.
2. The utility assesses the new building’s location relative to its existing infrastructure and, in most cases, connects the new buildings to the gas system at little or no cost to the developer.
3. The costs then appear in everyone’s gas utility bills, typically as part of the delivery charge.

Details vary by state and utility, and if it’s especially expensive to connect a building, that new customer may have to contribute to the cost. But in general, new customers pay little or nothing to connect to natural gas service. Instead, the entire customer base is forced to collectively share those costs.

Gas utilities have relied on existing customers to subsidize their expansion for decades. The same approach is used for connecting new buildings to the electric grid, and it has helped streamline universal access to electricity. But in recent years, utility regulators and policymakers have started reconsidering this approach for natural gas. As demand grows for electric heat pumps and water heaters and as states set new goals to grow alternatives to gas equipment, line extension practices now pose a new risk: they add investment to a gas system that could see declining use, which could drive up rates even higher over time.

Why regulators are reconsidering this policy

Historically, line extension allowances were generally justified because there was an expectation that new gas customers would stay connected for decades and pay enough in gas bills to cover the upfront investment other customers made on their behalf. Over time, their payments would help fund future line extensions, keeping the cycle going as the system grew.

But now that model is breaking down. As more customers switch from gas to electric alternatives — or simply use less gas through efficiency upgrades, hybrid gas-electric heating, or limiting gas use to smaller appliances — the revenue from new customers often falls short of covering their connection costs. As a result, new customers may not recover connection costs, leaving everyone else to cover the gap.

Eight states are taking action

Over the past three years, utility regulators or legislators in eight states have taken action to reduce or phase out gas line extension allowances. Their goal: to protect customers from excess costs in their gas bills and, in many cases, to better align utility practices with state climate policies that could drive large reductions in gas use.

Starting in 2022, the California Public Utilities Commission issued an order phasing out line extension allowances for gas utilities across the state. The Washington State regulator adopted a plan to phase out these allowances for one of its utilities and has since done the same for two others. In Colorado, the legislature directed the utility regulator to take a similar action. Oregon followed suit with regulatory decisions in 2023 and 2024. The Minnesota Public Utilities Commission approved modest changes to utility allowances in three rate case settlements and is now considering broader changes across the state. Most recently, the Maryland and Massachusetts regulators have stated their intent to eliminate gas line extension allowances, and the state legislature in New York passed a bill doing the same; in these cases, more action is needed to finalize the changes.  

The finding: potential $750 million in savings annually

Each of these actions means lower utility bills in each of these states — as seen in the estimated savings value chart below. These vary based on the pace of new gas system connections, the cost of these connections, and how generous the original policy was.

Altogether, these changes could cut utility costs by $750 million per year. In some cases, these rule changes overlap with other policies that contribute to the same savings. For instance, new gas connections in New York state will also decline due to the state’s new all-electric building standard.  

Early evidence suggests that these policy changes are influencing market decisions to build without gas, rather than simply shifting the cost of gas connections to new customers. California’s largest combined gas and electric utility, PG&E, reported that in 2023, a large majority — 72 percent for residential buildings and 91 percent for non-residential — of new line extension requests were for electric service only with no gas connection. This is much larger than the historical trend, as only 8-9 percent of PG&E residential customers are all-electric today. Similarly, the policy change in Colorado helped enable a plan from Lennar, a major homebuilder, to build 1,500 new homes with geothermal heating and no natural gas service, in partnership with Dandelion. In this case, the phaseout of the subsidy for gas service helped tip the business case for this investment toward an electric alternative. 

Action on the horizon 

More states are taking a closer look at this opportunity for gas system utility savings. Regulators in Illinois have identified this issue for consideration in ongoing planning, and the Minnesota Public Utilities Commission is considering whether to build on the small changes already executed with more sweeping reductions in line extension allowances. And some of the states mentioned above still have these changes in the works. For instance, in Massachusetts and Maryland, regulators are holding open proceedings to implement these changes, and a New York bill to phase out line extension allowances is headed to the governor’s desk.  

As energy prices rise and more buildings switch to electric systems, this policy shift is gaining traction. It’s a straightforward way to ease utility bills and support a cleaner, more affordable energy future. 

Methodology

RMI estimated the annual savings on utility spending for each state based on publicly available data, including existing third–party analysis where available. State specific details are included in the table below.