Working Paper: NBER ID: w28955
Authors: Lucas W. Davis; Catherine Hausman
Abstract: The growing “electrify everything” movement aims to reduce carbon dioxide emissions by transitioning households and firms away from natural gas toward electricity. This paper considers what this transition means for the customers who are left behind. Using historical evidence from growing and shrinking U.S. natural gas utilities, we show that utilities add pipelines but rarely remove them, even when the customer base from which to recover costs is shrinking. Correspondingly, we find that utility revenues decrease less than one-for-one when a customer base is shrinking, consistent with higher bills for remaining customers. We then use our empirical estimates to predict how customer bills might increase in the future for different levels of building electrification. We highlight the equity implications of our results and conclude by discussing alternative utility financing options such as recouping fixed costs through taxes rather than prices.
Keywords: natural monopoly; stranded costs; sunk costs; natural gas; energy utilities; building electrification; inequality; energy transition; energy justice
JEL Codes: L95; Q40; R11; L97; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 10% decrease in residential customers (L97) | 0% change in pipeline length (L95) |
| 10% increase in residential customers (R21) | 4% increase in pipeline length (L95) |
| 10% increase in residential customers (L97) | 10% increase in utility revenues (L97) |
| 10% decrease in residential customers (L97) | 5% decrease in utility revenues (L97) |
| 20% reduction in residential gas customers (L95) | increase in remaining customers' bills by approximately $40 per year (L97) |
| 40% reduction in residential gas customers (L95) | increase in remaining customers' bills by approximately $115 per year (L97) |