Financial assessment tools for system expansion for natural gas utilities

A municipal gas utility client with numerous growth opportunities was struggling to make timely decisions regarding capital investments and the expansion of its distribution system. Faced with limited resources and a mandate to ensure financial discipline, utility leaders were uncertain about moving forward with any of the available growth options. The slow action risked disappointing city residents wishing to receive gas service. 

Raftelis collaborated closely with the client team to design and develop a financial model and analytical tools for evaluating the economic benefits of expanding the gas distribution system to new developments and customer infill areas. We identified the full set of financial considerations for expansion, including capital costs (services, mains, other), appliance rebates and other customer incentives, natural gas rates, and incremental gas consumption for newly installed appliances. 

A financial model was developed to incorporate each of these considerations into a 10-year net cash flow forecast. Accompanying visuals and scenario tools were also integrated.  

• Annual net cash flows 
• Total project cost 
• Net present value (NPV) 
• Internal rate of return (IRR)

Raftelis then assisted the client in evaluating and prioritizing a set of gas distribution system expansion opportunities. These included both new residential development projects and extension of the main line into areas of the service territory that did not have gas service. A full set of criteria for prioritization was established, including both financial performance and key operating considerations.  

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In addition to financial assessment tools, Raftelis conducted a review of the utility’s marketing and growth practices, identifying a set of strategic considerations. These included the appliance rebate program, new customer incentive programs, documented policies for system expansion, and customer analytics. In each case, Raftelis collaborated with the client team to assess current practices and recommend improvements aimed at enhancing decision-making speed and customer appeal. 

With the benefits of this assignment, the client team was able to move forward on selected growth opportunities with greater confidence and consistency of message to both utility leaders and gas customers. Work is also underway to implement many of the strategic recommendations.