Price utility infrastructure to support infill development
Action
The state agency that regulates energy-utility pricing should revise its pricing and cost recovery structure to reflect the true cost of energy delivery and to support development in existing communities. It costs significantly more to provide energy service to greenfield sites than it does to provide service to existing ratepayers or to add new service to communities with existing service. This is because energy is lost as it is transmitted through power lines. The further the power line from its source, the more energy is lost. This often makes greenfield development more energy consumptive than infill development. Additionally, compact development consumes less energy on a per unit basis than low-density development.
Most utilities typically charge all consumers the same rate, irrespective of their location. They also charge developers the same average price to extend utility service, irrespective of where a ratepayer lives or development occurs (greenfield vs. infill). Utilities can modify their pricing and cost-recovery approaches to reflect the true cost of providing utility infrastructure.
In some instances, the distribution system in urban core areas are in need of major upgrades, so costs even for infill development need to be carefully assessed. To address this issue would involve using a marginal cost-pricing structure for rates and using a tiered system of cost recovery when charging developers for utility extensions. Such a pricing structure would result in a fairer outcome. Developers and consumers would pay for the true costs of development. Infill development no longer would subsidize the energy consumption of greenfield development.
Process
The regulatory structure for the provision of energy varies from state to state. The State should examine energy utility regulations for their impact on land use and determine whether it is possible for utilities to price based on marginal costs. To modify the energy-utility reimbursement structure, the state utility regulating agency could require up to 100 percent reimbursement of projects in designated growth areas or infill sites. Additionally, the regulatory structure could be modified to require that the cost of infrastructure projects on greenfield sites be borne entirely or at least partially by the developer, rather than passing on the costs to the rest of the rate-paying population.
Examples
- New Jersey's Smart Growth Main Extension Rule
New Jersey's "Smart Growth Main Extension Rule" allows for different pricing and cost recovery for new infrastructure extensions based on the location of the extension. The state is divided into areas that are either designated for growth or not designated for growth. In areas that are designated for growth, developers bear less of the cost for public utility infrastructure than they do in areas not designated for growth, where they are required to pay the full cost of the infrastructure.
— New Jersey's Smart Growth Main Extension Rule
