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APGA October Update

10/31/2014

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provided by the American Public Gas Association

While Congress has been out of session, there have been a number of activities occurring at the regulatory level of significance to public natural gas systems and other natural gas consumers.  
On October 30, APGA sent letters to the Governors of the Board of the Federal Reserve System addressing a rule the Federal Reserve unanimously adopted in September. The rule requires banks with at least $250 billion in assets to meet new liquidity requirements.  Under the rule, banks that meet the total asset threshold must maintain designated levels of High Quality Liquid Assets (HQLA), which are assets that are easily converted to cash.  The issue of concern from APGA’s perspective is that the rule currently does not classify municipal securities as HQLA. 

APGA joined a joint comment letter in January in response to the proposed rule.  The comment letter expressed concern that failure to qualify municipal bonds as HQLA would reduce the appeal of municipal securities for banks to underwrite them, which would increase borrowing costs for public natural gas systems, state and local.  In its meeting to approve the rule, the Federal Reserve communicated that in response to the concerns raised by APGA and others that utilize municipal bonds, they are working on a proposal to include some municipal bonds as HQLA at a later date. 


In the letter, APGA communicates that revenue bonds and general obligation bonds are critical tools utilized by public natural gas systems for investments in infrastructure as well as for the long-term purchases of natural gas supply.  The letter also communicates APGA’s view that investment grade municipal bonds satisfy the criteria that has been established for eligibility within the definition of HQLA eligibility and urges their inclusion within the definition.  Lastly, the letter states that failure to include these bonds within the definition would reduce the appeal for banks to underwrite them, ultimately increasing borrowing costs for public natural gas systems and increasing costs for their customers. 

A copy of the letters sent to the Governors of the Board of the Federal Reserve System can be viewed on the APGA website at www.apga.org/correspondence. 

In addition, on October 22, APGA and the American Gas Association (AGA) sent a letter to Secretary Moniz at the Department of Energy (DOE) expressing strong concern in regard to the potential of DOE moving forward with a rule that would mandate a national condensing standard for natural gas furnaces.  DOE approved a Direct Final Rule (DFR) in 2011 that mandated an increase in annual fuel utilization efficiency (AFUE) from 78 percent to 90 percent for natural gas furnaces installed in 30 northern states. The federal minimum efficiency for natural gas furnaces was also increased from 78 percent to 80percent in southern states.  Under the DFR process, unless DOE received adverse comments which they believed provided a reasonable basis for withdrawing the DFR, the rule and its minimum efficiency standards would stand as the new efficiency standards. Despite receiving comments opposing the standards from over 30 stakeholder groups including APGA, DOE ruled that it did not receive adverse comments warranting withdrawal of the DFR and rule went into effect.  APGA opposed the DFR and filed a petition in court which resulted in the withdrawal of the DFR via a mediation settlement. 

The furnace rule in the DFR, in an attempt to increase energy savings, would inadvertently have deterred consumers from purchasing more efficient direct use natural gas appliances due to the high upfront costs associated with the only furnace type (condensing furnaces) that could meet the DFR-established 90 percent standard.  Consequently, consumers would be incented by the DFR to buy electric appliances that are initially cheaper to install, but ultimately less efficient and therefore more costly in the long term.

In the letter to Secretary Moniz, APGA and AGA express concern regarding the potential impact of a national condensing standard for natural gas furnaces.  The letter further communicates that a national condensing standard could “prove to be the first energy efficiency standard issued in the history of the Department that has the real-world impact of increasing our nation’s overall energy consumption and carbon footprint.”  As a potential solution, the letter urges DOE to establish separate product classes for non-condensing and condensing furnace technologies as “this approach would largely eliminate pressure on consumers to switch from natural gas to electric space and water heating equipment when condensing natural gas furnace options are not viable alternatives.”

 The letter to Secretary Moniz was accompanied by a white paper that further articulated the benefits of establishing separate product classes and the precedents for doing so by DOE on a number of other products. 

For questions on APGA’s legislative and regulatory actions, please contact Dave Schryver by phone at 202-464-2742 or by email at dschryver@apga.org. 

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