title
To amend City Code § 28-589, concerning the construction or extension of mains or services and incentive programs, to establish an annual review process to determine the City’s contributions to gas utility main or service lines.
body
THE CITY OF RICHMOND HEREBY ORDAINS:
§ 1. That section 28-589 of the Code of the City of Richmond (2026), be and is hereby amended as follows:
Sec. 28-589. Construction or extension of mains or services; incentive programs.
(a) The Director shall determine when gas mains or services are to be constructed or extended within or without the corporate City limits. The Director shall ensure that incentive programs are cost neutral and balance availability of service with long-term climate goals. Upon application of an owner or occupant for such an extension, the estimated net revenue reasonably expected to accrue to the City from such construction in each specific instance and the estimated cost of making the extension shall be calculated by the Director using the construction schedule developed by the Director. The Director annually shall determine construction costs and annually shall develop and publish a schedule of fees that will become effective on July 1 of the subsequent calendar year. The Director shall review [market conditions] at least annually [and establish a period of time for the calculation of estimated revenue] costs and revenue generated from gas main extensions over the preceding ten years to determine the minimum cost share for the owner or occupant of premises to be served thereby and shall have an independent third party conduct a review and provide a report to City Council by October 1 of each year. The Director shall also establish a period of time for the calculation of estimated net revenue. If the estimated net revenue for such period is equal to or exceeds the estimated cost of the extension, a portion of the extension may be made at the expense of the City. If the estimated net revenue is less than the estimated cost of the extension, the Director may enter into an agreement to construct the extension, provided that the owner or occupant of premises to be served thereby shall deposit with the Director a sum of money equal to the amount by which the estimated cost of such construction or extension exceeds the estimated net revenue reasonably to be expected during the applicable period, plus either (i) twenty-five percent of estimated costs or (ii) the minimum cost share determined by the Director in the annual report, whichever is higher. Such sums shall be paid into and held in a special account of the gas utility, upon the terms and conditions set out in Sections 28-111 and 28-112. The Director shall bill the fee to the owner or occupant, and the owner or occupant so billed shall pay the City the billed amount. The Director may receive installment payments as specified in the rules and regulations.
(b) The Director may extend gas mains or services in areas where, in the Director's opinion, potential development will provide future profitable gas sales and where the requirements set forth in subsection (a) of this section are not applicable due to the method of development of the property. The Director may enter into agreements to construct such extensions in order to protect the utility's revenue requirements.
(c) The Director may implement an incentive rebate program for energy audits, the installation of energy efficient natural gas equipment, insulation and other conservation measures. All existing gas utility customers who are located on existing gas mains shall be eligible for the program. The incentive rebate program shall be contingent on the availability of funding. The Director shall promulgate rules and regulations to implement the incentive rebate program in accordance with this subsection.
(d) The Director shall implement a gas air conditioning incentive program for the installation and operation of gas air conditioning equipment. Pursuant to the program, the Director may enter into agreements to make capital contributions toward the initial installation of gas air conditioning equipment or the initial conversion of air conditioning equipment to gas fuel. The Director may recover capital contributions made pursuant to the program through surcharges to the customer's gas utility bill. The program's capital contributions shall be funded from monies budgeted for gas main extensions. The Director shall promulgate rules and regulations to implement the program in accordance with this subsection. Such rules and regulations and any agreement entered into pursuant to this subsection shall meet the following requirements:
(1) The gas air conditioning incentive program shall be implemented in a manner to safeguard the program's cost justification and shall result in a reasonable rate of return to the gas utility over the life of the gas air conditioning equipment.
(2) The gas air conditioning incentive program shall be implemented in a manner to minimize the potential for placing private businesses at an undue competitive disadvantage.
(3) The capital contributions advanced by the gas utility pursuant to the gas air conditioning incentive program shall be adequately secured.
(4) The gas air conditioning incentive program shall be implemented in a nondiscriminatory manner.
(e) The Director shall implement a load management incentive program to retain or obtain loads that promote more efficient use of gas supply and distribution of resources. Pursuant to the program, the Director may enter into agreements to make capital contributions toward the initial installation of efficient gas fired heating or air conditioning equipment or the conversion of existing gas fired heating or air conditioning equipment to more efficient gas fired heating or air conditioning equipment, in applications serving multifamily residential facilities. The Director shall enter into any such agreement only if the Director documents and certifies that the incentive is required in order to retain or obtain the targeted load. The program's capital contributions shall be funded from monies budgeted for gas main extensions. The Director shall promulgate rules and regulations to implement the program in accordance with this subsection. Such rules and regulations shall establish the maximum capital expenditures allowed per qualifying multifamily residential facility and per dwelling unit and shall meet the following requirements:
(1) The load management incentive program shall be implemented in a manner to safeguard the program's cost justification and shall result in a reasonable rate of return to the gas utility over the life of the gas equipment.
(2) The load management incentive program shall be implemented in a manner to improve the gas utility's load factor, to prevent a deterioration of the gas utility's load factor, or to absorb unused capacity or maintain existing loads for the purpose of reducing unit costs.
(3) The capital contributions advanced by the gas utility pursuant to the load management incentive program shall be adequately secured.
(4) The load management incentive program shall be implemented in a manner to minimize the potential for placing private businesses at an undue competitive disadvantage.
(5) The load management incentive program shall apply only to equipment that has energy efficiency ratings which meet or exceed Federal and State standards.
§ 2. This ordinance shall be in force and effect upon adoption.
DATE: October 16, 2026
TO: The Honorable Members of City Council
THROUGH: RJ Warren, Council Chief of Staff
THROUGH: Will Perkins, Senior Legislative Services Manager
FROM: The Honorable Katherine Jordan, Councilmember 2nd District
FROM: The Honorable Danny Avula, Mayor
RE: To amend § 28-589, concerning the cost to construct or extend natural gas utility main or service lines.
CNL-2026-0004
PURPOSE:
The patrons propose amending Section 28-589 of the Richmond City Code (2026) to ensure that utility incentive programs and line extension allowances (LEAs) remain cost neutral while actively balancing service availability with long-term climate goals. To achieve this, the ordinance replaces previous language concerning general market conditions with a requirement that the Director of the Department of Public Utilities annually review the costs and revenues generated from gas main extensions over the preceding 10 years. This comprehensive 10-year lookback is designed to accurately determine the minimum cost share for property owners or occupants requesting extensions.
Additionally, the amendments mandate that an independent third party must conduct this annual review and submit a formal report to the City Council no later than October 1st of each year. The ordinance also refines the formula for financial contributions when estimated net revenues fall short of construction costs, requiring owners or occupants to deposit a sum covering the difference plus either 25% of estimated costs or the newly established minimum cost share from the annual report, whichever is higher.
BACKGROUND:
The Public Utilities and Services Commission (PUSC) recommended eliminating line extension allowances (“LEAs) in its 2025 annual report (see attached, page 33). LEAs subsidize upfront costs of gas line extensions, thereby requiring current ratepayers to bear the costs for (potential) future ratepayers. The PUSC identified several states including California, Colorado, Maryland, Massachusetts, Oregon and Washington State that have all eliminated or restricted LEAs, citing “inequitable subsidization for new gas customers by existing customers, stranded asset risks for an industry in decline, and conflicts between incentivizing gas system expansion and climate targets.”
COMMUNITY ENGAGEMENT:
The City’s Public Utilities and Services Commission (PUSC) recommended eliminating line extension allowances in its 2025 annual report. The patron has also engaged with the City’s Department of Public Utilities and the Mayor’s office to address potential unintended consequences.
ALIGNMENT WITH OTHER STRATEGIC INITIATIVES:
A thriving and sustainable built environment (planned for future generations)
FISCAL IMPACT:
The Department of Public Utilities does not anticipate a material fiscal impact from this legislation. Investment in expanding the natural gas distribution system has averaged $6.8 million per year over the last 10 years. With adoption of this policy we do anticipate some reduction in gas line extension activity as developers adjust to the new policy, however, future investments will be funded by the development community by at least 25%. This will lower current and future capital and debt needs which will help strengthen some of the Department of Public Utilities’ financial metrics that contribute to the bond ratings on the Departments issued and future revenue bonds. For the rate payers, this policy will help ensure that existing customers are not subsidizing new development and also help ensure new development is self-supported. Overall impact to the Departments financial health should be minimal.
DESIRED EFFECTIVE DATE: Upon Adoption
REQUESTED INTRODUCTION DATE: November 9, 2026
CITY COUNCIL PUBLIC HEARING DATE: December 14, 2026
REQUESTED AGENDA: Consent
RECOMMENDED COUNCIL COMMITTEE: Government Operations
AFFECTED AGENCIES: Department of Public Utilities
RELATIONSHIP TO EXISTING ORD. OR RES.: N/A
ATTACHMENTS: “2025 Annual Report, Richmond City Public Utilities and Services Commission”
STAFF: Will Perkins, Senior Legislative Services Manager, (804-382-7811)