CNG Station Business Models

Posted by on Jan 31, 2015 in Tips

CNG Station Business Models

CNG Station Business Models

Compressed natural gas (CNG) station business models traditionally fall into three distinct paradigms of ownership and business strategy. The business models discussed in this section are Fleet or End-User Ownership, Local Distribution Company (LDC) Ownership, and Third-Party Ownership. These business models arise out a number of key variables:


  • Who owns the station
  • Fuel delivery service: time-fill, fast-fill, or combination
  • Who maintains and operates the station
  • Station accessibility: public, private, or limited
  • How the station is funded, and how it will charge for fuel

Fleet or End-User Ownership
Several variants exist for a Fleet or End-User Ownership model. These models typically apply to entities that have vehicles that require fueling and desire to own the station that provides that fuel. In some cases, the ownership could be shared among multiple entities using the same station or with a utility in a hybrid arrangement.

Variations include the following:
1) Ownership Differences:
a) The ownership entity uses its own personnel for operation and maintenance of the facility
b) The ownership entity contracts with a third-party for operation and maintenance of the facility
2) Fueling Sources:
a) The ownership entity contracts with a utility for the regulated transportation and sale of natural gas to the station
b) The ownership entity contracts with a third party for the natural gas commodity and the utility entity provides regulated transportation service to the delivery point

Local Distribution Company (LDC) Ownership
Local Distribution Company (LDC) Ownership occurs when the natural gas utility or LDC owns the CNG station and operates it for the benefit of others. LDC models follow a rate-based or non-rate based model. The “rate base” refers to how much money utilities have invested in facilities and equipment to ensure service to the utility’s customers.

Most LDC ownership relies on a rate-based model in which the capital investment is made by the LDC and is reimbursed through a regulated rate (typically set by a public utility commission) charged to the customer.

It is possible in some cases for the LDC to capture a rate of return where a profit is realized. These models are seldom used. Unregulated affiliates of LDCs also pursue natural gas vehicle infrastructure where the rate of return is based on the project risk and potential profits are not limited.

LDC ownership in a facility can be full or partial and this will often affect the type of access available: public access, private access, or limited access.

A full versus partial ownership model is a hybrid where a regulated natural gas utility owns a portion of the CNG facilities (generally the compressor, storage, and auxiliaries) under a rate-based model and a third party commercial retailer owns the dispensing means (along with the land, card-reader, and retail transaction functions) using an unregulated model. The LDC recovers its investment in facilities and associated operations and maintenance costs through a “compression services” fee that is charged to the retailer. The retailer charges its customers for the delivered CNG under an unregulated price per fuel unit.

LDCs also own public access stations and provide CNG service at stations that are part of their facilities or a nearby public location. The user pays for the fuel consumed based on a dispensed published rate per unit—typically a thermal unit or Gasoline Gallon Equivalent (GGE)—as established by the regulatory authority. The utility may also fuel its own company vehicles at the same location. LDCs also own limited access stations, often located at a customer location, and provide CNG service to a limited number of vehicles. The vehicles are typically owned by one or more fleets, and generally do not include vehicles used by the general public. They may be filled using a time-fill approach if appropriate. The user pays for the fuel consumed based on a per unit basis, and may be subject to a take-or-pay contract to assure a return on the utility investment.

Third-Party Ownership or Commercial Ownership
Third-Party Ownership, also known as a Commercial Operator, is an unregulated commercial business entity which owns the CNG station on a for-profit model. These models are typically found in non-rate based, economically viable areas. The entity is not subject to utility regulation and is separate from the owner/operator of the vehicle. Commercial business models have the most flexibility in terms of the type of ownership interests, the means of financing, and the range of associated activities needed to operate a CNG station.

There are two mechanisms for this type of model: “Own and Operate” and “Operate Only”. “Own and Operate” models are just that—a commercial operator owns and operates the CNG station. That operator may or may not own the land on which the facilities are located. The operation’s functions may include the commodity purchasing, maintenance, and retail transaction management, or these may be outsourced to other entities under some type of contractual arrangement (fee for service, lease, etc.). In an “Operate Only” model, the ownership of the facilities is separate from the responsibility of operation.