CenterPoint Energy's proposed "renewable natural gas" pilot program was rejected Friday by state utility regulators amid concerns about its transparency, costs and out-of-state gas sourcing.

CenterPoint 11 months ago unveiled the first-of-its-kind program, which would allow customers to effectively buy a portion of their natural gas from renewable sources such as landfills, sewage and livestock manure.

Houston-based CenterPoint, Minnesota's largest natural gas provider, had proposed the program to meet demand for renewable energy. Members of the Minnesota Public Utilities Commission (PUC) seemed to like the concept, but weren't too hot on some of the details and voted 5-0 against it.

"The commission hopes the company will continue to work on this proposal and bring us something at a later date," said Katie Sieben, PUC chairwoman.

CenterPoint said in a statement that it is reviewing the PUC's decision, and that it remains "committed to the importance of bringing a renewable natural gas option to our customers."

Renewable natural gas is produced by the breakdown of organic waste through anaerobic digestion. CenterPoint would buy renewable gas and mix it with fossil-fuel natural gas since the two are not separated in the delivery system. (Renewable electricity works the same way; coal and solar-power electrons are not separated on the grid.)

Customers would commit to buying a certain dollar amount of renewable gas each month for 12 months. Renewable natural gas costs about 10 times more than that from conventional sources.

CenterPoint was assuming that about 1% of its roughly 800,000 residential customers in Minnesota would agree to participate, paying about $15 a month for it on average.

Supporters of CenterPoint's proposal included the city of Minneapolis and local "joint powers boards" on waste, energy and water management that include Hennepin County and Ramsey/Washington County Recycling & Energy.

The Minnesota Office of the Attorney General, which represents ratepayers before the PUC, opposed the CenterPoint proposal, especially noting the cost.

"The basic pitch is 'Hey, customer, are you willing to pay 10 times as much for renewable natural gas?' " Joe Meyer, an assistant attorney general told the PUC.

"Unless the numbers change, it almost seems like we are creating a program that customers won't understand."

Also opposing the renewable-gas pilot were the Minnesota Department of Commerce and environmental and renewable-energy groups Fresh Energy, the Sierra Club and the Minnesota Center for Environmental Advocacy.

The environmental and energy groups stressed that unlike with renewable electricity, there's currently no independent system to verify that renewable natural gas is indeed produced from renewable sources.

"Independent third-party verification is indispensable to mitigate against fraud and double counting," Margaret Cherne-Hendrick, a senior policy associate at St. Paul-based Fresh Energy, told the PUC.

Amber Lee, CenterPoint's director of regulatory affairs, acknowledged that without verification, the renewable natural gas program is "nothing." However, "we have committed to third-party audits" of renewable gas sourcing, she said.

CenterPoint had planned to initially buy renewable natural gas from out-of-state sources, prompting questions from the PUC.

"It would be a better pilot if the supply is locally sourced," Sieben said. That way Minnesota organic waste would be reprocessed, not some other state's refuse.

Lee acknowledged that "the more local, the better," saying the customer would look to include Minnesota suppliers in the future.