New York must chart new course for gas utilities to hit climate targets

If New York wants to meet its climate goals, the state’s gas utilities can’t stick to business as usual. Nor can they keep investing billions of dollars in maintaining and expanding the nearly 50,000 miles of gas pipeline they’ve laid over the course of the past half-century.

Instead, state regulators have to start acting now to force the nearly 150-year-old industry to undergo a ​“managed, phased transition” to a new carbon-free path — or the consequences could be catastrophic.

That’s the key takeaway of the Future of Gas in New York State report released last week by the nonprofit Building Decarbonization Coalition. It concludes that New York must not only halt existing plans to expand and maintain gas pipelines crisscrossing the state but also replace them with alternatives such as underground ​“thermal energy networks” and electric heat pumps and appliances.

Without a state-guided shift, New York won’t just fail to meet the decarbonization goals it passed into law in 2019, said Lisa Dix, the coalition’s New York director. ​“If we continue business as usual — which is what we’ve been doing since the climate law passed — we’re going to see ballooning costs, and a potential energy crisis, for New York gas customers,” she said.

That’s because gas utilities can no longer rely on decades of revenue from a growing customer base to pay off the costs of upgrading an aging and leak-prone pipeline network. Since the 2019 passage of New York’s climate law, the state’s gas utilities have spent $5 billion on infrastructure investments and identified $28 billion in pipeline replacement plans, the report states.

While those replacements reduce safety hazards and emissions from leaking gas, they also come at extraordinary cost, the report finds — between $3 million and $6 million per mile, depending on how costs are accounted for, or up to an average of $60,000 per customer served by the line being replaced.

At the same time, New York’s plan for implementing its 2019 climate law calls for a gas-system transition that reduces fossil gas use by at least 33 percent by 2030 and 57 percent by 2035 and converts the ​“vast majority of gas customers to all-electric by 2050.” That will leave fewer and fewer customers to pay increasing pipeline-maintenance costs, as this diagram from the Building Decarbonization Coalition’s report illustrates.

Those costs could quickly rise to catastrophic levels, the report warns. Utility data shows that even a relatively modest decline in customer gas consumption of 2 percent per year — well below what’s called for in the state’s plan — will drive up gas-delivery costs to four times their present levels by 2040 and seven times their present levels by 2050.

This will spur more and more people to disconnect from the gas system in favor of electricity for heating, cooking and other needs, further reducing the pool of customers left to pay off investments in the gas network. If unchecked, the cycle will create a ​“self-reinforcing negative feedback loop for gas utilities,” putting a ​“crushing financial burden on those left on the network, especially low-income New Yorkers,” the report finds.

Evidence of the unsupportable costs of letting gas utilities carry on as usual has been piling up across the country. A 2021 report from consultancy Brattle Group stated that existing pipeline investment plans could saddle U.S. gas utilities with $150 billion to $180 billion of ​“unrecovered” investment over the coming decade.

Despite this risk, U.S. gas utilities tripled their spending on pipeline infrastructure in the period 2009–2017, according to nonprofit think tank RMI. Much of this investment is being made in states that have committed to dramatically reducing greenhouse gas emissions over the coming decade, such as California, Illinois, Massachusetts, Maryland and New York, RMI noted in a 2020 report. (Canary Media is an independent affiliate of RMI.)

This makes what to do about gas utilities ​“one of the most complex problems of decarbonization — how to untangle ourselves from this infrastructure that’s played such an important role in delivering low-cost energy” over the past 50 years, said Michael Walsh, a report co-author and founding partner at Groundwork Data.

“A managed and phased transition is how we make this transition work to meet our decarbonization goals and our commitment to ratepayers for reliable and cost-effective service,” he said.

The false promise of alternative fuels

So far, the main decarbonization strategy that gas utilities in New York and across the country are banking on is simply to replace fossil gas with lower-carbon fuels, including hydrogen generated from clean electricity and so-called ​“renewable natural gas” (RNG) captured from landfills and sewer treatment plants or produced from biomass such as crops or waste. But Walsh said that this strategy is flawed on multiple fronts.

National Grid, a utility that provides electric and gas service across New York and New England, has made these alternative fuels a centerpiece of its plans to decarbonize its U.S. system by 2050. The company has claimed it can obtain RNG from out-of-state sources at volumes needed to meet its medium-term goals. On the hydrogen front, it has launched a pilot project in the town of Hempstead, New York to start blending hydrogen into its gas lines in hopes of proving its viability across its network.

Building heating accounts for about a third of greenhouse gas emissions in the U.S. Northeast. National Grid is committed to ​“help the vast majority of customers adopt efficient, electric heat pumps for home heating and cooling,” spokesperson Mary-Leah Messenger said in an email.

At the same time, ​“There are some customers and industries that will find it challenging to electrify, and, in those situations, we are exploring RNG and green hydrogen to avoid leaving any emissions on the table in our journey to net zero,” Messenger wrote.

But the Building Decarbonization Coalition report points to a growing body of research showing that RNG and hydrogen can’t meet even a small portion of New York’s total demand for fossil gas. A study conducted for the New York State Energy Research and Development Authority found that the entire potential supply of RNG in New York amounts to only 11 percent of the state’s buildings-sector gas demand, for example.

Unlike wind and solar power, which capture untapped resources of sun and wind and have been getting cheaper as they scale up, RNG requires biological feedstocks that are in limited supply and have many competing uses, Walsh said. For National Grid to secure enough feedstock to replace its entire fossil gas supply would require the equivalent of twice the cropland in New York state, he noted.

Nor should anyone expect RNG costs to fall as the industry scales, said Matt Rusteika, Building Decarbonization Coalition’s director of market transformation. A 2019 study commissioned by the American Gas Foundation, the research arm of the American Gas Association trade group, found that the cost of RNG production at high volumes could be expected to reach between $7 and $20 per million Btu, well above recent U.S. fossil gas wholesale prices of between $2.50 and $5 per million Btu — and ​“that’s the gas industry’s own research,” he said.

Hydrogen, which will be a critical source of carbon-free fuel for heavy industry, shipping and other hard-to-decarbonize sectors, faces its own cost and volume constraints, Rusteika said.

What’s more, pure hydrogen cannot be transported in existing pipelines or used by existing furnaces and appliances, Walsh said. Even if pipelines and appliances could be replaced to accommodate it, using electricity to make hydrogen to burn for heating is about one-third as energy-efficient as using the same electricity to power heat pumps.

But planning to rely on what the Building Decarbonization Coalition’s Dix disparagingly described as the ​“magic fuels” of RNG and hydrogen does have one advantage for gas utilities — it allows them to make the case to state regulators that it will be cost-effective to maintain pipeline networks over the next several decades, which will enable utilities to recoup the investments they’ve sunk into those networks.

“The underlying issue…is the reluctance to change,” she said. ​“The utilities can just say, ​‘We can use the same system and just put different stuff in it. Won’t that be great?’ But that’s not practical, it’s not cost-effective, and it’s not even feasible.”

Finding climate-friendly and cost-effective alternatives that work

Fortunately, ​“we have 25 years to reimagine things in a way that utilities stay around, and workers still have high-paying jobs,” Dix said. Realistic options do exist — just not yet at utility scale.

One idea is using gas utilities’ existing underground rights of way and skilled workforce to replace the pipes that now carry flammable gas with pipes that tap stable underground temperatures to make electric heat pumps work more efficiently.

These ​“thermal energy networks” are now being tested in a handful of neighborhoods in Massachusetts. A law passed in New York last year directs the state’s gas utilities to launch similar pilot projects and instructs the Public Service Commission, which regulates the state’s utilities, to explore options for integrating thermal energy networks into traditional planning for customer rate-based infrastructure investments.

Similar thermal energy network bills are now being considered in other states including Vermont and Illinois, said Audrey Schulman, co-executive director of the Home Energy Efficiency Team, a Cambridge, Mass.–based nonprofit that helped establish Massachusetts’ pilot programs.

Building Decarbonization Coalition is a member of Upgrade NY, a coalition of environmental groups and trade unions lobbying for decarbonization policies that preserve jobs, such as thermal energy networks . ​“There are people out there who work for the gas company, for the building trades,” Rusteika said. ​“I’m not going to tell them they aren’t going to have those jobs. The good thing about thermal networks is that it’s going to put people to work.”

Regulators and lawmakers can also order gas utilities to explore broader ​“non-pipeline alternatives” to transition from fossil gas, Dix said. This term encompasses various methods to convert investment in pipelines to investments in energy efficiency, heat pumps, ground-source geothermal networks, district energy networks or other options.

New York regulators are examining a host of non-pipeline alternatives to reduce demand for the fossil gas that is now in short supply due to decisions to deny large-scale pipeline projects to serve New York City and Long Island. In 2019, regulators approved parts of a non-pipeline-alternative plan from Con Edison, the utility serving New York City, to invest in efficiency and electrification investments, but denied plans to produce RNG locally.

Dix highlighted the importance of expanding the scope of this non-pipeline planning to encompass not just near-term gas supply shortfalls but the full breadth of the state’s decarbonization goals. The work now being done on thermal energy networks and non-pipeline alternatives ​“helps us envision and figure out models that are going to be necessary to move entire neighborhoods off the gas system in a phased, equitable and managed way,” she said.

Simply allowing individual customers to switch from gas to electric in an unmanaged way doesn’t solve the problem of maintaining gas networks, she added. In fact, an unmanaged ​“hybrid heating” approach will cost only a little less than the cost of keeping the gas network operating as-is, as this chart from the report indicates. 

“We’ve got to do this neighborhood by neighborhood, not house by house,” Dix said. 

Laying the policy groundwork for viable alternatives

State lawmakers and regulators have to act decisively to make this neighborhood-by-neighborhood approach work, Dix said. The first step is getting rid of laws that stand in the way.

State law now requires utilities and regulators to approve spending to supply gas service to any residential or commercial customer that demands it. If those laws aren’t amended, plans to extend thermal energy networks or other alternative energy options to entire neighborhoods could be blocked by a single customer who insists on keeping gas flowing, since it wouldn’t be cost-effective to build a new network while retaining the old one.

New York lawmakers are considering a number of bills this year advancing bans on fossil gas use in new buildings and incentivizing electric heating and appliances. Another bill now under consideration, the New York Home Energy Affordable Transition (NY HEAT) Act, would eliminate the ​“legal entitlement” to utility gas service that currently exists.

NY HEAT would also direct the New York Public Service Commission to make achieving the state’s climate law a ​“core planning objective” for how it manages and allocates responsibility for long-term gas utility planning. That may sound like a no-brainer — the commission is tasked with implementing state law, after all. But to date, regulators have largely directed gas utilities to devise their own plans for meeting the climate law’s targets, Dix said — and utilities have been responding with plans that rely on infeasible options such as RNG and hydrogen.

That’s what happened with a similar planning process in Massachusetts, Dix pointed out. In 2020, Maura Healey, then the state’s attorney general, asked state utility regulators to launch a ​“Future of Gas” proceeding that would develop a plan for gas utilities to play a role in the state’s decarbonization goals.

But state regulators left the planning to utilities, which focused on keeping their pipelines running with RNG and hydrogen. That outcome led Healy in 2022 to ask state regulators to reject the plans, saying they failed to meet the state’s decarbonization and cost-containment goals. Healy was elected governor of the state last year, but her administration has yet to take explicit actions on the gas utility planning proceeding.

Dix said that New York regulators shouldn’t follow Massachusetts’ lead in letting utilities propose plans without strict guidance and oversight. Instead, ​“we’re calling for the [Public Service Commission] to require the utilities to do this analysis and submit the cost data, the cost-effectiveness data, the emissions data,” she said.

Dix acknowledged that the choices facing New York aren’t simple. Electrifying heating for every building in the state will place enormous new strains on the power grid and the supply of carbon-free power.

“This is a 25-year process,” Dix said. ​“Our system is not going away. We’re saying there are things we have to start doing now to establish sane and sensible phased and managed plans, to ensure we’re not leaving New Yorkers with an unsustainable future.”