New York is a national leader on energy and climate. The state’s Clean Energy Standard provides that half its electricity will come from renewables by 2030. The state has also committed to reduce greenhouse gas emissions 80% below 2005 levels by 2050. Governor Andrew Cuomo’s new plan to reduce methane pollution directs state agencies to develop policies to inventory emissions and identify strategies to reduce them.
These are ambitious goals that require proactive, flexible policies from New York regulators. However, embedded within New York Public Service Commission precedent and policies are preferences for utility decisions weighted in favor of natural gas utilization and infrastructure. These policies risk locking in that infrastructure at the expense of alternatives.
Dusting off old policies
One such policy, in place since 1989, incentivizes utilities that expand gas service into new areas by increasing the rate of shareholder return they’re allowed to earn on these investments. Others put the finger on the scale for increased utility investment in natural gas pipelines and delivery infrastructure.
These policies may be sensible as a means to move away from more expensive and more polluting fuels such as oil. As the state looks to comply with its own ambitious climate policies, however, it’s time to revisit this thinking to ensure the rules aren’t biasing investment decisions in favor of gas expansion at the expense of other cheaper and lower-emitting solutions, and that they’re flexible enough to accommodate changes in demand and the emergence of new technologies.
Pipelines v. alternatives
Utilities are charged with ensuring that their systems run reliably. That means they need to have enough natural gas supply to meet all of their customers’ demand under virtually any circumstances. To meet these conservative planning assumptions, the most commonly proposed solution is to build new pipelines, compressor stations and larger gas supply systems. Often, this costly infrastructure is designed to meet extreme conditions — for example, the coldest day in 30 years — and may actually be needed only a few times a year, or sometimes less.
But building infrastructure is how utilities make profit for their shareholders. Once a utility get approval to and builds new supply infrastructure, it locks in returns over the decades-long life of the infrastructure. The incentives imbedded in the market design, coupled with policies weighted towards new gas infrastructure, also risk locking in greenhouse gas emissions over the long lives of those systems. But opportunities are emerging for gas utilities to modernize and expand their systems in new ways to meet increased demand, resulting in both environmental and cost benefits.
Some examples include more robust energy efficiency programs, demand response (where a customer temporarily reduces gas demand, sometimes with the help of technology such as a programmable thermostat, to achieve cost savings), and advanced metering infrastructure (i.e., updated technology to improve communications of gas consumption data to empower customers to better manage their energy usage and bills).
In addition, new household and commercial heating technologies such as air source and geothermal heat pumps have emerged as solutions for communities unserved by a gas distribution utility. The New York State Energy Research and Development Authority says these technologies will save both energy and gas bills and help meet aggressive greenhouse gas reduction goals.
Solutions like these may very well provide a better, more cost effective solution than new pipeline capacity that may be used only a few days of the year, but locks in natural gas use for years and years to come.
Reforming the gas vision
The New York Public Service Commission has already shown its commitment to developing a comprehensive framework to meet its climate goals—it’s doing just that in the Reforming the Energy Vision initiative. The ultimate aim there is to create a modern, smart interactive electricity system designed to maximize renewable energy, efficiency, and customer choice. But a similar framework does not exist on the gas side.
Some utilities have proposed pilot programs to develop geothermal technology or other gas demand response pilot programs but this has been primarily on a piecemeal basis. Outdated policies mean too much weight is still placed on expanding gas infrastructure.
A proceeding to analyze its policies on the use of natural gas is pending before the commission. In light of New York’s climate policies enacted after that proceeding was opened, it is now the appropriate time to revisit these issues to ensure they are consistent with the state’s climate goals.
This means reevaluating incentives provided to utilities for expanding natural gas supply capability. It means recognizing and promoting non-pipeline alternatives, and accurately measuring the environmental and economic costs of these new technologies when compared to traditional natural gas supply investment. Finally, it means expanding energy efficiency programs, making the gas system more responsive to customer needs, and using new technologies to enhance operational efficiency to ensure that customers enjoy both economic and environmental benefits.
One Comment
Any new natural gas infrastructure installed today or later will become a stranded asset in future years. This is simply because it takes decades of full use to pay off the capital costs of new gas infrastructure yet, between now and 2050, we’re going to be drastically reducing our consumption of all fossil fuels, including natural gas, in order to meet the 80×50 goals for CO2 emissions reductions.
Given how long it takes to pay off natural gas capital costs, we really should have ended all natural gas expansions some years ago — perhaps five or 10 years ago. To continue not only to permit these expansions, but also to provide utilities incentives to do them, is financially irresponsible and imprudent.
Some may argue that we still need natural gas for generating electricity. Perhaps. But, even if that is the case, it doesn’t mean that we should continue expansion of the retail natural gas market. Homes and buildings have cleaner, more sustainable alternatives for heating and cooling. The asset lives of those alternatives will not be reduced by the need to limit emissions. Also, it turns out that the capital cost of installing new natural gas hookups is often sufficient to pay all or most of the cost of alternatives, such as heat pumps, that generate zero on-site emissions. Thus, capital spent on natural gas equipment is used much less efficiently than the same capital when used on heat pumps.
Natural gas served us well in the days when we knew of no better alternative. But, now, the days of gas have passed… It is time to move on to cleaner, cheaper, more long lived alternatives.