The Future Is All-Electric. Why Are We Spending Millions on Gas?
Gas rates are high and poised to get higher. States are running out of time to keep energy costs low with a managed gas transition.
In Illinois, gas rates more than doubled this winter compared to just two years ago. Yet, in January, the state’s gas utilities proposed to increase rates again: with more than $900 million in new gas investments.
The move inspired Governor JB Pritzker to publish a powerful op-ed in the Chicago Sun-Times, repudiating unnecessary gas utility spending. Illinois is not the only state engaged in this struggle.
Across the country, states are waking up to the reality that burning “natural” gas—a fossil fuel—in buildings is costly for the climate and our health. Luckily, modern all-electric appliances can deliver efficient, affordable, and reliable heat to our homes without the emissions.
With the all-electric transition already underway, states have a responsibility to protect customers from unchecked, unnecessary investments in a gas system that is on its way out. Many are beginning to take action, with California removing subsidies for new gas system connections and Colorado convening a Senate Select Committee on long-term gas investments, among other actions.
Now is no time to hesitate: To achieve an affordable, equitable transition from gas to clean electricity, states must take bold action today to avoid unnecessary gas investments.
The future is all-electric
When a gas utility invests in gas infrastructure, such as a pipeline, it expects to recover the cost from customers—plus a profit—over the course of up to eight decades.
Yet scientists overwhelmingly agree that we need to cut climate-warming emissions in half by 2030, and to net-zero by 2050, to avoid the worst impacts of climate change. For buildings, that means eliminating natural gas use in fewer than three decades.
Numerous studies demonstrate that transitioning from gas to efficient, all-electric appliances is the single-most cost-effective strategy for cutting emissions from buildings. In a national model, the Net-Zero America project at Princeton University found that achieving net-zero emissions will require electrifying most, if not all, water heating, space heating, and cooking in the United States by 2050—80 to 90 percent on the low end and nearly 100 percent on the high end.
The transition to clean, all-electric appliances is already underway. More than 100 local governments have adopted ordinances that encourage all-electric new construction, from Sacramento to Salt Lake City and from Chicago to New York. And in every state in the country, the Inflation Reduction Act is sweetening the deal: with more than $4.5 billion in rebates for efficient, all-electric appliances in low- and moderate-income households and generous electric heat pump tax credits.
The transition to electrification will come with numerous co-benefits, including cleaner, healthier air, environmental justice, and independence from the political and price volatility of oil and gas. It also means our energy system will look markedly different in three decades—and our investments need to change accordingly.
Customers deserve a managed gas transition
Gas utilities provide gas to homes and businesses through gas distribution pipelines. Customers pay for this service in two components.
First is the “commodity cost”—the cost of the gas itself, which is passed directly from the utility to the customer. This winter has proven that gas commodity costs can be volatile, with prices more than tripling in parts of the West this year due to supply interruptions.
More consequential for long-term gas costs, though, are gas infrastructure costs. Investing in infrastructure, such as pipelines, is gas utilities’ core business model: They pass on the cost of the investment, plus a return on investment, to their captive customers. State regulatory commissions are tasked with ensuring that these investments are reasonable and necessary.
To recap: Gas utilities have an incentive to invest in gas infrastructure that will be paid for by customers for 50 to 80 years. But in just 30 years, nearly all of their customers will be using clean electricity—not gas.
This is existential for the gas system. The future is all-electric, and continued, unchecked gas spending will have devastating consequences for customers who stay on the gas system the longest. In California, state-funded analysis found that an “unmanaged” gas transition will result in unthinkable gas rate increases, with rates growing more than 900 percent by 2050 compared to today. Without intervention, it will be the customers who are least able to electrify, including “lower-income Black and Brown people and rural residents,” who are left paying for these bad investments.
To avoid this outcome, states must act now to mitigate unnecessary, costly gas investments. The window for achieving a managed gas transition is closing fast.
States can change course today
States have no time to waste in securing a managed transition off of gas distribution infrastructure. The following are no-regrets policies that states should enact to save gas customers money.
1. Eliminate subsidies to connect new properties to the gas system.
Currently, building developers seeking to connect a property to the gas system receive a subsidy—aka a “gas line extension allowance”—to cover the cost. This is paid for by all other gas customers, including low-income customers, regardless of whether they ever benefit from new connection subsidies themselves.
States are transitioning to electric appliances to meet climate goals. Gas line extension subsidies are dragging us back—and it’s costing us. California, which will eliminate the subsidies starting in July 2023, estimates that the change will save gas customers approximately $160 million every year. New Jersey (via a recent executive order) and Colorado (in a move that may attract bipartisan support) might soon follow.
2. Redirect ratepayer-backed incentives for gas appliances.
State energy efficiency programs, which are paid for by utility customers, currently incentivize gas appliances—contradicting state and federal building electrification policies and incentives.
States should redirect this funding to building envelope and duct efficiency measures, which will save customers money regardless of the fuel they use.
States should also ensure that energy efficiency funding is available to support fuel switching from gas to electric appliances, with an emphasis on low-income households. California is considering removing gas appliance incentives for new construction but must go further by also removing incentives for retrofits.
3. Require long-term gas transition planning
To achieve a managed transition, states must establish a long-term process for decommissioning gas infrastructure as households switch to all-electric appliances.
As a starting point, state regulators must scrutinize proposed gas system investments and avoid reinvesting into the gas system where possible—for example, retiring a pipeline and electrifying the affected community where it is cost-effective. States should also prioritize electrifying low-income households early on so that they are not stranded with high gas system costs as other, better-resourced households depart the system.
Establishing a gas decommissioning timeline will not only contribute to an equitable and affordable transition for customers but is critical to enabling comprehensive planning for the gas workforce. Colorado’s “Clean Heat” process, which requires the gas utilities to meet decarbonization targets with a least-cost mix of resources, and California’s recent proposed Gas Distribution Infrastructure Decommissioning Framework provide initial road maps for the transition, yet both states can and must go further to mitigate unnecessary gas utility spending.
Today, states ranging from Washington to Colorado and from Illinois to New Jersey are considering steps to cost-effectively wind down the gas system. There is no time to hesitate. To address climate change while maintaining an affordable energy system, states must take bold action now. Luckily, as we close the chapter on gas, a better future awaits: one with cleaner air, healthier and safer homes, and more affordable clean energy.