Philadelphia Gas Utility Explores Business Diversification

Philadelphia’s Office of Sustainability and Philadelphia Gas Works (PGW), the City-owned gas utility, have released a report summarizing the findings from the Philadelphia Gas Works Business Diversification Study, an exploration of pathways for PGW, its workers, and its customers to thrive in a low- to no-carbon economy, in line with the City’s goal to achieve carbon neutrality by 2050. 

This is no small challenge. PGW, the largest municipally-owned gas utility in the country, not only has almost 500,00 customers and accounts for around 24% of greenhouse gas emissions in the city; it is also a major employer, with over 1,600 workers, most of whom are members of the Utility Workers of America. Philadelphia is also the country’s poorest large city and one of the most energy-burdened cities  (on average Philadelphians spend around 6.7 percent of their income on energy and 20 percent of  households spend over 13 percent), so it is critical that PGW be decarbonized affordably, with benefits and costs distributed equitably.

In short, to say that achieving carbon neutrality for PGW while maintaining affordability of service and the utility’s workforce is a complicated issue, is an understatement. This study is the first step in exploring a potential path forward. 

The Study

The purpose of the study, which was conducted by Energy & Environmental Economics (E3), Portfolio Associates (PA), and Econsult Solutions Inc (ESI), is to help Philadelphia and PGW consider different business models for  a low-carbon future and  ways for PGW to transition to them. Specifically, the study’s objectives are: 

• To examine technological pathways to reduce greenhouse gas (GHG) emissions from heating, cooking, and other end-uses for fossil gas in Philadelphia, consistent  with the City’s climate and air quality goals, and evaluate the impact of those pathways on PGW’s current business model and its customers;
• To identify near-term business strategies for PGW that help sustain jobs and maintain customer affordability; and
• To identify near-term pilot projects for PGW that have the potential to reduce GHG emissions, benefit low-income customers, and result in long-term workforce opportunities. 

The study examined four decarbonization pathways related to heating services and evaluated the impact of these pathways on PGW, its customers, and its workforce, with the primary focus on PGW and customers. None of these pathways resulted in findings that are simultaneously optimal from a PGW, customer, and workforce perspective, but the three electrification-related pathways (electrification of buildings, hybrid gas/electric, and networked geothermal) fared much better than renewable gas pathway for customers and the city as a whole. 

The study then examined ways to modify the existing PGW business model to overcome the challenges identified in the business-as-usual scenario (i.e., the existing business model) which is challenging given the complex regulatory environment that governs PGW's operations. The utility committed to move forward with pilot projects to test potential new opportunities based on the analysis. 

The Pilots

PGW is pursuing three pilot strategies: 

• A weatherization program for low- and moderate-income customers that includes an “on-bill financing” mechanism. Weatherization, which involves protecting a building from winter weather and improving energy efficiency through measures like better insulation and the sealing of drafty windows, is a critical strategy for simultaneously cutting emissions, reducing energy burdens, and improving indoor air quality and comfort. With “on-bill financing,” PGW would pay for the up-front costs of a customer’s weatherization upgrades, then recover those costs through supplemental payments on the customer’s monthly bill.
• A feasibility study of networked geothermal systems in which PGW and the City will secure  funding  to investigate the technical and geological potential of lock-level networked geothermal district systems, as well as the necessary workforce skill-set and the utility financial and regulatory model for such a system. In a  district energy system, buildings are heated and cooled through a network of insulated pipes carrying steam, hot water, or chilled water,  and the system’s carbon intensity is determined by what energy source or sources are used for the heating and cooling, which happens in one or more locations. In the PGW feasibility study, new geothermal heat pumps will be paired with water pipelines and other district heating infrastructure to source heat from the earth in the winter and to store it in the earth during the summer.  
• A local “decarbonized gas” pilot  where PGW convenes a working group with the Philadelphia Water Department and Streets Department to explore opportunities to convert City waste into biomethane. “Decarbonized gas,” sometimes referred to as “renewable gas,” or RNG, is an umbrella term that covers several types of zero- or low-GHG substitutes for fossil gas. The premise of this pilot is that PGW would be able to repurpose its existing infrastructure without major disruptions to customers who can keep their existing gas furnace and other gas appliances.

Of the three pilots, the weatherization pilot is the least novel -- at least apart from the on-bill financing component. PGW already operates a  weatherization program, its “Home Comfort” program, but even in combination with Pennsylvania’s state Weatherization Assistance Program (administered by the Department of Community and Economic Development) that program doesn’t come close to meeting Philadelphia’s weatherization needs. The proposed pilot could help. On the other hand, low-income advocates like Community Legal Services of Philadelphia and the Pennsylvania Utility Law Project have historically opposed on-bill financing. As important as weatherization is, including for purposes of diversifying PGW’s business model, its decarbonization potential is limited. 

The geothermal pilot is decidedly novel and could hold the most promise, both for the city and Pennsylvania, and was supported by both environmental, social justice, and community organizations. Networked geothermal systems are extensively used in some European countries, and the adoption of a system in Philadelphia not only has significant decarbonization potential, but could be a new revenue source for PGW while using infrastructure similar to fossil gas infrastructure, which means PGW’s workforce could be retrained to build and maintain these systems. This is an exciting proposal, then -- but one that raises many questions regarding design, stakeholder participation, and funding that we hope will be explored in the feasibility study. 

The “decarbonized gas” pilot has no promise as a scalable and affordable decarbonization solution. This pathway maintains current levels of fossil fuel combustion and misses the opportunities that energy efficiency and electrification could bring like improved air quality and related health benefits, lower utility bills, and addressing the energy burden. Even with optimistic estimates of the “decarbonized gas” availability, most of the gas for the system will inevitably still be fossil gas. NRDC’s 2020 report, “Renewable Gas” - A Pipe Dream or a Climate Solution?”, dives more deeply into the future of renewable gas, outlining its various challenges and finding that it cannot replace fossil gas at scale and instead should be focused primarily on hard to electrify sectors, including certain industrial processes and long-distance transportation in the short to medium term. 

The Study is a First Step in a Long Journey

WHYY recently reported that PGW executives were involved in crafting a bill in the Pennsylvania General Assembly, SB 275, that would  block local  building electrification efforts in order to maintain the use of gas.  The City of Philadelphia has passed a resolution opposing this bill  -- but according to WHYY, emails obtained  under a state Right to Know Law request show that a PGW executive not only participated in its drafting, but also suggested changes to make it more hostile to electrification. 

PGW told WHYY that it didn’t support the bill, only its “intent,” which PGW wrongly characterized as protecting its customers’ access to “affordable energy.”  But it’s clear that PGW is still very much a gas utility, albeit one owned by the City of Philadelphia -- and Philadelphia is in Pennsylvania, which produces more gas than any U.S. state but Texas. PGWs only responsibilities according to its charter are fossil gas procurement, distribution, and delivery. Will PGW be willing to join the journey to full decarbonization in Philadelphia beyond this first step of what will be a multi-year, multi-phase planning process? The study has uncovered more questions than it answered including the limitations the utility faces due to its charter and regulatory structure.

PGW, in partnership with Philadelphia, must double down on planning for a truly decarbonized future for itself -- one that prioritizes real emission reductions and customer protections over its pipes and business model -- and the City and the Commonwealth of Pennsylvania must embrace policies to ensure this transition is equitable for both customers and PGW’s workers. Such planning could benefit from the creative thinking shown in the study’s geothermal pilot concept, but should also acknowledge that economic building electrification must be a key piece of Philadelphia’s climate solution.