Strategic Gas Planning Is Vital to NY's Climate Leadership

New York has embarked on a critical, often overlooked, piece of meeting its nation-leading Climate Leadership and Community Protection Act (CLCPA) goals: gas planning. A proceeding is now underway at the Public Service Commission (PSC) to modernize and improve the transparency of planning by the state’s gas utilities. New York is among the first states to embark on this process, second to California; Massachusetts is expected to have its own process underway soon. The first phase of New York’s proceeding will take place this summer, with utility plans to be filed in July and a white paper from the Department of Public Service outlining a much-needed, more comprehensive planning process in August.

Why Gas Planning Matters Now

With 30 years until New York must become carbon neutral, it’s critical that gas planning gets underway now; to reach that goal, all sectors of the economy need to transition away from fossil fuels. But doing so means we need a serious plan. The PSC’s March 19, 2020 gas planning order outlines the issues to be addressed in the proceeding, including:

• Locational constraint analysis (focusing on the locations on the gas distribution system where there are constraints);
• Greater transparency and comprehensiveness of planning information (to date, gas planning has been an extremely closed process, where most data are not made public, and most stakeholders are not included);
• Explicit inclusion of policy-alignment of gas planning with state and local climate/clean energy policies;
• Criteria for reliance on peaking services (short-term pipeline contracts, and trucked-in compressed natural gas);
• Moratoria standards and procedures;
• Demand response and rate design;
• Criteria pollutant reduction (because interruptable gas customers can burn oil or propane when there are gas demand peaks); and
• Possible tariff and rule revisions

Decarbonizing New York

NRDC commissioned Synapse Energy Economics, an energy consultant that specializes in rigorous analysis of the electric power and natural gas sectors, to assess the state of play and path forward for New York’s decarbonization goals. The white paper, “Gas Regulation for a Decarbonized New York,”  provides an overview of many of the most relevant decisions that will be faced by the PSC in implementing the new gas planning efforts. Specifically, the paper lays out the challenges and recommendations for the PSC in reaching New York’s climate goals while regulating a utility system that uses a vast amount of infrastructure to transport fossil fuels for combustion.

The recommendations specified in the white paper for inclusion in the new gas planning process are as follows:

Modernize Gas Forecasting

As New York moves toward carbon neutrality, with various programs and laws coming to bear on building energy use, utilities will have to update how they model their system demands into the future, including:

• Using the most up-to-date assumptions on market trends for new gas connections and fuel switching;
• Looking out far enough and with sufficient detail on timing and location that there is adequate lead time to develop and implement Non-Pipeline Alternatives (NPA);
• Incorporating the expected impacts from existing state and local policies, especially from building electrification;
• Developing long-term gas load forecasts that are compatible with long-term state and local climate mandates, like Local Law 97 in New York City that sets carbon limits for buildings and the CLCPA.

Develop a Comprehensive Non-Pipeline Alternatives (NPAs) Screening Framework

NPAs, like energy efficiency, electrification of building heating and hot water systems, and demand response (reducing use during peak times), allow for greater system flexibility, carbon reductions and other societal benefits that can make them better investments than traditional infrastructure for customers. Recommendations include:  

• Include all available NPA measures and evaluate their cost-effectiveness, collectively;
• Evaluate cost-effectiveness from the societal perspective (including the value of avoided emissions of carbon dioxide and other air pollution);
• Account for lifetime impacts of NPAs and demand-side measures over their measure lives;
• Consider including option value—the value of flexibility—by using smaller, distributed solutions that are quicker and easier to deploy to reduce demand, rather than large, expensive infrastructure solutions to increase supply; and,
• Annually update the assessment of the capacity shortfalls and evaluate the status and performance of each NPA.

New Gas Connection Changes

Currently, state law and regulation provide that new gas customers in New York receive at least the first 100 feet of gas service line extension for free, even if their expected gas use does not justify the cost of the extension (the case for many new mass market customers).  Consequently, existing gas customers must subsidize this extension of a fossil fuel system, which will make the CLCPA’s GHG emission reduction targets much more difficult and costly to achieve. As we know the gas system will need to contract to achieve these targets, those who remain on the system will be stuck paying for these uneconomic investments as customers increasingly transition their buildings to zero carbon energy sources. Ultimately, we need to wind down gas system investments, not ramp them up. To that end, the paper recommends the following changes:

• Require standard definitions of, and consistent reporting on, drivers of interconnections across all utilities statewide;
• Disclose the costs of gas connections to new customers;
• Minimize socialized costs of new gas connections; and,
• Reconsider the obligation to serve all potential customers with gas service, in light of socialized costs to customers, health impacts, and policy goals.

Existing Infrastructure

There is also the potential for some pipes and other equipment to last longer than they’re needed as New York moves toward a net zero carbon economy by 2050. These assets will need to be dealt with appropriately to prevent potential economic losses that could unfairly burden gas customers or utilities in the coming decades. Specifically, New York will need to act swiftly to establish clear directions for cost recovery for assets out to 2050, taking into consideration future expectations for the gas system. It’s time to start planning and create a system for strategic retirements of segments of the gas system that are no longer cost-effective. The paper describes the following recommended structure:

1. The gas utility ranks its lines based on a metric that combines pipe age and material, identified leaks, remaining undepreciated asset value, and customer type.
2. For lines that are most promising for fuel switching, the utility develops an efficiency and electrification plan and begins consultation with the customers served and the relevant electric utility. Cost-effectiveness of utility incentives and financing can take into account the value of avoiding the distribution line replacement.
3. Align the overall (across-line) retirement schedule with depreciation schedules.
4. Allow customers time (potentially multiple years) to adjust and make plans for their buildings and fuel switching.
5. Take advantage of economies of scale and scope to offer attractive net cost to customers and utility for efficiency and electrification.
6. Set a specific date for completion of the fuel transition, then disconnect and retire the gas main.

The CLCPA has defined a path and set deadlines for New York to reduce its economy-wide carbon emissions to net zero. To achieve this goal, New York must address the transition of our gas utility system; to that end, the PSC has launched a process to enable robust planning and provide utilities and customers with greater certainty and adequate information to guide decisions and investments over the next 30 years. With transparency, sufficient data, and stakeholder engagement, New York can ensure the gas system transition is as equitable, cost-effective, and certain as possible while achieving its nation-leading climate goals.