On Wednesday, May 12, 2021, the Chamber of Commerce for Greater Philadelphia President and CEO Rob Wonderling submitted comments to the City of Philadelphia’s Office of Sustainability about the draft Philadelphia Gas Works Business Diversification Study. Below is a copy of his comments.

Comments Submitted by Rob Wonderling, President & CEO, The Chamber of Commerce for Greater Philadelphia.

On behalf of the Chamber of Commerce for Greater Philadelphia, I am writing to address our organization’s concerns regarding the Philadelphia Gas Works Business Diversification Study.  The Chamber shares the same priorities outlined in the study that any changes to PGW’s system must safeguard ratepayers, maintain system reliability, retain workforce, and ensure the health and safety of our cities’ residents. Unfortunately, the recommended strategies in this study fail to feasibly meet those goals.

We understand the primary motivation for the recommended strategies is the potential for reducing overall GHG emissions. However, it is well known that the resulting increase in electricity demand from the displacement of natural gas can lead to increases in greenhouse gas (GHG) emissions from the power generation sector.  The diversification study asserts that 2020 emissions from a customer heating their home with electricity are lower than the emissions of a customer using a gas furnace—and that heating a home with a heat pump is significantly more efficient on a site-energy basis than heating with a gas furnace. The study only accounts for site energy which does not include the losses incurred in the production, transmission, and delivery of that energy to the home or building.[1] The natural gas we all use to heat our homes and cook is more than 91 percent efficient, compared to electricity produced by natural gas, which is only 45 percent efficient.[2] In short, electricity is an inefficient form of energy because it loses power as it travels over distance to reach homes and buildings.

To understand the net gains of residential electrification scenarios, it is essential to consider the generation mix. Currently, natural gas generation makes up 43 percent of PJM’s grid mix.[3] The diversification study anticipates that overtime emissions benefits of electrification will increase as the PJM system decarbonizes under potential future policy regimes. If all generation resources were renewable or zero-emitting alternatives, displacing direct-use natural gas with electricity would result in net emission benefits, regardless of transmission and related losses.

However, this does not reflect the current reality of the electric grid or a realistic expectation of the grid mix for the foreseeable future. According to projections from the National Renewable Energy Laboratory (NREL), in a low-cost renewable energy scenario, the electric generation grid mix in Pennsylvania is projected to be 52 percent renewables, 48 percent non-renewables, with natural gas making up 39 percent of the non-renewable mix in the year 2050.[4]   The current end-use consumption mix in the City of Philadelphia is currently 65 percent natural gas and 35 percent electricity.[5] Meaning, if electrification or a hybrid scenario were implemented in the City of Philadelphia, even under the most favorable scenarios for renewables, natural gas for electric generation would need to be increased significantly to account for its displacement as an end-use source.  We know that residential natural gas consumption only accounts for 4.6 percent of U.S. emissions.[6] Even assuming a 100 percent clean energy grid mix, the GHG emissions reductions are marginal. Put simply, the strategies outlined in the study demonstrate the least cost-effective methods of reducing emissions.

Further, the study does not provide an accurate assessment of the costs of these strategies. For instance, the cost estimates for both the electrification and hybrid scenario do not account for the cost of local electricity distribution system upgrades necessary to meet the growth in electricity demand. A study commissioned by the American Gas Association found that in the East Coast region, policy-driven electrification would increase average residential household energy-related costs (amortized appliance and electric system upgrade costs and utility bill payments) of affected households by $960 annually.[7]

We know that natural gas is the lowest-cost source of energy. Recently the Federal Register included a notice from the Office of Energy Efficiency and Renewable Energy at the Department of Energy, which forecasted the representative average unit costs of residential energy sources for the year 2021. The forecast shows that on an energy equivalent basis, electricity will cost $39 per million BTU, while natural gas costs $11 per million BTU.[8] The difference in energy costs have meaningful consequences, especially in Philadelphia. Ultimately, affordability must be the determining factor when considering new efforts to address emissions. Currently, Philadelphia has a poverty rate of 25.7 percent, meaning over 400,000 households are eligible for low-income energy assistance.[9]

Retrofitting an existing home with electric appliances, especially an older home, is considerably more expensive than installing electric appliances in new homes. The study fails to recognize the potential upfront cost discrepancies for customers, especially those in lower-income groups. We strongly advise that the study consider a more accurate assessment of the potential costs of these strategies and provide more transparency in the methodology and data used to render these conclusions.

The study’s recommendation to inject renewable natural gas (RNG) or biogas into the gas supply provides the best near-term emissions reductions with the least disruption. Nevertheless, a complete decarbonized gas supply is an unlikely scenario. Similar to the other recommended strategies, the market conditions, technology development, and policy regimes will determine the extent to which RNG can be utilized. However, it’s worth noting that a lower percentage of RNG in the existing natural gas supply is likely to have comparable GHG emissions benefits to electrification scenarios given the current and expected electric generation grid mix in Pennsylvania.

The California Utility SoCal Gas found that by replacing 20 percent of their natural gas supply with RNG captured from organic sources like dairies, wastewater treatment plants, and landfills, they can achieve emissions reductions equivalent to converting 100 percent of buildings to electric-only energy by 2030.[10] That’s because when RNG is produced organically, by re-purposing the methane that otherwise would be escaping into the atmosphere, it becomes carbon negative.

Moreover, many of these recommendations fail to accurately assess the challenges with a service transition. A hybrid scenario where consumers adopt heat pumps paired with a gas furnace to meet “peak heat” demands during the coldest periods assumes that PGW maintains its existing revenues despite lower natural gas consumption. But when the volume of sales in gas decreases, rates will have to increase to cover the cost of infrastructure maintenance of two redundant systems.

The study highlights the impacts of non-participants in the various scenarios assuming that non-participants will reduce over time. Yet, the study fails to address the effects of these scenarios on existing CHP customers, some of which require continuous on-site energy. The study must examine the costs to commercial and industrial customers that cannot electrify their systems and continue to rely on the natural gas grid.

We know that Philadelphia Gas Works, alongside the city, have made tremendous strides to reduce emissions. From 2015-2019, PGW’s energy efficiency programs have helped Philadelphians offset over 449,000 metric tons of Co2e—the equivalent of taking more than 97,000 passenger cars off the road for an entire year. During the same time, PGW’s pipeline replacement program has helped prevent over 1,500 metric tons of methane from entering the atmosphere. The city and its ratepayers cannot afford to discard these investments, any new pathways for the utility should build on these successes.

As we collectively work towards a more inclusive economic recovery for the City of Philadelphia, we need prudent decision-making that balances the environmental and economic costs. We look forward to our having our organization’s concerns addressed in the final study recommendations.

Sincerely,

Rob Wondering
President & CEO
The Chamber of Commerce for Greater Philadelphia

The Chamber supports an advanced, affordable, diversified, low-carbon energy economy. Our Greater Philadelphia Energy Action Team brings together 150+ industry leaders committed to delivering affordable energy solutions that will benefit the current families and businesses living and operating in Greater Philadelphia while attracting new development and growth opportunities.