As affluent homeowners defect to heat pumps, the massive costs of maintaining America’s aging gas pipelines are being concentrated onto a shrinking base of customers who can afford it least. To understand how to prevent an impending utility death spiral, I talk with the Building Decarbonization Coalition’s Kristin George Bagdanov and Panama Bartholomy. We discuss the legal limits of a utility’s “obligation to serve,” the potential for gas companies to transition into geothermal thermal energy networks, and why the US has suddenly become the global leader in heat pump sales.
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David Roberts
Hello. Hi. Greetings, everyone. This is Volts for May 22, 2026: “How to phase out natural gas equitably.” I’m your host, David Roberts.
Some US homeowners might be surprised to learn that approximately two-thirds of the average residential gas bill now goes, not to gas, but to infrastructure costs, ie, maintaining and replacing bits of the sprawling network of pipes that serves natural gas in the US.
Those costs have tripled over the last decade, despite the fact that the total customer base grew just 8.5 percent, per-customer consumption is falling, and heat pumps have outsold gas furnaces for four years running now. All that new infrastructure is designed to last for decades, long past the point by which many states aim to be decarbonized. We’ll either use all those repaired and replaced pipelines for their lifetime or strand them, both of which seem like bad options.
Utilities are — stop me if you’ve heard this one before — incentivized to do more of this kind of spending, since every dollar they spend comes with a guaranteed return. But if electrification really takes hold and affluent homeowners begin defecting from the gas system in numbers, those infrastructure costs will be shared over a shrinking base of the customers who can afford it least.
This is — shout out to Volts guest Emily Grubert — a classic “mid-transition” problem. As electrification grows and the gas network peaks and declines, how can we prevent a stumbling, expensive, and unjust handoff?
My guests today have given that subject a great deal of thought. Kristin George Bagdanov and Panama Bartholomy work for the Building Decarbonization Coalition, an alliance of utilities, businesses, and nonprofits working to get fossil fuels out of American buildings. They have spent the last several years doing the research and policy groundwork, figuring out what a managed transition requires. We’re going to talk all about it.
With no further ado: Kristin George Bagdanov and Panama Bartholomy, welcome to Volts. Thank you so much for coming.
Kristin George Bagdanov
Hey David, it’s great to be here.
Panama Bartholomy
Great to be here, David. Good to see you.
David Roberts
Welcome back, technically, Panama. Kristin, I’ve got a bunch of nerdy specific questions for you, but I want to start with Panama with a bit of a broader framing question, because I want to question the premise of this whole thing that we’re doing here, which is all of this work and guidance is about how to do this transition — how to do it well.
We’re going to talk about the details, some of the details of that, but that presumes that there is a transition — that we’re doing a transition. I look around at the evidence, and I don’t see a ton of evidence that we’re doing that. There is some movement on new construction. That’s why the heat pump numbers are starting to look good.
But the 70 million houses or so that already have gas in them — I don’t see that number changing. Furthermore, politically, insofar as anybody’s tried to get at this issue, it blew up in everyone’s collective face with the gas bans — were not popular. I could imagine if you are, say, a natural gas executive or someone who works at a natural gas utility saying, “Sure, if we do a transition, I will take your counsel into advisement, but no thanks, we don’t want to do one and we’re not doing one.” Convince us that this is actually happening.
Panama Bartholomy
If only major transitions were linear, it would be wonderful. Indeed, we are seeing evidence that a transition is underway. If you look at it from a market perspective, as you said in the introduction, heat pumps have been outselling furnaces for the last four years. We’re seeing heat pump water heaters really accelerate. If you look at things like Forbes magazine — they recently did a survey with kitchen and bath experts looking at what they expect from induction stoves, and it’s the leading technology they expect to be sold over the next few years. Increasingly, the market is showing signs that a transition is underway.
You mentioned politics. We would have expected after the election in 2024, we would have seen a drop-off in pieces of legislation around building decarbonization. But in fact, in 2025, we saw the same number of pieces of legislation introduced at the state level around building decarbonization standards, incentive programs, education programs, as we did in 2024. We now have 14 states that have instituted future-of-gas proceedings at their public utilities commissions or their public service commissions.
These are proceedings where you are designing the energy system of the future. You are trying to balance a state’s climate law with how they manage a gas system. They are trying to align with their electricity system as well. Those 14 states — you have just about 47%. Just under half of all residential gas customers in the country are in those 14 states.
David Roberts
I think this all sounds like we’re gearing up for a transition.
Panama Bartholomy
We are early in the mid — I would say if you look at Dr. Emily Grubert —
Kristin George Bagdanov
The messy middle.
Panama Bartholomy
Signs are pointing in the right direction. The question now is, are we going to continue the momentum and is there the political will to carry out these future of gas proceedings, to continue this program work? Is the market going to continue at the rate that it has been?
David Roberts
Kristin, you’ve been leading this research, been writing these reports. Tell us a little bit about how we got here. Two-thirds of the average gas bill is going to these repair and replace programs. That’s unusually high, as I understand it, in recent history, maybe in all of history. I mentioned the perverse incentives of utilities, a very familiar subject on this show. But those utilities have always had these same perverse incentives, and yet this kind of spending seems to be on a real uptick. What is going on? How did we get to this place where two-thirds of our bill is going to this?
Kristin George Bagdanov
Compared to historical proportions, we look back at the 80s and it’s more like the reverse, where about two-thirds is going to the commodity cost and one-third is going to the infrastructure. If you look at the AGA — the American Gas Association — if you look at their own numbers, which they’re very proud of, they show this uptick in infrastructure building capital expenditures. It’s around 2010 that you see it really take off. Previous to that, it’s pretty stagnant — what I would consider a business-as-usual infrastructure period. We’re in this accelerated spending era where, as you said in your intro, that spending has tripled since 2010.
We’re at about $49 billion a year that gas utilities are spending on their systems, and about $28 billion of that is just on the distribution side system — the pipes, services, and meters essentially. This is an unsustainable trajectory because gas demand is declining in buildings and it’s forecasted to continue to decline.
David Roberts
Let me pause you before we go into the future. Why is it rising? Is it because all this infrastructure is reaching end of life, like with electricity? Same deal?
Kristin George Bagdanov
Yeah. There are a lot of different potential causes. There’s no single reason. One reason that people look to is around that same era when spending took off. We have some high-profile gas incidents such as in San Bruno. Soon after, you have PHMSA, which is the federal entity responsible for monitoring pipeline safety. They put out this call to action a year after that, telling utilities to step it up with checking the safety of their pipes. This gave birth to 44 different programs across the US where utilities were allowed to accelerate their spending and accelerate their cost recovery on pipeline replacements if it was for a safety reason.
This has meant that rather than doing these investments and then getting them checked out at the rate case a few years later and getting those costs approved, utilities can spend and recover costs along the way, typically through surcharges on customer bills. This is at least my leading theory on one of the primary reasons that we saw this uptick.
I also think it’s an interesting coincidence that we also have a lot of climate activity and climate laws and executive orders around that same time. It’s making hay while the sun shines and the ice caps melt. That’s my working theory as one of the primary drivers, as well as what you said — just the stock of turnover of pipelines needing to be replaced at end of life.
David Roberts
Now tell us why it’s unsustainable. This gets to my question, as I was trying to get at with Panama: why couldn’t, if you’re a gas utility executive, just say, “I’m fine with the way things are”? Are there forcing mechanisms that are going to push this into crisis? Because climate concern obviously isn’t going to do it. Why is it that this is unsustainable?
Kristin George Bagdanov
It’s already a crisis for gas customers. Electric bills are grabbing headlines, but if you look at the consumer price index from 2025, we see that gas bills outpaced electric bills by 60%. As noted, most of that is infrastructure. It already is a crisis — and it already is unsustainable.
What we have right now is this top-heavy system. It’s like this spinning top that has started to wobble and it’s the inertia of the past that’s keeping it going. But we have too much investment up top and not enough utilization at the bottom. That’s going to continue to wobble. Once the momentum runs out, the costs aren’t going to disappear. Instead, the people left on the system the longest are going to be shouldering those accelerating costs. That’s the importance of managing the transition so it doesn’t happen that way.
David Roberts
Is there evidence — is it true that, because as I said, we looked into it and the customer base is still growing slowly. As of recently, it grew 8.5% over the last decade. That’s slow, stagnant growth. What evidence do we have that there’s actual shrinkage on the horizon?
Kristin George Bagdanov
The EIA does show that demand — actual use of gas — is declining and forecasted to decline. There is slow customer growth, but the actual use is declining. You are paying more for the pipes, but you are using the product less. It is all packaging, which nobody likes. That is the problem we are trying to solve. It is a basic math problem: people call it gold plating.
They’re gold plating these pipes by making them cost more, but you’re getting the same amount of use out of them and, in fact, people are utilizing them less. The reason that we see customer growth in the residential sector is largely because we still have a lot of incentives — gas utilities can essentially pay people to join the gas system by giving them free gas hookups and charging it to the existing customers.
David Roberts
We’re going to get into those details in a minute. I’m just trying to establish that there is some forcing mechanism here — that gas utilities or gas companies don’t have the option of simply resisting change altogether.
Kristin George Bagdanov
That’s why we regulate them, because monopolies don’t do anything out of the goodness of their hearts, nor do corporations. Most of our over a thousand gas utilities are investor-owned utilities. Every dollar they spend in capital expenditures yields $2 to $3 in customer costs because of those shareholder returns and financing costs. That’s why we have this regulatory framework — which does need to be revised to keep them in check and to force them in the places where they don’t want to act out of the goodness of their hearts.
David Roberts
How much easier is all of this with gas and electric utilities that at least have the option of shifting existing customers from one product to another versus exclusively gas utilities, which are — at least I think from their perspective — just facing being told to shrink and die? Do we see progress faster in places where there are those combined utilities?
Panama Bartholomy
We do. As you would imagine, it is much easier on executives and also the unions that work for those utilities to be able to think about, okay, internally, how do we start to transition more and more of our customers off of our gas system and onto our electric system? How do we start to bring in more electrical workers and fewer pipeline workers over time as well? That makes it easier on the politicians within those states.
For gas-only utilities, it’s a bit more existential. It’s not out of the question. We have conversations with gas utilities about, “Come on, let’s be frank. We all see where this is going. What’s the long-term future for you here?” When we ask them that, they talk about, “We think there are still going to be hard-to-electrify sectors that we’re going to be able to provide fuel for through different kinds of pipes, different kinds of fuels. We think there will still be need for resiliency within certain microgrid opportunities into the future, and we think we’ll still be there for power generation.” It seems like there is some planning. Just by having that conversation, we see that there’s some planning going on in gas-only utilities about what a future could look like.
David Roberts
But they’re not deluded about the macro direction of travel toward electrification, generally speaking? I’m trying to figure out to what extent are they convinced that electrification is an inevitable macro trend.
Panama Bartholomy
The political activity that you described in your intro as far as the backlash to phase-outs of gas in new construction is a good indication of their belief in the danger of this movement and the types of activity that they’re seeing from it. When you talk to the manufacturers of gas appliances, universally, they say this transition is inevitable. If you have such a key part of the gas system — the actual appliances at the end of the pipe — saying that, you know that goes up through the gas companies as well in that sense of inevitability.
David Roberts
Is there an example yet of a gas utility that is planning to become a thermal utility — in other words, an exclusively gas utility that actually has plans or prospects of becoming the manager of a different kind of thermal system? Is there such a case?
Kristin George Bagdanov
I don’t know if any gas utility has yet signed their soul over to the thermal utilities, but we do have a lot of legislation that is helping gas utilities get comfortable with that idea. The way that they get comfortable with that is through thermal energy networks, which I know you have talked about on this show. There are quite a few pilots that are getting off the ground in New York. Obviously, there are some in Massachusetts. California is looking at neighborhood-scale pilots, and one in four states have legislation that is related to thermal energy networks.
David Roberts
Are those existing thermal energy networks happening in places governed by gas-only utilities and being put in the hands of a gas-only utility?
Kristin George Bagdanov
Some definitely are. I think Colorado and Washington — I have to check for sure — have legislation that is having these gas utilities try out thermal energy networks. Some of the utilities in New York, through the Utility Thermal Energy Network and JOBS Act, are developing pilots that are going through the regulatory process, and some of those are gas-only.
David Roberts
This gets to another political economy question. Technologically speaking, if you’re running on gas and you’re contemplating a transition, you have two basic choices. You can go all-electric with air source heat pumps and electric appliances, or you can do these thermal energy networks, which are sort of geothermal. If you’re in an area with a gas-only utility, they might have a strong preference for the latter over the former, since the latter means they still have a job and things to do and the former means they’re going away entirely. Could you end up in a political scenario where gas utilities become advocates for thermal energy networks, or is that too hopeful?
Panama Bartholomy
That is what we’d love to see. I love how so much of your conversation is centered in 2040 right now, as opposed to the late 2020s, where so much of what we are trying to do is begin to really prove out these models. If you look at the full suite of stakeholders here — utilities, unions, customers, ratepayers, politicians, installers — everybody needs it to be proven right now: this neighborhood-scale thermal energy network, prove that it’s cost-effective, prove that it’s functional, prove that it’s safe, all these different proof points. I think we all, particularly as we get older and get deeper and closer to retirement, want this to be done, this transition to be over.
We also have to sit in the reality of where we’re at in the transition and play our role in it. Right now, where the politics are and where the proof points are, we need to have a few hundred really successful projects over the next five years in a bunch of different climate zones and a bunch of different service territories to be able to prove out this model so that as, unfortunately, climate change gets worse into the early 2030s, we’re able to point to this new model to be able to say, “Let’s go to scale. We’ve proved it. The political weight has now come back due to the direness of the climate situation.” Let’s go with it to scale.
David Roberts
One more thing on the death spiral, Kristin — the so-called death spiral, where people defect from the gas system, the costs are shared in a smaller group, that cost pressure then causes more people to defect, etc. One thing I wanted to emphasize, and I picked this up from watching the webinar: I’m not sure people appreciate this. It doesn’t take a high level of defection to trigger this. It does not have to be a mass — it doesn’t have to be a majority. One of the people on the webinar said in her model, about a 2% defection rate causes prices to rise by 50% over a decade.
Kristin George Bagdanov
We have this scattered landscape of utilities and laws and regulations, and we don’t want these utilities to be moving at different paces. If you live in one state, your gas bill is going to be astronomical, while in another state, maybe it’s manageable. That’s part of the need for not only this state regulator-led managed gas transition, but it really needs to be a national effort. That’s the exciting thing that we — I said national, not federal. No, that would be great. We’re not in 2040 right now, as panelists said.
David Roberts
But you guys are awfully optimistic about 2040, I’ll say.
Kristin George Bagdanov
I know. It’s when everyone wrote their climate laws for 2030 and now we’re almost there.
David Roberts
I know. What year is it?
Kristin George Bagdanov
The point I’m trying to make is that a lot of our regulators are looking to each other at different states. That’s what’s cool about the future of gas proceeding. I remember when Illinois opened theirs a couple years ago, they had done their homework. They had checked what was in scope in all the other states and then they had come up with a great scope for themselves. Same with Maryland, which just opened last year. It shows that these regulators and policymakers and communities and advocates are paying attention to what’s happening. We’re not starting at zero in every state. We’re leapfrogging.
David Roberts
Yeah. The way we have tried to decarbonize US residences to date is basically house-by-house. It’s not working very well for a bunch of reasons. Maybe one of you or both of you can get into all of the many reasons it doesn’t work. I’m particularly interested in the experience in California, where they really plowed a bunch of money into this and put a lot of work into this and still are way behind their goals just because persuading one homeowner at a time is not great. Talk about the house-by-house model that’s reigned so far.
Panama Bartholomy
What we’ve done with building decarbonization in this country is we put our values around why we want to decarbonize — clean energy, clean air, dealing with climate — on the back of 200-year-old-plus industries of plumbing and HVAC installations and said, “Please save us, please adopt all of our values and do everything in line with what we as environmental advocates would do as well.” As you can imagine, there are challenges to that. We don’t need to go into a lot of detail about the challenges of getting a heat pump or getting a water heater. There are all sorts of characters out there in that industry.
From a climate perspective, because we’re here on Volts, it’s incredibly hard to plan for reaching your climate goals if you’re just basing it off an appliance-by-appliance or a building-by-building approach. How will you ever know if a neighborhood is ready to be taken off a gas system if you have no visibility into any of the appliances and any of the buildings within that neighborhood at all? You need to have a better way to be able to see inside those buildings, be able to understand, “Okay, this whole neighborhood is ready. We’ve gotten this neighborhood ready to leave the gas system.”
It’s also really expensive the way that we’re doing it right now because of that lack of visibility. When a pipeline’s coming up for replacement, if a utility doesn’t know and a regulator doesn’t know anything about that neighborhood or any of the appliances from a safety perspective, they’re compelled to go ahead and the regulator approve it and the utility would be happy to put it in. As we’re trying to really expand the electric system and upgrade it, we’re also gold-plating the gas system in a seven-year investment in a system we want to be off of in 20 years.
From a societal perspective, it’s one of the most expensive ways we can do building decarbonization. I would push back on your assertion that it’s not going well. Five years ago, America was number three in heat pump sales in the world. We’re now the top market for heat pump sales in the world. Some of it is new construction.
When we started this movement eight years ago with a bunch of others, you had New York Times doing articles about “What’s a heat pump?” Now you have articles from them, AP, and others about how to choose the right heat pump for your house. The vibes have really changed. You look at what’s happened over the last few years — the election, the IRA — you have a whole bunch of headwinds and yet you continue to see the market trends heading in the right direction.
David Roberts
As you alluded to just there, the key move in doing this in a more rational and cost-effective way is some kind of chunking. You need to take groups of buildings off the gas system at roughly the same time, just for all kinds of cost reasons. That should be sort of obvious — for your workforce, for your, you know, on and on.
What does that mean? Who chunks? Who decides the size of the chunk? Who manages that process? What is the entity? Is it the utility? Is it the PUC? Is it the legislature? Who decides the size of the chunk? Who locates and chooses the chunk? Walk us through how this is supposed to work.
Panama Bartholomy
Absolutely. You coined a new term to add into the lexicon: chunky decarbonization. We’ll see if it sticks. This is being called a number of different things right now. You may hear it called zonal electrification, you may hear it called intentional electrification. At our organization, we like to call it neighborhood-scale building decarbonization because it suggests — whether it’s a small neighborhood or a large neighborhood — you’re taking a whole bunch of buildings off of the gas grid at the same time. It provides climate planning, ratepayer protection, and equity protections that just aren’t there from a building-by-building approach.
It allows you to prioritize lower-income or vulnerable communities at the front end of the transition rather than leaving them as some of the last buildings on the gas grid. It also has a real benefit for what you brought up before around educated consumers. The last thing that a consumer wants is to become an expert in air conditioning. When their air conditioner breaks, they just want their air conditioner back. They don’t want to become an expert in efficiency levels and rebates. They just want somebody to come and help them out with it.
They also want to make sure that there’s a good contractor that’s going to make a good installation. This neighborhood-scale approach — besides the climate, equity, and ratepayer backstop — also ensures that we’re going to be able to bring good contractors to provide just enough education to consumers and get them a really good product put in their house. Because you’re taking a programmatic approach, you’re going to have good quality control on the back end and commissioning of all these units. You don’t have a bad HVAC company coming in, making an installation, and then taking off, leaving a customer suffering through it.
David Roberts
Panama, you keep saying “you.” Who is “you”? Is “you” the city government, is “you” the gas utility?
Kristin George Bagdanov
With regard to who chunks and how chunky it is, there are a lot of options. The impetus could even be organic and grassroots. A neighborhood can take themselves off of the gas system, raise their hands, and just do it — cap your gas line. That is the harder route because it requires you to be fronting all the costs.
The way we see this happening right now, and the way that it makes the most rational sense in terms of declining and decommissioning the gas system at the same rate as we’re scaling clean alternatives, is you look at the map of the gas system, which is very hard to do. A lot of commissions don’t even have basic access to the mapping of the gas lines. California just got it, and you need to sign an NDA to see the full set of plans anyway. You need that map. Then you need to know which pipes are set to be retired just according to their age in 10, 15, 20 years.
Then you look at those neighborhoods, you start to educate them about switching off gas to electric alternatives. Instead of paying $2 to $7 million to put in that new gas pipeline, which is the range that we see across the US, you are going to buy everyone the appliances they need with that money and cap that gas main. That is the utility-led approach. That is what is going to be piloted in California, which is required to do 30 of these neighborhood-scale pilots in the near-term future.
David Roberts
To be clear, the utility is buying and installing the electrified equipment in the houses necessary to pull this off?
Kristin George Bagdanov
That’s what’s being discussed and proposed in these pilots. The details are getting ironed out. If you have $50 per customer that would otherwise be going into a new pipeline, that should be used for the transition for this project.
Panama Bartholomy
You asked, “Who? Who’s doing this? Who’s overseeing it?” This should be done at the regulator of a utility. A regulator utility is looking at the overall system in front of them. They know what laws are governing that state — the climate laws, the other energy laws, and other things that they have to take into consideration. They’re the ones that should be setting up the rules for this: what’s the rate of return on a project like this, what kind of labor should be used, should this be union labor, should this be non-union labor, what types of efficiency levels, what sort of consumer protections are going to be put into this as well. This should be done at the regulator level.
Unfortunately, right now in a lot of America, regulators are really afraid to step out without legislative direction. You need legislatures a lot of times to be able to provide direction and provide some of this detail broadly and then give direction to the public service commissions, the public utilities commissions, to then provide the detail to the utilities to then go ahead and carry it out.
David Roberts
Let me ask a direct question about that because this is what breaks my brain over and over again. The logic of chunking, I totally get. But either you persuade everyone — and I’m trying to imagine in America a large chunk of people who come to a unanimous decision and I’m struggling — or someone somewhere has some power to force someone to do it. I can’t imagine in America who is going to come force a homeowner to change their HVAC system without producing weeks of Fox News headlines. How do you get around that dilemma? You either have to push and force some people or you have to wait for unanimity. Both those seem difficult for me, Kristin.
Panama Bartholomy
You want to talk about obligation to spend or obligation to serve? I can talk about some of our experiences in California where this is happening.
Kristin George Bagdanov
For sure. I can zoom out a little bit with the history. We wrote a report on this a few years ago. What you’re referring to, David, is that we have in every state, every public utility code, a law that essentially says “Every public utility shall provide just and reasonable service.”
David Roberts
That’s not what I’m referring to, although I do want to discuss that. I’m saying even if there was no legal obligation to serve —
Kristin George Bagdanov
Yeah?
David Roberts
— going and telling them they have to do it — never mind legally, just PR-wise, optics-wise, every right-wing journalist in the country interviewing that person the next day — that’s the problem. We’ll get to the legal thing in a minute. How do you get around that problem, where you ultimately have to make someone do this?
Panama Bartholomy
At this point in the transition, this is one of the bigger challenges and one of the things that you’re seeing a lot of experimentation around. From a utility perspective, particularly a dual-fuel utility in a state that has climate laws, they’re seeing the writing on the wall. That’s why you have experimentation happening around a bunch of these utilities trying to pilot these projects.
Some of the early ones you’re seeing are outreach that looks like, “Hi there, we have a pipeline replacement coming up in your neighborhood. It’s going to cost this amount of money. We prefer to not do that and instead give you a $35,000 check to make upgrades to your house. Haven’t you ever got a better deal from your utility than a $35,000 offer? As long as you and all your neighbors can agree to take this check, then we’ll be shutting off the gas to this neighborhood in two, three years once we get this done.”
David Roberts
I would feel better if I had a live example of that working to look at.
Panama Bartholomy
It’s happening right now.
David Roberts
You’re getting neighborhood-level unanimity in real-life examples today?
Panama Bartholomy
Yes. Pacific Gas and Electric has the Zonal Electrification Equity Pilot Program. It’s the first public RFP that’s been released by a utility to bring in consultants to help them across their entire service territory go out and do neighborhood-scale electrification. You have individuals doing digital outreach, mailer outreach, and door-to-door knocking to recruit people. You then have analysis of every single home being done, checks being cut out. The very first ones are just going in this month because you had neighborhoods that agreed to have it happen.
Those are the first public ones we know of. This has been happening for years now behind the scenes in PG&E territory as they have been doing onesie-twosies, learning about this and studying it to eventually be ready to release an RFP to expand it across their service territory. I’m not here telling you this is easy. You are dealing with a group of humans. You can imagine. That is why one of the laws that passed in California to set up this pilot program reduced the threshold for approval for a project like this from 100% of building owners down to only two-thirds of building owners within that neighborhood in order to allow it to go forward.
David Roberts
Interesting.
Panama Bartholomy
That’ll make for very interesting Nextdoor conversations.
David Roberts
No kidding. I’m trying to imagine the Nextdoor conversations about jackbooted thugs coming and jamming heat pumps in your house. Damn it, Janet!
Panama Bartholomy
Exactly.
David Roberts
Kristin, let’s talk about the legal stuff. There are two regulatory concepts that are highly relevant here. First is this obligation to serve. That, as I understand it, is just in exchange for getting a monopoly over a territory, the gas utility is obliged to provide service to anyone who wants it, which makes sense on the surface. But then when you’re talking about phasing out gas, you’re imagining, “Oh, there’s one gas user left in the neighborhood, but the utility is legally obligated to maintain the entire gas network to provide for that one.”
You get into weird paradoxical stuff. How do you get around this or how do you address it? How do you reform it? What do you do about it?
Kristin George Bagdanov
The caveat with the obligation to serve is they’re required to provide service if it makes sense economically for them, which is why you don’t have gas lines necessarily going deep into rural areas and why rural customers are on propane.
David Roberts
That seems like a pretty important proviso that you can squeeze a lot through.
Kristin George Bagdanov
They have a backdoor out of it. What’s interesting, as I said, some of these statutes are one short sentence. Some, like California, are four paragraphs. The legal scholars I’ve spoken with about the obligation to serve say, in a lot of these states, the way it’s written, it isn’t saying you have to continue providing gas service, it’s saying you need to provide the service for the end uses that the building wants to use. We know that every residential and commercial building end use can be served now by electricity.
What we have is a regulation written for non-competing monopolies. In reality, what we have are competing monopolies. That’s an issue that we need to address by updating that regulation and making it fuel-neutral — obligation to have all of the energy sources you need to power your iPad and your pool heater.
David Roberts
Do you think in places where it’s already written — maybe accidentally — but already written neutrally, already written without the word “gas” in it, that you could legally get away with just interpreting it as fuel-neutral already?
Kristin George Bagdanov
This is where I want to tell regulators, “You’ve got it, you go regulator, you can do it, I believe in you,” because, as I said, the legal scholars I talked to said there’s nothing legally stopping this other than the fear of litigation.
David Roberts
There would be litigation, you know there would be.
Kristin George Bagdanov
Obviously, you don’t want to be ripping out someone’s gas water heater overnight. But there should already be a pathway. We live in the world we live in. What a lot of states are doing is passing even more legislation to be even more directive. We see this in Massachusetts — they thought that they passed a bill that solved this issue, and now there’s a debate in the —
David Roberts
What did they say? This is the stuff I love. Tell me, what did they put in the bill?
Kristin George Bagdanov
I don’t know the exact language in the bill, but basically it was interpreted as, “This allows the utility to do that swap of gas for electric to serve the end use.” There’s a proceeding open right now debating whether it actually said that. Utilities are pushing back on the supposed clarification. We’re really at a sticking point right now with that.
David Roberts
Ideally, you’d get a state legislature to just say unequivocally, “There’s a fuel-neutral obligation to serve.” That would be the easiest solution.
Panama Bartholomy
That’s what most regulators need nowadays. They need the backing of the legislature to move forward on it.
David Roberts
Is there a real-world case where the obligation to serve in particular is the actual sticking point, is the thing in the way, or is this just a problem we anticipate?
Kristin George Bagdanov
It’s not like customers are citing this statute, but as Panama said, I’m sure with PG&E’s attempts on their own to do this work in California, if they knocked on a house and someone was like, “Get off my lawn, I love my gas stove,” that’s the end of that conversation.
Panama Bartholomy
We just had a series of filings last week at the California Public Utilities Commission around some of these early pilots under this program that was approved by the legislature. A gas-only utility in Southern California very clearly said the obligation to serve needs to be preserved and protected and respected within this program. It is absolutely real-world around the country, continually brought up.
David Roberts
You need clarity on that. That’s one of the two big things. The other is these line extension allowances. I love this because it’s this obscure, wonky little footnotey thing in the regs, but it’s a lever that can change things quite a bit. Kristin, what is a line extension allowance?
Kristin George Bagdanov
A line extension allowance is allowing new customers to join the system for free and charging existing customers for that new gas line.
David Roberts
That means if I don’t have gas service in my house and they come and install a pipe from the main line to my house, that costs money, I don’t have to pay that.
Kristin George Bagdanov
Yeah, the idea is you’re going to pay back that loan that the existing customers gave you over time through your use of the system. That was true at a certain point when the system was growing. What we have is a mature system that is stagnant or declining. There have been a lot of deliberations about the economics of this. Every utility uses a different little formula. Some of them calculate it by feet. New York just got rid of their hundred-foot rule, which was fairly arbitrary — you can get 100 feet of service line for free when you come on.
David Roberts
That’s very arbitrary.
Kristin George Bagdanov
It’s a nice round number. Others use complex formulas to calculate what the payback period and all that is. The point is, why are we luring people onto the sinking ship? Instead, just show them where the other ship is that’s not sinking. It’s making everyone’s gas bills go up that are already on the system. It’s aggravating that cost escalation.
David Roberts
The obvious alternative here is if you want gas service, you have to pay for it. What does that translate to? What is the typical cost — how much would it raise the cost for me to get gas to my house?
Kristin George Bagdanov
Utility math is special and unique to every single utility. I want to say it’s in the thousands, but we looked at how much ratepayers would save if every state in the US stopped giving gas line extension allowances. The range was from $3 to $7 billion a year. It’s such a range because there’s such a lack of transparency about these costs that you have to use a very small data pool and then extrapolate from that. In bulk, it is significant and it varies widely.
David Roberts
I was trying to figure out what level of disincentive we are talking about here.
Kristin George Bagdanov
Enough for a builder to think “Why am I running gas to this new development?” California has gone one step further where they have removed electric line extension allowances. The electric side has these too. They have removed them if it is to a mixed-fuel building. If you say, “I am going to pay for that gas line,” and you are obviously running your electric line as well, then the state of California is going to say, “You do not get the incentive for the electric line because it is a mixed-fuel development.” They really hit it on both sides to disincentivize.
David Roberts
You only get the electric line extension paid if you are doing all-electric development.
Kristin George Bagdanov
Yeah, it’s a carrot —
David Roberts
This is mostly about new build. I would guess this is mostly about trying to nudge developers away from gas for new build.
Kristin George Bagdanov
Yeah. It’s right-sizing the economics. Why are we pretending that we’re still living in the 50s where growth was abundant and sprawling? Instead, let’s contend with the fact that we’ve met the saturation point and we need to start to think about what’s next.
David Roberts
This is not some new thing, and this is not really against gas. You should pay for whatever you get. Whatever service you want, you should pay for it.
Kristin George Bagdanov
People can still have gas. You just have to pay your share properly.
David Roberts
Let’s talk about the political economy of this, because as fair and obvious as it seems to us, for the person who wants new gas, it is going to be a bunch of new costs. New York is a case in point. They got rid of their 100-foot rule, but then a couple months later suspended implementation of that rule through the end of 2027 because they were beset by a giant torrent of industry opposition. Are the gas people aware of this and on it and against it?
Kristin George Bagdanov
Yes. My favorite report to read is by the American Gas Association on line extension allowances. They called the act of removing gas line extension allowances “an act of government-imposed inequality” because it was making it harder for new customers to join the gas system. They’re saying, “Oh, it’s inequitable to remove these incentives,” when we’re saying, “No, it’s more equitable because you’re protecting people from these accelerating costs by not letting them walk down that path.”
David Roberts
If you’re going to say getting rid of a subsidy to customers is unfair because we gave the subsidy to previous customers, that is just an argument for all subsidies to customers being permanent. You could never get rid of any subsidy to customers by that logic.
Panama Bartholomy
Election years are tough on candidates and all sorts of decisions are made in election years that suddenly get reversed as soon as the election is over.
It was a torrent of opposition, but it was also a lawsuit that was filed and the delay was in reaction to the lawsuit to let the lawsuit play out before the implementation of it took place. It happened to coincide with an election year, and we will see if anything changes after November.
David Roberts
Kristin, would you say that this line service allowance — is this what you would choose as a first foray, a first shot fired in this battle? It seems a sneaky way because when they did this in California, it really showed up in new builds when they got rid of these line service allowances, it shifted new builds markedly in the direction of electrification. It’s a pretty potent reform. Is this what you would advise people to go after first?
Kristin George Bagdanov
Yeah, I think of it as pretty low-hanging fruit for regulators because it’s well within their purview of debating which costs are prudent and which costs should be recovered. That’s their bread and butter. They don’t have to talk about climate for it. It’s just the formula that the utility is using. It’s punishing existing customers and rewarding new customers. We need to adjust it so the economic signals match across the board.
David Roberts
At least we shouldn’t be actively subsidizing the expansion of the gas system. Seems like a baseline argument there. This is another political economy question. I notice in a lot of the materials you all refer to the thermal workforce, which I think is very clever terminology, trying to convince all these gas workers that they are part of a larger family than they might think. Are they buying it? What is the valence of the workforce — the utilities — toward this stuff? I know we have at least one or two concrete examples of unions supporting these thermal energy networks when they happen, but I don’t know how bespoke or individual that is. What is the larger mood or disposition of labor toward this transition?
Kristin George Bagdanov
I can speak to a couple aspects of that and Panama can as well. We started using this term “thermal workforce” because we got tired of that binary of fossil fuel workers and clean energy workers, which I don’t think is doing anyone any favors. We also were learning from the implementation of things like thermal energy networks that someone today who is spending 90% of their time laying gas pipes, maybe in 2040 or beyond, might spend 90% of their time laying water pipes for a thermal energy network. Why categorize them as one or the other?
When we talk about the workforce, we’re typically thinking of two categories: independent businesses or contractors, and union workers. It varies a lot by state and by local union chapter where their mood is. We wrote a book about the transition with a couple locals in California who were very excited about the possibilities of the transition and wanted to think about where their union showed up in the neighborhood-scale decarb scene. I think there is a lot of goodwill there.
David Roberts
One thing that occurs, and I gestured at this earlier, is that transitioning from laying gas pipe to laying water pipe — plausible. Transitioning from laying gas pipe to being an electrician or installing a heat pump — not really plausible. It seems to really matter what transition you are talking about, where you are transitioning to, in terms of the labor piece of the equation.
Panama Bartholomy
A managed approach to this would be that you change the goals of the gas system. Right now, our entire regulatory structure for these managed monopolies is built on growth and perpetual growth into the future. Once you change that, once you have the political will to follow through with what we need for our climate future, you look at a managed decline. That’s not going to happen in five years. It’s not going to happen in 10 years. This is going to be a process, and many of the current workers that are working on the gas system are going to be going through retirements — just natural retirements — over the next 20 years.
What this should be is really a management of how many people you need to bring in, what is the minimum viable workforce that you need to be able to manage the wind-down of the system, and then you are bringing in folks and training folks based on that approach.
David Roberts
A question a bunch of people have: when people find out that gas companies are coming in and replacing these pipes with new pipes that are built and designed to last for decades, often in a state that explicitly says it is going to decarbonize before that — either you are going to use that through your lifetime and blow through your carbon target or it is going to be stranded. It seems like we are doing this all over the place right now. It seems like we are building up a lot of assets that are going to be stranded.
Part of my question is, right now it seems gas customers — insofar as anyone pays the cost of all those stranded assets — it’s gas customers. Maybe one thing we could do to discourage the building of destined-to-be-stranded assets is putting a little more of the consequence and accountability on executives or shareholders or investors, not customers. Is anybody talking about that?
Panama Bartholomy
They are. There’s a piece of legislation just introduced in the past few weeks in California, again by Senator Stern, that would put in place a retirement fund paid for by shareholders of the utilities in order to force this conversation forward. I think you’re going to see a lot more advocates and legislators across the country looking at this scenario and making shareholders more responsible for the end of life of these systems rather than ratepayers.
David Roberts
If you want to make a bunch of profit off building these things, you also need to know that you are going to pay when we shut them down. It seems a sensible thing to tell people.
We’re near the end of time, I wanted to finish with all these future of gas proceedings that are going on. As we were saying, we’re gearing up for a transition. Fourteen states, I think, or something like that, have these things going on. Are you watching them? What’s happening in them? Is there any consensus, alignment, convergence among the different PUCs about how to do this? Are any of them getting genuinely ambitious, contemplating big things? Are there any spicy future of gas proceedings? Give us a little — what’s going on out there?
Kristin George Bagdanov
Let’s see. How many chili peppers would you rank Massachusetts? I know you had Jamie Van Nostrand on the pod and he told you quite a bit about theirs. It continues to be pretty spicy in terms of — they’re having these debates about obligation to serve, they’re an inch away from hopefully removing gas line extension allowances officially. The closer they get to doing that, you see more pushback.
David Roberts
That’s always the thing about these meetings. Everyone loves a meeting, but this is what I want to know — who is moving into action?
Kristin George Bagdanov
I have faith that a lot is going to happen this year. There are quite a few where line extension allowances are up for debate. Maryland is getting close as well. Minnesota is looking at it, Illinois is looking at it. I think there are about six states and DC that are currently deliberating line extension allowances through these proceedings. We are hopeful there. California is focusing more on this neighborhood-scale solution side in what is their part two of their future of gas proceeding. They have just identified over 150 priority zones — places where the utilities could be piloting these neighborhood-scale projects.
David Roberts
Is that the only state that’s actively chunking, actively currently chunking?
Kristin George Bagdanov
New York is chunking as well. They have, I think right now, 10 thermal energy network pilots led by utilities that are getting close to being greenlit for that construction phase. The engineering plans are still being looked at by regulators and others. They have gone really far in these neighborhood-scale projects there. I think it’s eight states in total working on utility-led thermal energy networks right now. There is a lot of activity there.
In future of gas, we had two new proceedings open last year — Maryland and Maine. Maryland — they had been trying to open it for over two years. They had been petitioning and they are going to hit the ground running because they have been scoping this for a long time and the advocates are ready. That is definitely one to watch in terms of spiciness.
Panama Bartholomy
You can’t run for president on the Democratic ticket without a future of gas proceeding in your pocket.
David Roberts
We declare it so.
In how many of these future of gas proceedings is a state saying explicitly, “Gas is going away, we’re moving off of gas”? I see everybody edging, holding hands and backing slowly to it, looking over their shoulder nervously. Has anyone turned and faced the actual thing and said, “Yes, world, we’re doing this”? Is that part of any of these?
Kristin George Bagdanov
I feel like in regulator speak that looks something like what happened in Massachusetts, which was, they were like, “Okay, when you’re going to evaluate new gas pipeline projects, you have to also evaluate non-pipeline alternatives to see which is the better option, which is the most cost-effective.” That to me is basically saying, “Hey, you can’t just default to the status quo of expansion. You actually have to look at alternatives.”
David Roberts
“You can’t default to the status quo” is still a far cry from, “We’re explicitly —” I just want someone to say it out loud.
Kristin George Bagdanov
Poor regulators.
David Roberts
Everybody knows it.
Kristin George Bagdanov
Maybe if the legislature says that, then the regulators will feel empowered to say it.
David Roberts
Just say it and take the heat. Because it’s always — my pod with Emily Grubert, half the pods I do come back to the basic conclusion that we should plan this and do it on purpose rather than stumbling backward into it. But you can’t do that if you won’t admit what you’re doing, if you won’t acknowledge that that is what you’re doing. Once again, maybe I’m hoping for 2040 here.
Panama Bartholomy
It gets back to — we’re big lovers of Donella Meadows over here, the systems thinker. When you look at her leverage points, it’s the goals of the system. What are the goals of the system? That’s what you’re talking about right there. It’s one of the most powerful leverage points. Until we change that goal by these regulators, we can’t expect to see the wholesale change that we need in order to meet our climate targets.
I would say the hardest and the most important job in this energy transition is that of the Public Utilities Commissioner — what they are going to have to do over the next few years. They are responsible for all of it. They have no precedent and quite often they do not even have the backing of their boss. It is going to take them to really step up for the rest of us to be able to make this possible.
David Roberts
Panama, half of them are just randos that are cousins of the gas exec or whatever.
Panama Bartholomy
That’s also random.
David Roberts
These are not — it is not necessarily the army that one would recruit if one were starting from a blank sheet of paper, but —
Panama Bartholomy
Hey, they get $160,000 a year. What more do you want?
David Roberts
All right, we gotta wrap up. I thought I would just finish since in my mind, this task — specifically getting the 70 million American homes that are heated with natural gas to electrify — is one of the most difficult and thorny: logistically thorny, technologically thorny, politically thorny, regulatorily thorny. Pick your poison. This is some of the hardest work and I love that you guys are out doing it. I thought I’d end on a positive note. Maybe each of you could tell me, in this world of endless struggle, of your Sisyphean struggles, where are you finding optimism? What is surprising you? What do you think is going faster? What’s better? What’s giving you hope?
Panama Bartholomy
We as an industry — I mentioned it before — we’re now the global leader for heat pump sales in the world. There’s not a lot of sectors where America can stand up and say we’re leading on clean energy or the clean energy transition. It’s not happening in electric vehicles. It’s not happening in batteries. It’s not happening in renewable energy. It’s not happening in carbon capture and sequestration. This is an area where it’s not just 51%, we’re talking 63% market share, where we can proudly stand up and say we were third place five years ago, we’re now number one and continuing to move forward. That’s a market transition that you just haven’t seen from many technologies ever. It’s incredibly encouraging, and I think we’re going to see it continue.
David Roberts
Cool.
Kristin George Bagdanov
On the social side of things, we see that people are learning about the threats to their health caused by combusting fuels in your house. Who would have thought? It seems like it’s clicking on a large scale that people are realizing life doesn’t have to be this way. It could be better. It’s like when the pandemic hit and you didn’t have to commute two hours to your job, and you’re saying, “Oh, wait, my life could be different.” It’s “Okay, I could pay less and I could not be aggravating my asthma, and my community could be healthier.”
I see that showing up in different parts of whether it’s pop culture or communities showing up to public utility commission proceedings — these tiny little rooms that are getting packed with people with signs. We’re hitting a level of awareness socially where people want this, a lot of people do, and we just need to make sure it’s accessible to the people who need it most.
David Roberts
Amen to that. Thank you both so much. This has been delightful. I love hearing about this. I love that all this work is going on. Maybe we’ll have you back in 2040 and we’ll check back in and see if all our —
Kristin George Bagdanov
We’ll have nothing to talk about. It’ll be done.
David Roberts
Boring. Electrification got done.
Kristin George Bagdanov
Done and dusted.
David Roberts
Thank you for listening to Volts. It takes a village to make this podcast work. Shout out especially to my super producer, Kyle McDonald, who makes me and my guests sound smart every week. It is all supported entirely by listeners like you. If you value conversations like this, please consider joining our community of paid subscribers at volts.wtf, leaving a nice review, telling a friend about Volts, or all three.
Thanks so much, and I’ll see you next time.
