The City of Philadelphia’s Office of Sustainability, in partnership with Philadelphia Gas Works (PGW), has released the Philadelphia Gas Works Business Diversification StudyThe Study, supported by the Bloomberg Philanthropies American Cities Climate Challenge, is part of the City’s commitment to lead on climate action and achieve carbon neutrality by 2050.

The City of Philadelphia is the owner of PGW, the largest municipally-owned gas utility in the country. PGW employs over 1,600 workers living in Philadelphia and distributes natural gas to around 500,000 customers. This poses a complex challenge that the PGW Diversification Study set out to answer: How might the City and PGW reduce emissions from natural gas, while maintaining customer affordability and supporting PGW’s workforce? 

The PGW Business Diversification study defines and evaluates four pathways for PGW to decarbonize by 2050 including:

  • Replacing fossil fuels with decarbonized gas.
  • Replacing natural gas furnaces or boilers with a heat pump and electric appliances.
  • Taking a hybrid approach in electrifying appliances and using decarbonized gas for back-up service.
  • Creating a shared geothermal network. In all four pathways, energy efficiency measures play an important role.

Each of the pathways presents trade-offs between costs and feasibility that highlight the challenge of decarbonizing a gas utility, a challenge which has not been fully addressed elsewhere in the United States. 

The Study also evaluated new business models that could provide PGW with additional sources of revenue that are consistent with the City’s climate and rate affordability goals. Several of the new strategies were close to existing PGW services, such as weatherization or renewable natural gas supply services. Other strategies were a departure from their existing business model, such as strategic electrification, financing services, or a community solar developer. The analysis provides clear evidence that PGW’s complex regulatory structure must be reformed in order to enable the utility to pursue any of the surveyed options. 

To continue the work in finding alternative business models for the company, the City and PGW are actively investigating the design and implementation of pilot programs that PGW can launch, informed by the findings of this report. These pilot strategies include: 

  • A weatherization program with novel financing opportunities, where PGW and the City will work together to identify funding opportunities for a program to support low- and moderate-income customers in the upfront financing and implementation of weatherization applications, such as home insulation, and will review the regulatory structure needed to enable it. 
  • A feasibility study for networked geothermal systems, where PGW and the City will work together to identify funding for a feasibility study that investigates the technical and geological potential of block-level networked geothermal district systems, the necessary workforce skillset, and the utility financial and regulatory model for such a system.  
  • A local decarbonized gas program, where PGW convenes a working group with the Philadelphia Water Department and Streets Department to explore opportunities to convert City waste into biomethane, making use of local resources to reduce carbon emissions.  

Additionally, the City of Philadelphia is committed to engaging the leadership of Gas Workers Local 686 to conduct a deeper workforce impact assessment for the various diversification strategies to better understand potential effects and opportunities. 

The Study was produced by a consulting team led Energy & Environmental Economic (E3) and was guided by a working group composed of representatives from the City, PGW, the Philadelphia Gas Commission, the Philadelphia Facilities Management Corporation, the Philadelphia Energy Authority, and Gas Workers Local 686. In addition, the Study was informed by the public through a stakeholder workshop, an online survey, and through public comments solicited on a draft of the report findings.  

To ensure this complex challenge is further addressed, Mayor Kenney sent letters to the Philadelphia Gas Commission, the Philadelphia Facilities Management Corporation, and the Pennsylvania Public Utilities Commission asking each to use their regulatory oversight of PGW to help ensure PGW can survive and thrive in a lower carbon future, including setting GHG emissions reductions goals and ensuring PGW provides regular progress updates on efforts to meet those goals.