NY governor's budget gives regulators more power to phase out natural gas grid

New York Gov. Kathy Hochul unveiled changes to the state's foundational law governing utility service that would give regulators the authority to execute an orderly transition away from natural gas distribution systems.

Hochul's Affordable Gas Transition Act would repeal the requirement for gas utilities to hook up new customers upon request and restrict distributors from expanding their service territories beginning in 2026. It would give the New York Public Service Commission (PSC) authority to retire portions of the gas grid in cases where commissioners determine retirement is necessary to achieve state climate goals.

The changes were meant to help New York slash economywide greenhouse gas emissions to at least 85% below 1990 levels by 2050, a target enshrined in the 2019 Climate Leadership and Community Protection Act (CLCPA). Buildings account for about a third of the state's greenhouse gas emissions, according to state analysis.

Changes to the state's public service law are necessary to facilitate the transition to electric heating and cooking and ensure that New Yorkers have energy service at just and reasonable rates, according to the bill's legislative findings.

Gas utilities' obligation under current law to provide service is a "major obstacle" to developing "neighborhood-scale building decarbonization projects" such as geothermal energy networks and encourages investment in infrastructure that is at risk of becoming stranded assets, the bill's authors said.

"The trend toward electrification is expected to eventually pose a fundamental challenge to gas corporations' longstanding business model and, in particular, makes it difficult for gas corporations to recover the full costs of their extensive infrastructure networks from consumers," the authors said.

Rethinking continuation of gas service

In her recent State of the State presentation, Hochul signaled that she would embrace at least some of the public service law changes sought by progressive lawmakers and climate activists.

But the scope of change that Hochul was prepared to back remained unclear until she released details in her fiscal year 2025 executive budget on Jan. 16. The bill aligned with progressive legislation, as well as recommendations from the state's Climate Action Council.

Hochul's bill would expand the PSC's authority to include all powers necessary to achieve the CLCPA's climate justice and emission reduction mandates. The bill would require that the provision of electric and steam utility service must be consistent with those mandates.

Under the bill, the state would no longer view the continued provision of residential gas service as necessary to preserve the health and general welfare of New Yorkers. It would maintain this policy for electric and steam service.

The language of the bill stressed that continued gas service must be "safe and adequate, not unjustly discriminatory or unduly preferential, and in all respects just and reasonable, while providing for an orderly gas system transition" to achieve the CLCPA mandates. The transition must prioritize low- and moderate-income ratepayers and disadvantaged communities.

The legislation noted that the PSC can discontinue or curtail service to existing residential customers through a commission-approved program, provided that commissioners determine that these actions are "reasonably required to implement state energy policy." However, commissioners must ensure customers have continued access to "safe, reliable and affordable energy service" before discontinuing gas service to an area.

The bill would direct the PSC to review gas utility capital plans and establish a process for exploring alternative capital projects that align with CLCPA mandates. It would also give the commission the authority to require electric utilities to participate in this process if they have territories that overlap gas distribution systems.

Restricting future gas system growth

The Affordable Gas Transition Act would prohibit gas utilities from building new infrastructure that would extend service into parts of the state not served prior to Dec. 31, 2025, except where the PSC grants an exemption.

The bill would make it more expensive to connect to the gas system by ending the practice of spreading the cost of new hookups among all ratepayers if the new customer is within 100 feet of a gas main. The bill would maintain the so-called 100-foot rule subsidy for electric service.

Gas utilities can continue to sign up new customers within their existing territory, but they will have to provide applicants with information on weatherization, demand-side management, incentives for installing electric equipment, and programs that support rooftop solar and other distributed energy resources.

The bill would expand the PSC's authority to block gas shipments to new customers or increases in deliveries to existing customers. Currently, this power is restricted to cases in which the PSC determines that a gas shortage will prevent a distributor from meeting the needs of new customers. The bill would allow commissioners to exercise that authority when they find that continued gas service is inconsistent with achieving CLCPA mandates. It would also remove a provision that limits this authority to the duration of a gas supply emergency.

In determining whether new gas service is warranted, the PSC could take into account potential impacts on economic development opportunities, new and existing customers, system safety and adequacy, customers with limited ability to convert to an alternative energy source, and the feasibility of neighborhood-scale alternative energy projects.

Hochul will need to secure support for the Affordable Gas Transition Act and other legislative priorities from Democratic leaders of the New York State Senate and New York State Assembly during budget negotiations.