The complaint contends that the pricing is anti-competitive and designed to make district energy steam, an alternative to natural gas service provided by Philadelphia Gas Works, significantly more expensive for customers
PHILADELPHIA, October 25, 2021 – Vicinity Energy, owner of the nation’s largest portfolio of district energy systems, announces today that it has filed a formal complaint with the Pennsylvania Public Utility Commission (PUC) regarding the renewal of its gas transportation contract with Philadelphia Gas Works (PGW). The existing contract between Vicinity and PGW, which was originally executed in 1996 and expires at the end of 2022, has helped to ensure that Vicinity’s customers, representing approximately 100 million square feet of building space (75 million square feet of heating and 25 million square feet of summer cooling) in city center Philadelphia, continue to receive clean, reliable, and affordable steam service. In February 2021, PGW provided Vicinity with a new offer to continue gas supply to its Grays Ferry plant starting in 2023, which increases the price for gas supply to Vicinity by over 1000%.
Per the longstanding contract, PGW supplies gas transportation services to Vicinity’s Grays Ferry combined heat and power (CHP) plant in South Philadelphia; Vicinity purchases the natural gas itself from third party natural gas suppliers. Vicinity Energy is PGW’s largest customer and consumes this gas to generate both electricity, which is supplied to the PJM electric grid, and a by-product thermal heat in the form of steam. This steam is distributed to customers throughout the city through a vast network of underground pipes and is used to heat and cool buildings, as well as for critical processes and sterilization of lab and surgical equipment in hospitals, bio-medical and life science laboratories, and other facilities. Because the steam is a by-product of the CHP process, it is a clean, low carbon, and efficient alternative to directly consuming gas on site in individual buildings.
In its formal complaint to the PUC, Vicinity contests the drastic increase in the cost to transport gas through PGW’s pipeline and claims it is anti-competitive, unreasonable and an attempt to impose significant anti-competitive pressure on Vicinity’s mission critical energy services business. In addition to the dramatic price increase, PGW’s new offer also migrates Vicinity from firm gas delivery to interruptible supply. If permitted, this provides PGW with the ability to suspend the supply of gas to Vicinity at any time, which would interrupt the co-generation of electricity and steam in its plant. PGW has provided Vicinity with firm supply since the current contract was first signed in 1996. The new offer represents a fundamental shift in the longstanding terms of the agreement between Vicinity and PGW. While Vicinity Energy has backup options (including dual-fuel steam generators, portable steam generators and fuel oil reserves) and system redundancies, interruptible supply is unacceptable to Vicinity and the needs of its customers, including major hospitals, research labs, universities, and government buildings.
In the 1996 agreement, PGW was obligated to refurbish and construct a dedicated pipe to connect Vicinity’s Grays Ferry Plant to the interstate gas transmission line. Vicinity was required to repay PGW for the capital investment over the life of the contract. While PGW continues to own the pipe, it only transports gas to Vicinity’s facility and PGW has more than recouped its capital investment over the life of the current agreement. In addition, Vicinity has paid an annual fee to maintain the pipe throughout contract. Therefore, Vicinity contends that the ongoing cost to serve Grays Ferry is negligible and there is no basis for the significant price increase or the interruptible terms proposed by PGW. Vicinity is appealing to the PUC to review all terms presented in PGW’s new gas transportation offer as monopolistic and ultimately a risk to end-users.
PGW is already responsible for contributing 4.6 million tons of carbon equivalent emissions to the region’s carbon budget according to an October 2019 study by the University of Pennsylvania’s Kleinman Center for Energy Policy. In addition, PGW has admitted that its antiquated distribution system leaks the equivalent of 1 million tons of carbon dioxide per year. In light of this, PGW is the subject of a diversification study recently launched by Philadelphia’s Office of Sustainability. The purpose of this study is to determine if there are viable new business ventures for the city-owned gas utility, given the City’s commitment to upholding the goals of the Paris Climate Agreement and to reaching 100% clean energy by 2050. The City has publicly stated that it can only reach its decarbonization targets by reducing the carbon emissions from thermal energy. As a fossil fuel supplying entity, PGW’s future is uncertain. Vicinity has repeatedly reached out to PGW in attempts to cooperatively forge a path forward towards a more sustainable energy future for Philadelphia. While Vicinity continues this outreach, PGW’s responses have failed to address the huge divide between the parties, refusing to provide any justification or substantiation of their proposed increases and accordingly these efforts have thus far been unsuccessful.
By contrast, Vicinity estimates that its CHP operations avoid over 300,000 tons of CO2 emissions annually, as compared to on-site gas boilers and electric consumption from the grid. Further, CHP technology is 20% more efficient as compared to even the most advanced combined-cycle gas turbine power plants. Vicinity’s offering is a low carbon, green option today, and Vicinity plans to continue to reduce its carbon footprint. The company has made a public commitment to further invest in Philadelphia’s green energy infrastructure and to reach net zero carbon emissions by 2050, in line with the City’s published plan. Vicinity announced earlier this year it will begin using net-zero carbon vegetable oil recovered from Philadelphia’s food service industry to eliminate its use of petroleum-based heating oil.
In 2019, Pennsylvania Governor Tom Wolf directed Pennsylvania to join the Regional Greenhouse Gas Initiative (RGGI) through an executive order. Eleven states currently participate in the program, which sets a cap on emissions from power generators and provides a market through which these generators can trade credits. Pennsylvania regulators recognized the importance of incentivizing combined heat and power plants like Vicinity’s Grays Ferry Facility and became the first state to change its treatment of CHP in the RGGI program to reflect its unique attributes, including increased efficiency and reduced carbon emissions. Vicinity’s complaint highlights the commitment of the Commonwealth to its CHP technology and requests that the PUC consider the implications of PGW’s price increase on the broad use of the technology for decarbonization. PGW’s tactics are clearly motivated to limit the output of this important resource and push Vicinity to use higher carbon intensity alternatives. Vicinity will take all necessary steps to protect its customers from this greedy, anti-competitive and environmentally unsustainable attack by PGW including pursuing alternative natural gas transportation means and electrification of its steam generation assets.
According to the PUC’s website, the complaint process will involve a legal proceeding through which Vicinity will be required to present facts and evidence to a PUC administrative law judge. PGW will have an opportunity to file an answer to the complaint. Vicinity expects a formal review of the complaint by the PUC to take six months or more.
About Vicinity Energy
With 19 district energy systems in 12 major cities, Vicinity Energy is the leading provider of district energy solutions nationwide. Vicinity produces and distributes steam, hot water, and chilled water directly through its vast underground network to individual buildings and campuses. Additionally, it generates electricity through its CHP units as a wholesale provider to the electric grid. District energy eliminates the need for boiler and chiller plants in individual buildings, improving overall efficiency, lowering carbon footprints, and increasing reliability. Vicinity’s over 450 skilled engineers, operators, and energy experts have a singular dedication to customer success and a relentless focus on delivering reliable and efficient energy products and services. With the recent launch of the company’s Clean Energy Future roadmap, Vicinity has committed to achieving net zero carbon emissions across all operations by 2050. For more information, check out www.vicinityenergy.us.
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