Episode 6 – Natural Gas: The Backbone of the Energy System

ScottMadden, (00:11)
Welcome to the ScottMadden Energy Exchange, conversations with leaders shaping the future of the energy industry. I’m your host, Marc Miller, partner and energy practice leader at ScottMadden. In this podcast, we explore the most important issues facing utilities and energy companies, from infrastructure and regulation to operations and strategy. We focus not just on what’s changing, but on what it takes to execute in a complex and evolving environment.

Marc (00:42)
Today’s episode is titled Natural Gas, the Backbone of the Energy System.

When people talk about the energy transition, much of the focus is on electricity, generation, transmission, distribution, and electrification. But natural gas continues to play a critical role across the energy system, from power generation to residential heating to industrial processes. At the same time, the role of natural gas is being actively debated. Utilities are facing increasing regulatory scrutiny,

evolving policy direction, and long-term uncertainty about demand. So the question becomes how do utilities continue to operate and invest in natural gas infrastructure while navigating that uncertainty? To explore that, I’m joined today by Ed Baker, a partner at ScottMadden, an expert on this topic, who works closely with utilities on natural gas strategy, operations, and regulatory planning.

Ed, let’s start as we usually do, with the big picture. When people think about the energy system today, there’s a lot of focus on electricity, but natural gas still plays a major role. How should utility leaders think about the role of natural gas in the broader energy system?

Ed (02:03)
Thanks, Marc.

So it’s easy to lose sight of this when the conversation’s dominated by electricity and renewables. But natural gas still touches more than 70 million homes and businesses in the country. It heats buildings, it fuels industrial processes that can’t easily switch to another energy source. And it’s the backstop that keeps the lights on when the wind isn’t blowing and the sun isn’t shining. I think the mistake some people make is treating gas as a

legacy system that’s just waiting to be retired.

That’s not what the data shows, and it’s not what most customers experience. For the foreseeable future, gas is an active, load bearing part of the energy system. The real question for utility leaders isn’t whether gas matters. It’s how you manage a system that clearly matters today while being honest about the fact that its role may look different in twenty years.

Marc (02:56)
Where do you see natural gas being most critical today?

Ed (03:01)
Winter heating is the obvious one. When you get a polar vortex event or a prolonged cold snap, the gas system delivers enormous volumes of energy in a very short window. We saw this during Winter Storm Elliott in 2022 we saw what happens when parts of that system are stressed. It has real consequences for electric reliability too, because so much generation

depends on gas supply. But I’d also like to highlight industrial use, which doesn’t get enough attention.

There’s processes in steel making, chemicals, glass, and food processing where you need high temperature heat or gas as a feedstock, and there’s no commercially viable electric alternative at scale today. That’s not just a policy argument, it’s an engineering reality. And then power generation, not just as a baseload fuel, but increasingly as the fast ramping resource that compensates when renewables drop off. That role is actually growing even as

overall gas’s share of the generation mix is debated.

Marc (04:03)
Thanks, Ed. At the same time, the future role of natural gas is one of the most actively debated issues in the industry. In our conversations, you’ve described natural gas utilities, particularly local distribution companies or LDCs, as being at a crossroads. What’s driving that?

Ed (04:26)
Well, Marc, the short answer is that the planning assumptions gas utilities have relied on for decades are no longer safe assumptions. For most of their history, LDCs or local distribution companies could plan around steady or growing demand, supportive regulatory frameworks, and a pretty clear social license to operate. All three of those are now in question, and the pace of change is accelerating. In 2023

New York became the first state.

to pass legislation banning natural gas hookups in most new buildings. California’s regulators have moved to phase out gas-powered heating systems. Maryland’s governor signed an executive order directing agencies to phase out gas-fired furnaces. These are enacted policies, not hypothetical future risks, and are based on carbon, environmental, and health concerns. But at the same time, you’ve got more than 20 states that have gone the opposite direction.

Passing bans on bans that actually prohibit local governments from restricting natural gas. Florida, Tennessee, and Missouri have all preemptively

blocked electrification mandates, touting resiliency, economics, and customer choice.

So you’ve got LDCs operating across a policy spectrum that ranges from “we’re phasing you out” to “we’re legally protecting your right to serve customers.” That’s what makes it

A genuine crossroads rather than just a

challenge.

Marc (05:52)
So it sounds like the outlook is pretty different depending on where you’re operating. How does it look across states and regulatory environments for natural gas utilities? How different is that outlook depending on where you are?

Ed (06:10)
It’s dramatically different. And I think the most underappreciated part of this is even that the picture I just described is more complicated than it sounds. You might assume that an LDC in a ban on ban state is sitting comfortably.

But here’s the thing: many of those same states have greenhouse gas reduction targets on the books. Louisiana, for instance, has an executive order targeting net zero by 2050.

Washington voters approved an initiative protecting

access, but the state also has binding legislation to cut emissions 95% by 2050. Minnesota has a 50% reduction target by 2030. So even in states that are defending natural gas today, the emissions trajectory creates its own set of planning questions. The practical implication is that there is no jurisdiction where an LDC can simply assume the status quo holds.

Leaders have to understand not just today’s policy, but the direction of travel, and they have to plan for the possibility that it changes. What’s prudent in one jurisdiction might be reckless in another, and what feels safe today might not be safe five years from now.

Marc (07:24)
That uncertainty makes planning much more difficult for utilities. One of the themes of your recent work, Ed, is this idea of no regrets strategies. What does that mean in the context of natural gas utilities?

Ed (07:42)
It means making investments and operational decisions that you won’t look back on and wish you’d done differently, regardless of how the future plays out. Think about it this way.

If gas demand stays flat or grows modestly, you need a safe, reliable, efficient system. If demand eventually declines, you still need a safe, reliable, efficient system during the transition. And you need to have not over invested in assets that become

uneconomic. A no-regrets strategy threads that needle. It focuses your capital and your operational energy on things that create value in every plausible scenario. The way we think about it, these are initiatives that strengthen organizational resilience, improve efficiency, and position the enterprise for multiple futures, whether you’re operating in a pro-gas environment or one that’s pushing towards full electrification. The opposite is a strategy that bets heavily on one future.

Neither extreme looks wise right now.

Marc (08:45)
What are some other examples of no regrets strategies that utilities should be considering today?

Ed (08:53)
Marc, I’d point to five areas that we see consistently rising to the top. The first is strengthening operational efficiency. In any future, cost effectiveness and reliability are going to matter. That means looking hard at resource utilization, work management, supply chain reliability, and increasingly how you’re using analytics and AI in operations. If demand stays strong, efficiency helps you serve customers

at lower cost. If demand weakens, efficiency helps you manage a system with less revenue.

Second is building planning resilience through scenario modeling. LDCs need to move beyond single forecast planning and incorporate approaches that account for divergent regulatory and demand futures. Integrated system planning, looking at gas and electric together, is becoming more important as those systems become more interdependent. Third,

is financial resilience and strategic capital allocation. In uncertain conditions, you need to be thoughtful about payback periods and how much flexibility you’re building into your capital plan and about maintaining the financial position to pivot when conditions change. Fourth, and this one’s underrated, is workforce development. The energy transition demands different skills than what most gas utilities have built their organizations around.

You need people who can manage a system in transition, not just a system in steady state. Comprehensive workforce planning, cross-training, reducing contractor dependence, all of that matters regardless of the demand trajectory. And fifth is proactive regulatory and policy engagement. Rather than simply reacting to regulatory changes, the best-positioned utilities are actively helping to shape the conversation.

bringing data-driven positions, offering constructive solutions, and getting involved early in future gas proceedings. That’s how you protect your ability to serve customers and recover your costs.

Marc (11:04)
A lot of this ultimately plays out in regulatory proceedings and stakeholder discussions. How are regulators and other stakeholders influencing the future for natural gas?

Ed (11:18)
More directly and more aggressively than at any point I can remember.

The biggest shift is that regulators are no longer just reviewing what utilities propose. They’re initiating proceedings that define the terms of the conversation.

Clean heat plans, long range gas system planning dockets, investigations into the future of gas, all of those are regulator driven. And the pace is accelerating. You’ve got moratoriums on gas hookups, building electrification mandates,

rate structure changes, all forcing LDCs to rethink their traditional planning assumptions. On the stakeholder side, you’re seeing much more sophisticated engagement from consumer advocates, environmental organizations, and even large commercial customers. They’re bringing data, they’re hiring consultants, and they’re filing detailed testimony. The quality of the debate has gone up, which actually is a good thing, but it means utilities need to come equally prepared. And here’s the question that should keep LDC leaders up at night.

Can you rely on your current policy environment staying the same? Even in supportive states, the answer is probably not, because emissions targets and evolving customer expectations create their own pressures, independent of who’s in the governor’s office today.

Marc (12:35)
That’s a great point, Ed. what does it take for utilities to successfully navigate all those conversations?

Ed (12:44)
Honestly, the utilities that do this well are the ones that don’t wait to be told what to do. They engage early, they bring their own analysis, and they frame their conversation around customer outcomes rather than utility economics. Regulators respond well when a utility can walk in and say, here’s what we think the range of the futures look like, and here’s our plan to perform across those futures, and here’s how we’re protecting customers regardless of which one materializes.

That’s a very different posture than defending a capital plan because it’s what you filed last year. The other piece is developing data-driven positions on decarbonization pathways and offering constructive solutions rather than just resisting change. Utilities that show real leadership on this, while being clear about the value the gas system delivers around safety, reliability, and affordability

build the credibility to advocate for reasonable transition timelines and appropriate cost recovery. Getting involved early in future gas proceedings creates these opportunities. Showing up late means the conversation has already been framed for you.

Marc (13:55)
Even with that uncertainty, utilities still have to operate and maintain these systems every day. So what are the key operational and infrastructure challenges facing natural gas utilities right now?

Ed (14:10)
Say aging infrastructure is the constant. A lot of the distribution system in this country was built decades ago, but the replacement cycle is long and expensive. Utilities are managing pipe that needs to come out of the ground while simultaneously being asked whether it makes sense to put new pipe in. On top of that, you’ve got workforce challenges that I think are more acute than people realize. Experienced operators are retiring faster than they can be replaced.

Competition for skilled labor is intense, and the skills you need are changing. The energy

transition demands people who understand data analytics, scenario planning, and cross-functional coordination, not just traditional gas operations. Building that kind of agile workforce while maintaining day-to-day operational excellence is a real organizational challenge. And then there’s the cost pressure. Everything’s more expensive. Material, labor, compliance.

But the tolerance for rate increases is limited, especially for residential customers. So utilities are being asked to do more, do it better, and do it for less. That’s a hard equation, and doing nothing is not an option. Aging infrastructure, customer expectations, and emission goals still demand action.

Marc (15:30)
How are utilities balancing those operational realities with the longer term uncertainty we’ve been discussing?

Ed (15:39)
Good ones are getting much more disciplined about where they put their money. Instead of running a uniform replacement program, they’re prioritizing based on risk, on the expected useful life of the system in a given area, and on what the demand outlook looks like locally. They’re shortening payback periods for discretionary investments and maintaining the financial flexibility to pivot as conditions evolve. There’s also a real shift towards scenario-based planning.

Traditional approach was forecast demand, build to meet it. Now the leading utilities are stress testing their capital plans under multiple futures. What happens if demand grows? What happens if it flattens? What happens if policy shifts dramatically in year five? That’s a very different discipline, and it requires different tools and different governance than most utilities have in place today. But I’ll be candid, many utilities are still early in making this shift.

The planning tools, the governance structures, the incentive systems, a lot of that was built for a growth-oriented world. Investments that make sense in a supportive policy environment can quickly become liabilities if the winds shift. Rewiring those systems for a more a more ambiguous future is real difficult organizational work, but that’s exactly the kind of work that positions you well no matter what happens.

Marc (17:06)
That’s great stuff, Ed. Great points. if you look ahead, how do you see the role of natural gas evolving over the next decade?

Ed (17:18)
I think the honest answer, Marc, is that it depends on where you are. And anyone who tells you they know with certainty what the gas system looks like in 2035 is selling something. What I do expect is more differentiation. Some regions will see gas as a long-term pillar of their energy mix. Others will actively manage a transition towards a smaller gas system. Most will be somewhere in the middle trying to figure it out in real time. I also expect we’ll see more innovation

in how gas systems are managed, whether that’s blending hydrogen or renewable natural gas, using advanced analytics to optimize opti operations, or rethinking the regulatory compact to better reflect a world where gas isn’t the default growth business it used to be. The utilities that thrive will be the ones that are realistic about the range of outcomes and build organizations that can adapt. The ones that struggle will be the ones that pick a lane too early and can’t adjust.

Marc (18:17)
If you were advising utility leaders today, Ed, what’s the most important thing they should be thinking about when it comes to natural gas?

Ed (18:28)
Don’t let uncertainty become an excuse for inaction. That’s the biggest risk I see.

It’s tempting to look at the range of possible futures and conclude that the best strategy is to wait and see. But the utilities that wait are the ones that end up reacting to regulators, reacting to stakeholders, and reacting to events. They’re always a step behind. The better approach is to act on what you can control. Strengthen your operational efficiency. Build scenario-based planning and how you allocate capital.

Invest in your workforce. Engage proactively with regulators. Those aren’t bets on a particular future. They’re the foundations of a well-run organization in any environment. Natural gas LDCs don’t have to wait for policy certainty to act. The ones that are moving now, building strong, more resilient, more strategically prepared organizations, are the ones that will be in the best positions regardless of what comes next.

That takes leadership, it takes clear-eyed planning, and it takes a willingness to have honest conversations about what you don’t know. I think that’s actually an exciting challenge for leaders who are willing to lean into it.

Marc (19:39)
Ed, thank you for joining me today. I appreciate you sharing your perspective on the evolving role of natural gas in the energy system.

ScottMadden, (19:49)
Thanks for listening to this episode of the ScottMadden Energy Exchange. If you’d like to continue the conversation, you can find individual contact information in the show notes or reach us at info@scotmadden.com.