Palo Alto Drops Ban On Natural Gas

PALO ALTO, CA -JULY 12: Power line towers are shown July 12, 2002 in Palo Alto, California. The … [+] Federal Energy Regulatory Commission boosted the maximum price of electricity from $55.26 per megawatt hour to $91.87 in the wake of record-breaking temperatures for the week, including 112 degrees in Redding, California today. One megawatt is enough to power about 750 homes. (Justin Sullivan/Getty Images)

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Amid much fanfare, in 2022, the City of Palo Alto, California, home to Stanford University, amended its building code to require that every new building within its borders be all electric. This followed the lead of the City of Berkeley, California, which had previously banned natural gas infrastructure in 2019. At the time, Berkeley considered its law a clever way to bypass any law that would prohibit the use of natural gas entirely, which, it no doubt recognized, might be legally uncertain despite the evident desire to help reduce greenhouse gas emissions.

However, despite Berkeley’s attempt at cleverness, in 2023, the federal Ninth Circuit Court of Appeals, writing in California Restaurant Association v. City of Berkeley, saw through Berkeley’s scheme and invalidated the Berkeley law as violating the U. S. Energy Policy and Conservation Act of 1975 (EPCA). In January 2024, the Ninth Circuit denied Berkeley’s request for a rehearing on the case. A few weeks later, Palo Alto announced that it will consider a proposal from the City Department of Planning and Development Services to stop enforcement of that municipality’s own all-electric requirement.

Palo Alto’s retreat could be a precursor to more municipalities dropping similar all-electric requirements that have been enacted elsewhere over the past few years – all or most to help battle climate change. Berkeley’s ban was different from Palo Alto’s, in that Berkeley banned all natural gas infrastructure within the City’s borders and is included in the city’s health and safety code, while Palo Alto included its ban in that City’s building code. However, the Berkeley Court ruled that such a distinction should not make a difference. The Ninth Circuit held that the EPCA is “concerned with the end-user’s ability to use installed covered products at their intended final destinations, like restaurants.” Neither the Berkeley nor the Palo Alto restriction would pass Ninth Circuit scrutiny under that reasoning.

There are more than 70 cities in the United States that have adopted regulations requiring or incentivizing all-electric building construction. While those located in the very large Ninth Circuit, which consists of all states bordering the Pacific Ocean, plus several more inland states, plus Alaska and Hawaii, will all have to reconsider their laws to comport with the decision in the Berkeley case, municipalities throughout the United States must also take notice of the Ninth Circuit’s decision because of its potential impacts in other federal judicial circuits. Among those cities not located in the Ninth Circuit who will need to pay attention to the Berkeley case, New York City and State must especially watch carefully. Specifically, in 2021, New York City banned natural gas hookups in new construction (which took effect for buildings smaller than seven stories in December 2023 and will take effect for larger buildings effective 2027). In 2023, as part of the State budget process, New York State also became the first state in the Union to ban such natural gas hookups.

Fifty two percent of all households in New York State use natural gas for either space heating, water heating, or cooking. The 2023 ban forced all New York State developers to contemplate how they will obtain electricity if they would be banned from continuing to use natural gas in their development communities altogether. Ironically, fossil fuel use soared after New York State closed its nuclear reactors at Indian Point.

Surely this was not what the State expected. However, the Empire State did not have (and still does not have) a realistic plan to compensate for the energy loss. In 2020, then New York Governor Andrew Cuomo refused to give the necessary permits for the Northeast Supply Enhancement project (NESE), that would have connected New York City directly to the rich natural gas wells of Northeastern Pennsylvania.

That refusal limited the availability of natural gas to the New York City metropolitan area. Given the pressures of both the energy supply crunch and the Berkeley ruling, will New York developers and state governmental officials now be rethinking the natural gas ban altogether?

To be sure, there are other levers in place in New York City that may drive developers toward electricity and away from natural gas, ban or no ban. Local Law 97, passed in 2019 and which became effective January 1, 2024, placed a cap on carbon emissions for large buildings of 25,000 square feet or larger (would that law also fall under the Berkeley analysis?). New York City’s affordable housing rules also allow developers to charge higher rents for electric buildings when calculating the maximum net affordable rents, while the utility allowance (i.e. deduction) for electric heat is 30-50% lower than gas heat, thus producing a higher maximum net rent). Finally, in New York City only electric buildings are allowed to qualify for CPACE (Commercial Property Assessed Clean Energy) financing.

However, regardless of these programs and rules, New York State will still have to show that it can supply the needed electricity as it converts its buildings to all electric. As property developers must plan for the long term, will they now need to install conduit for gas lines just in case electricity becomes unavailable in the future? These are questions which cannot yet be answered, but they must be considered and thought about as we seek to transition to a cleaner, more renewable, and sustainable economy.

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