With climate challenges looming, Seth Shapiro faces a tough balancing act at Philadelphia’s gas utility

Philadelphia Gas Works got its start in 1836 manufacturing gas for public street lights. The production of gas from coal was a foul business, but one could argue that it was an environmental trade-off since fossil fuels eventually displaced whale oil in the lighting market. Whales were spared from extinction, but the whaling industry was not.

In the 20th century, electric lighting eclipsed gas lamps. Companies like PGW began selling gas as a cooking fuel, making wood stoves obsolete. PGW later shifted to “natural” gas extracted from the earth — not manufactured from coal — allowing it to expand into home heating, pushing aside anthracite and oil.

PGW is on the cusp of yet another evolutionary transition that could be as challenging as those it faced in the past, says Seth A. Shapiro, who was nominated last week to join the management team of the city-owned gas utility. Shapiro would be in line to take over as chief executive by the end of 2021.

PGW’s retail gas sales are flat — thanks mostly to efficiency improvements of home appliances. The utility’s 6,000 miles of gas mains need constant upkeep. And the organization faces growing pressure from climate activists, who regard cheap natural gas as an impediment to Philadelphia meeting its target to reduce carbon emissions 80% by 2050.

“As I sit here, no one can tell you how you’re going to transition to green,” Shapiro said last week in an interview after his nomination was announced.

“We know it’s going to require creativity. We know it’s going to require thinking outside the box because you have to both maintain the health of the system while exploring something new. And that’s why I go back to the shift from the lighting company to a heating and cooking company, because you need to do some sort of pivot like that.”

Shapiro, who turns 49 this week, would become PGW’s chief operating officer on Jan. 4 if his nomination is approved by the Philadelphia Gas Commission, which is unlikely to disagree with an appointment endorsed by Mayor Jim Kenney. Shapiro would take over by the end of 2021 for chief executive Craig E. White, who is set to retire.

Shapiro has worked most of his career in real estate development, which requires diplomatic skills to navigate through government bureaucracies and political thickets. He has no experience operating a gas utility, but he spent much of the last 16 years on PGW’s unpaid board of directors, which he said gave him an inside view into the nation’s largest municipal gas utility. It had $685 million in revenue last year.

“The organism that is PGW is so nuanced and so different than any other gas utility,” he said. “It’s the combination of the different layers of governance. It’s the focus on the public good rather than shareholder good, so you need someone who understands the city and understands the organism. And I would argue that the real estate industry is actually a good parallel.”

A Philadelphia native, Shapiro grew up in Fairmount and went to Friends Select School in Center City and then to Cornell University, where he earned a bachelor’s degree in government. He worked for Toll Brothers in Pennsylvania, Maryland, and Virginia before he and his wife, Courtney, a higher-education administrator, moved back to Philadelphia in 2002. They live in Chestnut Hill.

He has also worked as an executive for Westrum Development Corp., of Fort Washington; the Nauset Group, a Philadelphia developer; and for the last five years as executive vice president of the Goldenberg Group, a Blue Bell developer.

Shapiro was appointed to PGW’s board, the Philadelphia Facilities Management Corp. (PFMC), by Mayor John F. Street about 16 years ago. The debt-burdened utility was recovering from some dark years, including a series of corruption scandals. PGW was collecting only 86 cents on the dollar, and it suspended its $18 million annual dividend to the city for seven years starting in 2004. In 2000, the utility came under the jurisdiction of the Pennsylvania Public Utility Commission, which pressured the utility to get its finances in order and to step up neglected gas-main replacements.

Shapiro recalls one meeting when Mayor Street, with the utility’s board members present, called PGW’s customer service line, and the phone rang endlessly before there was a response, an embarrassing demonstration of the utility’s shortcomings.

“We had to fix those things,” Shapiro said. “We are now collecting 97 cents on the dollar; our rating with the bond agencies is climbing.” He credits former chief executive Thomas Knudsen, who retired in 2011, and current CEO White with getting the utility’s house in order.

Shapiro said he became fascinated with PGW after his board appointment. “I visited the plants and I really educated myself about the energy industry and the company," he said. Mayor Michael Nutter reappointed him to the board, and acquaintances suggested he should consider a career switch to management.

“When it was first presented, I said `Nah, I’m very happy in real estate,' " he said. “But the 10th time or the 20th time you start to say well, maybe I should actually think about that.”

He was interviewed in 2010 as a candidate to head the Philadelphia Housing Authority. He later resigned from the PGW board to put his hat into the ring for a management position at the utility. But the city suspended outside hiring at PGW while the Nutter Administration made a failed push for the utility’s sale in 2014. Shapiro was not on the board when it approved the $1.9 billion sale to UIL Holdings, a Connecticut utility company.

Kenney, who as a councilman had opposed the privatization of PGW, appointed Shapiro to return to the PGW board in 2016, this time as chairman. The new mayor made it clear that a sale was off the table. “He charged me from day one to operate it like a business, operate it in the best way you can and don’t let politics get in the way,” said Shapiro.

Shapiro said PGW’s management and workforce of nearly 1,600 are well equipped to operate the utility safely.

“There’s an overwhelming number of really talented, really experienced gas industry experts in that building,” Shapiro said, referring to PGW’s Montgomery Avenue headquarters near Temple University. “With the challenges that face the company right now, clearly you have to keep doing the blocking and tackling of clean, safe delivery of gas.”

The challenges, however, are substantial.

As an urban utility, nearly a third of PGW’s 500,000 customers are low-income families who struggle to pay their bills. The number of customers who fall behind their payments has been kept in check for the past decade, in part because of historically low natural gas prices attributed to the abundance of production from Pennsylvania’s Marcellus Shale region.

But the success of fracking and low-priced oil and gas have generated a backlash from climate activists, who regard the continued reliance on fossil fuels as a threat and advocate an accelerated shift to renewable energy (oil, natural gas and coal account for about 80% of the nation’s energy needs).

Though natural gas has reduced reliance on dirtier coal and oil, it is increasingly targeted for its greenhouse gas emissions. Some environmentalists advocate forcing gas distribution companies like PGW to switch from fossil fuels to renewable gas, produced from landfill waste or livestock manure, or to encourage customers to switch from gas to electric heat. San Francisco last week became the largest city to ban natural gas hookups in new buildings in an effort to reduce carbon emissions.

Philadelphia is undertaking a study, sponsored by the Bloomberg American Cities Climate Challenge, to explore a “just transition” for PGW. The coronavirus has pushed back completion of the report until early 2021, said Christine Knapp, the city’s director of sustainability. Shapiro has been part of the working group that meets periodically with the consultant to guide their work, she said.

But any transition that involves PGW losing customers — affluent customers would be better able to absorb the cost of switching to other fuel sources — also risks increasing the company’s reliance on a shrinking universe of customers to pay ever higher rates to cover the fixed costs of maintaining PGW’s system.

“You can’t go from A to Z quickly,” said Shapiro. “You can’t make the leap of operating a fossil fuel company to no longer doing fossil fuels without a whole lot of collateral damage that I’m not willing to live with, in terms of poor people and catastrophes that happen because you’re neglecting your infrastructure.”

Shapiro believes the company will need to expand sales of natural gas to industrial customers, or expand production of liquefied natural gas (LNG), which PGW now produces at its Port Richmond plant. LNG can be sold off system for use in power generation and transportation, usually displacing dirtier fuel like diesel.

But climate activists see LNG as a dangerous expansion of fossil fuel use. Philadelphia City Council last year approved a PGW partnership with a private developer, Liberty Energy Trust, to expand production of LNG. But four council members voted against the project, even though it will generate at least $1.35 million in profits annually to help offset PGW rate increases.

Shapiro believes the LNG deal was “really artfully done” by PGW’s management to optimize the company’s underused equipment at little risk to the city. He thinks it was a “wise investment.”

“I think LNG is really efficient, really smart," he said. “And it’s all part of a path that ultimately gets you to Z, even if Z is 50 years from now.”