Will Colorado pioneer new metric for hurrying up beneficial electrification?

by Allen Best

Andy Bardwell was among dozens of people who testified to a Colorado legislative committee Thursday afternoon about a bill, HB 21-1238, that would result in more aggressive efforts to reduce natural gas in homes and other buildings. A mathematician  with a Ph.D., he may have been most concise in why the bill should become law.

“There is an imaginary cost and then there is the real cost,” he said in describing the metrics used to determine the cost effectiveness of programs offered by Xcel Energy and other investor-owned utilities.

Bardwell described the metric now used by state regulators as badly flawed.

“Right now, we are paying heavily for our lack of paying attention to global warming, and we have a chance now to rectify that,” he said. “Let’s do it. Let’s make better decisions.”

The bill, “Public Utilities Commission Modernize Gas Utility Demand-side Management Standards,” sponsored by Rep. Tracey Bernett, a Democrat from Boulder, and Sen. Chris Hansen, a Democrat from Denver, has a strong social justice component, which is becoming common in many legislative initiatives in Colorado and other states.

This bill, however, may be first in the nation to propose replacing the discount rate method of evaluating benefits with one that calculates the net-present value. The latter takes a longer view and places greater value on renewables and less on heating and other technologies that have ongoing costs of fossil fuels.

Introducing her bill, Bernett described the bill as accommodating adoption of new clean energy technologies as they become more widely available and/or cost effective,” helping Colorado realize its economy wide carbon reduction targets.

Some technology that could reduce greenhouse gas emissions from buildings isn’t so new, she went on to say. She cited the work of Paul Bony, who has been in the business in one way or another for 25 years in the Delta-Montrose area installing geothermal heat pumps. His company of 13 full-time employees installs 70 such systems annually, obviating need for natural gas for home heating.

Moreover, she said, Colorado Mesa University in Grand Junction has been converting its campus to renewable thermal technology. As a result, it has among the lowest operating costs (for energy) in the Colorado university system, she added.

“It’s going to take decades and decades to decarbonize our buildings,” she said. “This is just the start. This gives the PUC (Public Utilities Commission) more tools” to advance energy efficiency and also new technologies as they become cost effective.

Not all of those testifying at the meeting of the Colorado House and Environment Committee agreed with Bardwell. A representative of homebuilders flatly opposed the bill, warning that it will make housing more expensive in Colorado, burdening homeowners with electricity costs that are higher than those of natural gas. “We want to make sure the policy doesn’t move faster than the technology.”

In varying degrees, Xcel Energy, Black Hills Energy and Atmos Energy—all of them investor-owned natural-gas utilities—also opposed the bill. Also affected would be Colorado Natural Gas. Municipal providers of natural gas would not be affected, as they are not regulated by the PUC.

George McGuirk, senior regulatory analyst for Xcel Energy, outlined several concerns. Responding to a question, he said Xcel estimates the bill would approximately double the amount of money it must spend on efforts to reduce use of natural gas, from $18.5 million in the most recent year in which demand-side programs were tallied to a portfolio of $35 million to $40 million.

Already, he said, Xcel has started encouraging customers to shift from natural gas to electricity. Electricity will in the coming decades become stripped of most of the carbon emissions associated with its production. “Given the efforts we have made in cleaning our electric system, we have been able to begin pursuing beneficial electrification,” he said. But, he added, this “needs to be done very strategically at this point.”

Rep. Mike Weissman, a Democrat from Aurora, pressed to know the costs to customers overall but also the benefits, in that their natural gas costs will go down.

The program costs will be passed along to the broad base of ratepayers, he said, but conceded that “there will be a bit of a wash between the two.”

The bill would require Xcel to apportion 25% of its budget for demand-side management for income-qualified customers. Jan Rose, of Colorado Coalition for a Livable Climate, said the more wealthy can afford energy efficiency, and those who need most energy efficiency in their homes cannot afford the upgrades. “This is deeply unfair at a social and moral level,” she said.

But still not on board with the bill is a traditional ally of Democratic initiatives. Phil Hayes, political and legislative director for the AFL-CIO, said union pipefitters have concerns about the bill that will require an amendment. That and other concerns being addressed in amendments caused Democrats on the committee to postpone a vote on the bill to another meeting.

The bill also has a provision that would accommodate behind-the-meter renewable sources, described by one legislator as a carveout.

Several provisions in the bill would make weatherization of buildings and shifts from gas to electricity for heating of homes and water financially more attractive.

One would apply the social cost of carbon to decisions involving natural gas, similar to what Colorado began requiring of decisions involving production of electricity with a 2019 law. That cost is $46 per ton of carbon dioxide. This bill would also require state regulators to use a social cost of methane of $1,040 per short ton. This would include estimated leaks from pipelines and other infrastructure.

Carbon dioxide lingers in the atmosphere at least a century, while methane—the primary constituent of natural gas—dissipates entirely after 20 years but has 86 times the heat-trapping power during that short life.

A second provision — the one at the heart of Bardwell’s testimony – would change the formula used by state regulators to evaluate the cost effectiveness of demand-side management programs. The proposed new metric would, according to the text of the bill, require “that the calculation of future benefits reflects the avoided costs to ratepayers resulting from reduced consumption of natural gas.”

Leslie Glustrom, of Clean Energy Action, told legislators that the discount rate issue “sounds kind of wonky, but it’s not that hard.” She cited the example of a compound interest rate of 7% applied to $1,000. That formula produces $2,000 after a decade.

“The discount rate is kind of the reverse of that process,” she said. “Discounting future fuel costs to make them like a small fraction of what they will be.”

Two pediatricians also testified in favor of the bill, describing adverse effects of natural gas on children. Howard Geller, senior policy advisor for the Southwest Energy Efficiency Project, said Xcel’s gas programs that encourage efficiency in 2020 produced $30 million in economic benefits.

Republicans on the committee were sparse in their questions. One exception was at the outset when Rep. Dan Woog, a Republican from Erie, asked Bernett if her bill had calculated the effects of mining lithium and cobalt in China, which has few and less rigorous worker protections.

“We need to focus on the things we can do here,” Bernett replied. “Do you have any data on those effects from China?”

“No, I do not,” he said.

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Allen Best