State utility regulators study options
by Allen Best
In squeezing natural gas from the built environment, Colorado is unlikely to adopt hard mandates, as have been enacted by local governments in California and a few other states. But can Colorado figure out a gentler approach that achieves the same results?
Members of the Colorado Public Utilities Commission didn’t get any simple instructions along the lines of “just-add-water” during a meeting on May 20 with experts from the Environmental Defense Fund and the Regulatory Assistance Project, two national organizations engaged in the transition from natural gas.
”I am sorry I am not giving you a simple answer,” they were told at one point by Meghan Anderson of the Washington state-based Regulatory Assistance Project. “There are lot of things coming together.”
That was in response to a question from Commissioner John Gavan. He had alluded to SB21-200, the bill submitted by Sen. Faith Winter and others that would give the state’s Air Quality Control Commission more authority to achieve greenhouse gas reductions through new regulations.
Environmental groups have insisted that Colorado needs to move more rapidly in wringing out greenhouse gas emissions from the state’s economy. A 2019 law specified targets of 50% by 2030 and 90% by mid-century.
Gov. Jared Polis has vowed to veto the bill if it lands on his desk. Despite running on a platform of 100% renewables, Polis argues for an approach that is not seen as heavy handed regulation. He’s not against prodding the market, as was evident in a legislative hearing on the same day as the PUC meeting. Will Toor, the director of the state energy office, testified in support of a bill that would steer state funding toward building materials with lower carbon emissions embedded in their production or extraction.
“We have this raging battle going on in Colorado on that issue, do we do it through mandates or market forces?” Gavan said at the PUC session. “What do you see from around the country and the world?”
Colorado most certainly needs both mandates and market forces, Christie Hicks, the lead counsel for energy markets and utility regulation with the Environmental Defense Fund, said in response to the question by Gavan. She emphasized the importance of transparency and accountability in a stakeholder processes with utilities and others.
In Washington state, demand for natural gas has actually dropped, the result of improved energy efficiency, more stringent building codes, and deliberate efforts to displace fossil fuels in buildings with electricity.
Colorado’s largest gas-distribution utility, Xcel Energy, said in a PUC filing that it expects a 1% annual growth in demand for natural gas for building use. Xcel, in a November position paper titled “Transitioning Natural Gas for a Low-Carbon Future,” also argued against too aggressively transitioning from natural gas to electricity, even though it will sell more electricity.
For Colorado to meet its decarbonization targets, it must shut down coal plants and aggressively electrify transportation. More difficult yet will be the weaning of buildings from their dependence on natural gas—and, in some places, propane—for space heating, warming of water and appliances such as kitchen stoves.
The PUC commissioners were told that natural gas combustion in buildings causes 10% of total U.S. greenhouse gas emissions.
Eric Blank, the PUC chairman, asked the same question in a different way. Even before joining the PUC, he has been talking about the 40,000 to 50,000 housing units being built each year in Colorado along with perhaps 5,000 to 10,000 commercial units, virtually all with natural gas hookups.
Even beyond what the PUC can do, he asked, do you have any advice about what Colorado can do as we begin shifting toward all-electric, particularly with deployment of incentives?
Colorado very definitely is not California, he said, a reference to the natural gas bans in new construction by local governments in California, led by Berkeley beginning in 2019.
“It’s just not how Colorado operates,” said Blank.
Education will be foundational, answered Natalie Karas, also of the Environmental Defense Fund. She pointed to a website-based planning device created by a utility in New York that can instantly spit out the emissions associated with fuel decisions.
And can the natural gas lines be repurposed, say to hydrogen? “We have a 50- or 60-year gas system, and to keep that system safe requires hundreds of millions of dollars of ongoing investment in coming months and years,” Blank pointed out. “Is there any clean energy value in those assets going forward in terms of using it for hydrogen or other clean energy molecules?”
Blank got an indirect answer. “It’s all about meeting end uses,” said Megan Anderson of the Regulatory Assistance Project. The question, she said, is whether it’s good idea to make upgrades or are there better ways to meet customer needs.
This is from Big Pivots, an e-journal that tracks the energy and water transitions in Colorado and beyond. To subscribe, go to BigPivots.com.
PUC Commissioner Megan Gilman, who assembled the session, asked a central question about motivations and accountability. Current models used in Colorado and elsewhere reward investor-owned utilities with returns based on investments they make in energy generation and distribution. That gives utilities incentives to make investments that don’t necessarily align with climate goals. “That’s a fundamental problem,” she said.
Hicks said the best example of using regulation to achieve broad societal goals can be found in the electric sector, where states have been nudging utilities firmly to abandon coal-fired generation in favor of those that cause less pollution.
One technique is called performance-based ratemaking. Rates the privately-owned utilities are allowed to charge customers depend upon utilities achieving social goals. In this case, the allowed utility revenues would be tied to reductions of greenhouse gas emissions.
Hicks also urged a wholistic view of energy systems, seeing natural gas along with electric—which, in a way, is exactly what the Xcel position document issued in November urged.
The EDF’s Karas talked about the need for “rigorous analysis” of “every new piece of gas infrastructure being put into the ground. The experts all talked about the importance of planning.
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Also explored during the session was the question that Blank described as the “economic rock.” In short, how does this transition from natural gas in buildings occur across all economic sectors, not just among the well-heeled or, for that matter, not just in new homes and buildings?
The Xcel paper in November also drew attention to this problem. The scenario is what if only those of most modest means, unable to retrofit their homes, are left holding the bag of the stranded asset and hence required to pay much higher cost.
If there are no easy answers, the best equity will be borne of both well-crafted