State agencies engaging in utility infrastructure planning for the natural gas system

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- Jocelyn Durkay, Senior Regulatory Analyst

[BLOG POST] Monday, November 2, 2020 - The planning process for natural gas utility infrastructure will gain additional state oversight under a settlement agreement filed with state regulators that became effective October 12. The settlement arose from a proceeding at the Public Utilities Commission of Colorado (PUC), the state’s regulatory body for utilities, by Public Service Company of Colorado (Xcel Energy) to increase rates for natural gas customers. 

In February 2020, Xcel Energy, which serves approximately 1.5 million customers across the state, filed a rate case proposal at the PUC to determine how much money the utility needs to recover to meet its costs. Xcel Energy filed its rate case to recover costs for expenses for natural gas system improvements, expanded capacity, extending service to new areas, and maintaining safety and reliability. Together the cost of those projects amounted to approximately $325 million, including both capital and operations and maintenance expenses. Under the current regulatory framework, a natural gas utility spends funds for capital projects and operations and maintenance and then presents these expenses to the PUC. If the expenses are found prudent and to the benefit of the public, utilities are allowed to recoup these costs from their customers through rates and charges. The challenge with this model is that it does not allow for a public planning process where future expenses can be examined by stakeholders before they are undertaken. While natural gas utilities regularly engage in prospective and long term planning, this work is conducted internally and not in a public, regulated venue. By contrast, electric utilities must regularly submit plans to identify new generation, transmission, and renewable energy resources to the PUC, who approves utilities to procure these resources and recoup costs from their ratepayers. 

While rate case filings do not typically include concepts such as forward-looking system planning, the absence of a prospective planning process resulted in this venue examining how natural gas planning impacts the state’s economy wide effort to greenhouse gas (GHG) emissions. In 2019, the legislature enacted House Bill 19-1261, which established economy wide targets for reducing GHGs 26 percent by 2025, 50 percent by 2030 and 90 percent by 2050 from a 2005 level. 

Following House Bill 19-1261, Governor Polis directed five state agencies-- including the Colorado Energy Office-- to develop a roadmap to achieving these reductions. The GHG Pollution Reduction Roadmap is currently available for public comment and a preliminary draft indicates that wide reductions in GHGs are required to achieve these state targets. Among the many policies recommended for achieving reductions are increases in energy efficiency, building electrification, reducing fugitive methane emissions, and renewable natural gas.

The settlement agreement, approved by the PUC, establishes a two-part forward-looking planning processes for natural gas utilities and specific requirements for Xcel Energy. Beginning in 2021, Xcel Energy will be required to receive approval for certain large natural gas investments prior to initiating work. Within 30 days of the settlement’s effective date, state agencies, natural gas utilities, and other interested stakeholders will begin meeting to discuss a short-term (5-year) planning process for the natural gas utility system, which will result in a petition to initiate a rulemaking by next spring. Parties to the settlement also agreed to begin a similar process for long term planning if the Air Quality Control Commission at the Colorado Department of Public Health and Environment adopts rules specific to the utility natural gas sector. While portions of the settlement agreement only apply to Xcel Energy, the largest natural gas utility in the state, there are implications for all state-regulated natural gas utilities as Xcel Energy supplies natural gas transportation services for portions of those utilities as well.

CEO supported these planning provisions of the settlement agreement, as it is now the policy of the state to reduce GHG emissions economy wide, and natural gas utility capacity and infrastructure investments should be considered against the impacts they will have on helping achieve the state’s GHG emissions goals. Utility natural gas investments last for decades and CEO believes that stakeholders need to begin evaluating Public Service’s natural gas system planning to ensure that those investments are consistent with both short-term and long-term policy goals. Planning may reduce or avoid the risk of stranded assets, affords the PUC with longer timeframes for decision-making, may minimize or stabilize rate increases, provides greater protections to vulnerable customers, and better protects industries and their workers.

Simultaneously to the conclusion of this settlement process, the PUC opened an exploratory proceeding to examine how state policies to reduce GHGs impact the natural gas utility sector. The PUC, led by Commissioner Megan Gilman, will conduct virtual workshops and solicit input through written filings beginning with a Commissioners’ Information Meeting on the morning of November 5.

1 - The full settlement by searching for Proceeding No. 20AL-0049G on the PUC’s website and clicking on Appendix A to R20-0673 filed on September 22, 2020.