The Colorado Public Utilities Commission (CPUC) doused its rules regulating natural gas utilities in red ink, adding requirements to reduce greenhouse gas (GHG) emissions and striking “natural” from natural gas.
In what the Colorado Energy Office called a “key step” in achieving the state’s GHG Pollution Reduction Roadmap, the CPUC earlier this month finalized rules following a 14-month rulemaking process. The CPUC’s decision in Proceeding No. 21R-0449G fulfilled requirements under Colorado Senate Bill (SB) 21-264, which was signed into law in June 2021 requiring the commission to create pathways for natural gas utilities to reduce emissions levels.
The “decision requiring comprehensive planning from regulated gas utilities will not only help reduce greenhouse gas emissions, it will also protect consumers by requiring rigorous examination of utilities’ large capital investments in the gas system and ensuring that existing ratepayers do not subsidize expansion of the gas system to serve new development,” said Colorado Energy Office (CEO) Executive Director Will Toor.
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One of the many changes regulating utilities extends to new natural gas customers, who must now assume the cost of natural gas hookups, “including any costs associated with increases in design-day peak demand,” according to the updated regulations.
Prior to the commission adopting the new rules, attorneys representing the American Petroleum Institute’s (API) Colorado segment wrote in an October filing to the CPUC that the “change in line extension policies is without statutory warrant.
“…The natural implication of this proposed policy change is to, at a minimum, discourage installation of new gas service lines or even maintenance of existing lines,” attorneys said, citing that the commissioners and stakeholders in meetings referenced “‘pruning’ the gas system.’”
CEO argued in its initial proceeding comments earlier this year that the change to recouping the cost of new natural gas hookups would be beneficial for clean energy targets set by SB 21-264.
In order to cut GHG emissions by 4% from 2015 levels by 2025, and by 22% from 2015 levels by 2030, as required by SB 21-264, “it is necessary to reduce emissions from the built environment,” CEO said in the January memo.
What’s more, Colorado’s Energy Performance for Buildings legislation, which became law in June 2021 alongside SB 21-264, positioned CEO to create guidelines for buildings to achieve a GHG emissions reduction of at least 7% by 2025, and a 20% reduction by 2030 based on 2021 levels.
Increasing and expanding building electrification, which may be more attractive for potential new gas customers facing higher costs in light of the line extension ruling, would “decrease throughput on the gas system or reduce future revenues,” CEO said in January.
CEO Senior Director of Policy Keith Hay told NGI that “it’s worth observing that while the Commission’s decision set out principles for how utilities need to calculate line extensions, we do not yet know what the specific formulas will be or how they might impact gas line extensions.
“The approach in the rules came from the Commission to align line extension policy with the state’s GHG reduction targets. CEO supported the Commission’s approach throughout the proceeding…we believe that asking building developers to pay the cost of the line extension provides transparency about costs and reduces the subsidy that was built into the prior policy. The approach can help avoid placing the cost of new gas infrastructure investments that may lead to potential stranded assets and costs on customers.”
For its part, Xcel Energy Inc., parent company of Public Service Co. of Colorado (PSCo), is “still evaluating the implications of the new line extension rules,” spokesperson Tyler Bryant told NGI. “Our top priority is always ensuring the charges are fair and that customers are not charged twice for the same services, once through an initial interconnection charge and then again through their monthly bills.”
Nixing ‘Natural,’ Reflecting New Fuel Mixes
Also included in the updated rules regulating Colorado natural gas utilities is a definition to clarify that “‘natural gas’ or ‘geological gas’ means methane or other hydrocarbons that occur underground without human intervention and may be used as fuel.”
The updated definition goes hand-in-hand with a modification of the term “gas” to include “hydrogen, recovered methane or any mixture thereof…”
Hay said the office “supported and adopted changes to both the terms ‘natural gas’ and ‘geological gas’ to align with the definitions of these terms in” SB 21-264.
The CPUC made the proposal to modify the definition of gas “‘to add the qualifier that such gas is produced, transmitted, distributed or furnished by any utility…to clarify the applicability of the rule to utilities,’” Hay noted.
In its January memo to the CPUC, CEO said it “supports the Commission’s inclusion of ‘geological gas’ and what it understands as the Commission’s effort to shift away from the term ‘natural gas.’ CEO believes that the terms ‘fossil gas’ or ‘geological gas’ more accurately reflect the nature of the fuel that is being used.”
While Colorado’s current distribution system includes natural gas, “clean heat plans provide for the utility to meet customer energy needs with hydrogen,” renewable natural gas, “recovered methane and other sources that may have a different origin, composition or emissions profile from geological gas,” CEO said in its initial comments.
Blue Hydrogen Left Out Of The Mix
Missing from the final ruling on Proceeding No. 21R-0449G is a definition for blue hydrogen, or hydrogen produced from natural gas using carbon capture.
API Colorado, Colorado Natural Gas Inc. and PSCo all suggested the CPUC adopt a definition for blue hydrogen throughout the rulemaking process, according to CPUC.
“We feel it is important to preserve the option of using lower-carbon blue hydrogen to meet our long-term climate objectives to reduce greenhouse gases in our gas business,” Bryant said.
The commission, however, said in its comments on the final rulemaking that it declined to adopt a definition for blue hydrogen.
While the commission said it agreed “that ‘blue hydrogen’ is generally accepted to mean hydrogen not sourced from renewable energy but that can reduce GHG emissions, it would be incumbent on the utility to show that the hydrogen project proposed would actually reduce emissions in a manner appropriate to be considered ‘blue’ hydrogen.
What’s more, “defining the term…would be inconsistent with the commission’s typical approach in rules because the term is not used anywhere in the adopted Gas Rules, as it was not included in the statutory list of clean heat resources expressly listed in SB 21-264.”
The CPUC “did not accept the specific recommendation on a definition, but the rules and recent legislation (Senate Bill 21264) preserve this option. We appreciate the Commission’s consideration of this subject,” Bryant said. That said, the CPUC’s final ruling includes definitions for green hydrogen, as well as those for biomethane and recovered methane.