Xcel Energy received the green light from state regulators Monday for a $440 million plan to curb greenhouse gas emissions from its natural gas system through a combination of energy efficiency and electrification programs.
The goal of the so-called Clean Heat Plan is to move more homes and businesses to electricity from using natural gas, cutting greenhouse gas emissions 22% by 2030. Xcel Energy projects a 14% decline in its gas sales from 2024 to 2028.
The plan will raise electricity rates 1.1% and natural gas rates 7% for Xcel Energy’s customers over the next four years, according to the Colorado Public Utilities Commission.
Colorado was the first state to adopt a statute regulating emissions from retail gas providers. Vermont and Illinois have followed.
The scale of the plan and the economic pressure it places on Xcel Energy — natural gas customers and revenues may decline, but the delivery system still must be maintained — caused concern among the utility commissioners.
“The electric transition took 25 years,” PUC Chairman Eric Blank said at a May hearing. “I am worried we are trying to jam too much into five years. … I just don’t want to see rates double in 10 years.”
The clean heat plans were mandated in 2019 by Senate Bill 264, which requires a 4% reduction in emissions by 2025 and a 30% cut by 2030. It also placed a 2.5% cap on the rate increases to finance the plan, but allowed the PUC to approve a costlier plan if necessary.
Xcel Energy said in a filing that with a 2.5% cap it could only raise $34 million a year and cut emission in 2028 by only a fifth of what is needed to reach the 2030 target.
“It is evident that it will be necessary to exceed the cost cap in order for the company to be on a realistic path to meeting the statutory 2030 emission reduction target,” the commission said in its order.
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Read moreOne of the requirements for going past the 2.5% rate cap was for the utility to have a rate mitigation plan for low-income households. Xcel Energy’s mitigation plan seeks to more efficiently use existing programs that help with paying bills, such as Energy Outreach Colorado.
“The rate-impact mitigation plan the company put out was wholly insufficient because it relies on existing bill assistance programs,” said Cindy Schonhaut, director of the Colorado Office of the Utility Consumer Advocate. The UCA represents residential and small commercial utility customers.
The problem isn’t that some households need assistance, Schonhaut said, the problem is that bills are so high.
Hydrogen, coalbed methane capture removed from plan
Xcel Energy had sought $576 million, with the possibility of spending an additional $119 million, but the PUC trimmed the plan by about a third, knocking out programs such as green hydrogen fuel and coalbed methane capture.
“The PUC-approved plan, like our proposal, balances emissions reductions with costs, while prioritizing customer choice with expanded rebates for electrification, energy efficiency and other measures,” Xcel Energy said in a statement.
“The plan also provides us the ability to explore clean fuels options, such as hydrogen blending through commercial customers and certified natural gas through a premium, clean-sourced product customers may opt in for,” the company said.
While there is an upfront cost in making these investments they will save money in the long run, said Meera Fickling, building decarbonization manager for the environmental group Western Resource Advocates.
“We don’t have a sustainable system,” Fickling said. The retail gas systems in Colorado have been growing and adding customers, which enabled the companies to continue to spread costs. “It is a business model that depends upon expansion and rate increases.”
Even without the Clean Heat Plan, Xcel was projecting the need to increase the base rate revenue by 32% between 2023 and 2030. “About 9% has already happened,” Fickling said. The goal is to reorient the utility from building pipelines and selling gas to a more sustainable business model.
“The commission is really asking Xcel to be smart about its investments in heat pumps and water heater heat pumps in places that would otherwise require expansions of the gas system so as to avoid infrastructure spending,” she said.
For example, a $4.5 million pilot project is looking to electrify about 65 mainly commercial customers along the Pearl Street Mall in Boulder rather than replace a gas main. This could serve as a model for removing areas from the gas system and reduce the need for new infrastructure.
There are also pilots to develop new all-electric homes and retrofit existing homes and energy efficiency programs such as home weatherization.
“How do you align investment in a more strategic way?” Fickling said. “The question is how do we get started? We can’t procrastinate. That would be unwise.”
The challenges, however, are big. Xcel Energy estimates that between 200,000 and 400,000 heat pumps must be installed through 2030. Direct air heat pumps either heat or cool a home by removing the ambient heat in the air — even on very cold days. They are much more efficient than gas furnaces.
This would require an average of 28,000 to 57,000 installations a year — or 14 to 28 times the number that were installed in 2022.
Blank, the PUC chairman, said that he was concerned that all the costs of the Clean Heat Plan are falling only on the utility’s customers. “So far there is no shareholder skin in the game,” he said at a May hearing. “The company is making money off this stuff. They may make windfall profits off fighting the climate crisis.”