Utility regulators wake up to the long-term risks of gas

Retrieved from PXHere.

Mike Henchen, Utility Dive, Dec. 9, 2020

The following is a contributed article by Mike Henchen, a principal on Rocky Mountain Institute’s carbon-free buildings team.

Throughout this year, a subtle but meaningful shift has occurred within utility regulatory agencies across the country. Multiple states have opened official proceedings investigating the future of gas distribution in their state.

This could be the beginning of a significant trend, as key energy decision-makers are realizing the need to confront a new issue: how to plan for a major infrastructure system that may become obsolete. While several states have already begun to change electricity planning processes, this scrutiny on gas is unprecedented and encouraging.

Gas seemed like a safe bet and a reliable source of energy for many years. But as the climate, health and economic impacts of burning gas become starker, regulators will play a critical role in changing course. With new technology making it possible to switch from gas to electricity in buildings, this trend is essential to addressing the climate impact of buildings.

These early moving states acted for different reasons. In New York, a prolonged battle over National Grid’s proposed gas pipeline into Brooklyn and Queens prompted regulators to change the way utilities plan new gas investments. California officials were moved to act in the wake of the massive Aliso Canyon gas leak that was discovered in 2015, along with increasing urgency to address climate change.

Now, regulators are envisioning a future with a dramatically reduced role for gas and are planning to manage that transition safely and equitably. The 2018 Merrimack Valley gas explosions forced this conversation to the forefront in Massachusetts; at the urging of the attorney general’s office, gas utilities will develop a plan to transition their business.

Regulators in Colorado and Washington, DC have also taken note of this emerging trend and pursued their own action, driven largely by the need to rapidly slash carbon emissions across sectors. Both jurisdictions are rapidly cleaning up their electricity sectors and are looking to address gas burned in buildings as a critical strategy in meeting their goals of 80 to 90% emissions reduction.

These announcements are the beginning of a long process, but taken together, they demonstrate that regulators are open to changing the status quo. This is significant for a few reasons. First, the current system, predicated on burning gas in perpetuity, no longer meets the needs of society. Gas use must decline dramatically in the coming years in order to limit global warming to just 1.5° C. Regulators will have to create a new system that expands carbon-free electricity and electrification of transportation and vehicles as quickly as possible.

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Second, a central tenet of regulators’ responsibility is to protect customers. As new gas infrastructure projects are approved, regulators are allowing utilities to make 50-year investments on the backs of their customers. We know now that preserving a livable climate requires transitioning off fossil fuels long before those investments will pay off. Thus, each new proposed investment now must be considered through that lens.

Finally, these state proceedings open the possibility that gas utilities might not have a viable business model in the future.The current business model depends on continued spending on gas infrastructure, and utility CEOs are starting to face questions about the electrification trend. In a future where delivering fossil fuels to millions of customers is inconsistent with a livable climate, investors need to critically assess the risks of continuing to hold equity in these businesses.

Additional states are expected to follow next year and initiate their own investigations into the future of gas. Rhode Island has already conducted an initial study of the paths to transform the heating sector. New Jersey’s regulator was instrumental in developing the state’s energy master plan, which envisions converting 90% of homes to electric heating.

It will become increasingly apparent in every state that today’s practices are not well suited to transition the buildings sector to a zero emissions future. Regulators across the country should start by critically evaluating new gas distribution investments along with alternatives. In addition, they must stop the practice of socializing the cost of gas to new buildings, by which homebuilders get free or subsidized connections to the gas system. Not only are these unadvisable long-term investments with the potential to burden low-income customers with the long term costs of this infrastructure, but the up-front cost is higher as well; new RMI research shows that it’s cheaper to build an all-electric home in every U.S. city we examined.

Regulators can also play a key role in developing markets for modern electric appliances. Modern heat pumps, for instance, are more effective and efficient than ever, but contractors and customers often aren’t familiar with the technology. Regulators can accelerate the adoption of these clean energy technologies with incentives and other programs.

Finally, regulators can establish guidelines for the transition away from gas that protect both the customers who are paying into the gas system and the workers who build and maintain this infrastructure today. This transition is upon us and regulators should act now to ensure the system remains safe and reliable, that workers can transition to new clean energy jobs, and that customers pay a reasonable price for energy.

It’s clear that states and cities are more motivated than ever to tackle the climate, health and economic risks associated with burning gas in buildings. That utility regulators in several key states now see themselves as participants in that crucial transition is a major step in the right direction.

Filed Under: GenerationEfficiency & Demand ResponseRegulation & Policy