In May 2023, Xcel Energy Colorado filed its inaugural Gas Infrastructure Plan (GIP). Not only was this a first for Colorado, but in a national regulatory landscape light on gas utility oversight, it was also among the first of its kind nationwide. With the gas industry facing unprecedented headwinds – and in light of changing policy, technology, and market conditions – states are looking for new tools to understand and evaluate gas infrastructure investments. Colorado is at the forefront of that change, with state, city, and county emissions reduction policies and programs layered on top of generous state and federal rebates and incentives for clean appliances. In addition, gas commodity and infrastructure costs are rising, and innovation and scale are happening in the cold-climate heating solutions marketplace. All of these beg the question: how do we align long-lived, ratepayer-funded utility infrastructure investments with these long-term trends while still providing for our energy needs in the near term?
GIPs were Colorado’s response to this question, acknowledging first and foremost that the state’s regulators needed more data and transparency into gas utilities’ long-term plans in order to make informed decisions on how regulated utilities could spend ratepayer money. Those plans then must interact with – and complement – the utility’s own “clean heat plan,” required by state statute to demonstrate how that utility would reduce emissions from a sector built entirely around the distribution and direct combustion of a fossil fuel.
Xcel’s 2023 GIP charted new territory for the utility, the state, and stakeholders, teaching all participants about the previously opaque inner workings of a gas utility. Advanced Energy United (United) was pleased to participate in this proceeding and is encouraged by the Colorado Public Utilities Commission’s (Commission) ongoing thoughtfulness and commitment to revamping its processes to better meet the needs of this turbulent moment. The Commission’s final decision and its final recommendations and orders in that decision will strengthen future GIPs.
Here, we reflect on the four lessons we learned throughout this process, with the hope that it is useful to other states and stakeholders working to create or update new gas planning processes.
1. Non-pipeline alternatives (NPAs) offer “significant potential benefits and cost savings.”
Non-pipeline alternatives (NPAs) are the gas sector’s equivalent of electric sector “non-wires alternatives.” They refer to activities or investments that delay, reduce, or avoid the need to build or upgrade traditional gas system infrastructure such as pipelines, storage, and peaking resources. United is excited to see two NPAs given the green light in this first GIP, with several more in the works. The Commission clearly recognizes the value, writing: “We see significant potential benefits and cost savings for the system, the state, and ratepayers from the use of [non-pipeline] alternatives analysis.” In fact, the Commission was so encouraged by the initial benefits of NPAs that it took United’s – and other participants’– suggestion to conduct more NPA analyses for more categories of projects, namely all new business planned projects, all capacity expansion planned projects, and all system safety and integrity planned projects.
What’s more, the Commission directed Xcel to conduct a competitive solicitation – overseen by an independent evaluator – for one of its next big NPA projects, tapping into the third-party market for creative, cutting-edge technologies, services and products that can be packaged together to address gas system needs without new pipelines. One of those potential NPAs is gas demand response – a resource the Commission has already directed Xcel to explore in the 2024-2025 heating season (Docket No. 23M-0466EG).
United’s members offer those technologies, products and services, and we look forward to seeing their participation in response to the forthcoming Request for Proposals (RFP).
NPAs are powerful because the projects are only pursued if they are feasible, timely, and save ratepayers money over a traditional pipeline project. With more successful examples in the works, we expect to see NPAs become one of the “next big things” in energy policy.
2. Gas infrastructure plans must provide meaningful insight into a utility’s expenditures.
In the GIP rulemaking, parties sought to strike a balance between including more projects in the GIP for the sake of transparency without making the GIP too data-heavy and burdensome to review. Acknowledging that any initial cutoff was going to be arbitrary until we better understood the nature of gas utility investment plans, the Commission settled on a $3 million minimum threshold for project inclusion.
Using that threshold, Xcel reported on only 15 total projects in its 2023 filing. To many parties’ dismay, this represented fewer than 4% of the utility’s planned expenditures for the next five years.
The Commission’s ruling reiterated that the goal of the GIP was to “allow analysis of a broad range, but still-manageable number, of projects representing major upcoming investments that will be undertaken by the utility.” While the Commission declined to change the threshold at this time, it directed Xcel to include more projects that represent a greater share of the utility’s total budget in its 2025 GIP. These are likely to be projects not yet finalized, new business projects inclusive of their upstream capacity costs, programmatic expenses, and “sets of interrelated facilities” that together exceed $3 million.
From this experience, we learn that gas utilities undertake many small-dollar projects and very few large ones. Other states should be mindful as they design their own gas utility processes that gas infrastructure plans may lose their usefulness as tools to manage risk if they are not representative of the utility’s full spending plans.
3. Gas utility financial incentive reform is uncharted – but intriguing – territory.
In its final order, the Colorado Commission expressed openness to – but caution around – gas utility financial incentive reforms. It acknowledged a current “systemic challenge” with the gas utility industry, calling out the lack of a “meaningful incentive to restrain investment to only those which are the most necessary and strategic or to identify and pursue more cost-effective options to traditional infrastructure investment.” The Commission specifically signaled its intent to take future action to protect ratepayers from imprudent investment decisions if GIP filings do not improve in their transparency and load forecasting techniques. In the future, this will be required to reflect state, local, and federal policies and incentives, the price elasticity of demand, changes in line extension policies, and more. One way to do so includes shifting the financial risk of stranded assets away from customers and onto the utility itself.
In our comments, United suggested that the Commission consider new ways to incentivize NPAs that save customers money, potentially via a shared savings mechanism. Though hesitant to make any monetary decisions before seeing the real-world results of the state’s first NPAs, the Commission noted that NPA incentives could potentially be on the table if traditional pipeline infrastructure is truly avoided.
United looks forward to seeing Colorado’s regulatory tools and strategies evolve alongside the changing gas industry. We expect the Centennial State to remain a leader in piloting this business model and financial incentive reforms.
4. There is no reason to wait – states can take the first steps today toward coordinated gas and electric planning.
Meaningful coordination between gas and electric utilities is a hot topic that merits significant time and attention. Within the context of gas planning, coordination is important when considering NPAs that rely upon some (or all) electric system solutions, such as the electrification of certain gas end-uses to avoid a pipeline capacity upgrade. Understanding electric system capacity, and costs to upgrade that capacity, is the expertise of the electric utility, not the gas company or gas division of a utility being asked to design the NPA.
Xcel Energy – a dual-fuel utility – has taken a notable first step toward greater gas and electric coordination by creating an internal Integrated System Planning division to bring its own gas and electric verticals together. However, Xcel’s initial GIP avoided scoping out potential NPAs where the company was the gas provider and a different utility provided electricity. In the Commission’s final order, it recognized the complexity in working across business lines, but asked Xcel to figure it out regardless. Of note, the order suggested that a third-party, such as the Colorado Energy Office, may be helpful in bringing the parties together. Separately, legislation introduced this session in Colorado (House Bill 1370) contemplates cost-sharing agreements between separate electric and gas utilities working together on electrification projects.
The Commission’s final order also gave direction to Xcel to improve its load forecasting techniques and develop system maps, demand-side management and electrification supply curves, and a cost-benefit analysis (CBA) handbook in collaboration with stakeholders. In addition, it directed Xcel to improve upon its ability to involve disproportionately impacted communities and include them within CBAs. Much of this is to be discussed with stakeholders in an upcoming proceeding. Finally, the Commission expressed disappointment that the utility had proposed a hydrogen blending demonstration pilot without first conducting a safety and compatibility screening (as required by regulation). The pilot itself will be decided upon in Xcel’s litigated clean heat plan.
Above all, the Commission reminded Xcel that the GIP was not meant to fit neatly into the utility’s legacy gas planning processes, and that “a business-as-usual approach is no longer acceptable nor in the best interest of ratepayers.” United is encouraged by the progress made in this docket and looks forward to participating in future efforts to support the transition to clean, electric homes.