This blog post represents the first in a new series on “Affordable Heat: Powered by Policy.” 

Much has been said about the risks to the gas utility industry in this era of market transition, 
wherein electric appliances, like air- and ground-source heat pumps, are out-selling and out- 
competing traditional furnaces and water heaters year over year. Especially in this moment of 
energy unaffordability, many regulators have their eyes wide open about the risks of new 
pipeline capital spending. But still, the best way to regulate a utility in decline is clear as mud.

And mud is a particularly apt metaphor for where we are – very few utility regulators, consumer advocates, stakeholders, or customers have a complete view of where the gas system is today, how investment decisions are made, what the true alternatives are, what’s already changed over years past, and what the impacts are from those changes. Without a shared understanding of where we are today, it becomes even harder to have a values-based conversation: where should we go from here, and how do we get there? 

For example, the state of Colorado is at the cutting edge of policy reforms to enable a transition to clean buildings at the lowest possible cost. It has embarked on a journey over the last three years to better understand gas utility planning, operations, and finances, especially as it relates to the gas-to-electric transition. Along the way, its blind spots have come into focus. An informal proceeding to better understand Xcel Colorado’s forecasting asked, and received only partial or no answers to, questions such as:

1. How many customers are using utility, municipality, or other heat pump incentive programs to either fully electrify or partially electrify?
2. What assumptions is the utility using about the performance characteristics of various models and types of heat pumps, and related customer behaviors and preferences, in different situations? 
3. How many customers have requested gas system disconnections? How many disconnections have been completed? What are the home and customer characteristics of those projects, and what were the utility costs (if any) for each shutoff?
4. What are the hourly and sub-hourly appliance or home load profiles of a house on gas, and what would those profiles look like on the electric system if those customers were to electrify? 

Some of these questions may be easy to address with slight changes to internal procedures, customer forms, or data analytics. Others might require new data to be collected, researched, and modeled – which may require new technology, operational practices, and human resources.  

Advanced Energy United thinks the time is ripe to discuss what data we need to usher us through the next 10-20 tumultuous years. Now, and in the future, we can use this data to do more than just understand the state of the gas transition, but to manage it.

What are utility metrics and scorecards? 

Utilities are constantly reporting to their regulators, but the data is split across rate cases and discovery requests, resource or capital plans, tariff evidence, annual reports, energy efficiency filings, Federal Energy Regulatory Commission (FERC) filings, and more. It may or may not be enough to get a clear understanding of the current state of the system but is certainly not accessible for most stakeholders. The data can be also reported differently across utilities even within the same state, making apples to apples comparisons between different geographic areas difficult.

A public dashboard, or regular filing, reporting on metrics by all utilities in a standardized format is a more accessible way for Commissions and stakeholders to see the bigger picture. If these metrics are held up against desired outcomes, the presentation becomes a “scorecard.” The Nutmeg state offers a great example with its Connecticut Energy Efficiency and Municipal Dashboard. 

If the outcomes are tied to financial incentives that seek to change the utility’s behavior or realign their incentives with state goals (e.g., affordability, cost containment, efficiency, emissions), the metrics become a performance incentive mechanism (PIM). PIMs have been used to measure and manage all sorts of outcomes across gas and electric utilities, particularly related to new and priority outcomes towards which PUCs are regulating (see examples from both electric and gas utilities in the RMI PIMs database). Though PIMs have been used more extensively on the electric side, gas utilities present a new and interesting use case in which traditional cost-of-service ratemaking is otherwise likely to fail to deliver key outcomes.

What outcomes should we be regulating the heating sector towards right now? Cost-containment and affordability.

Over the past decade our regulatory frameworks have supported pipeline system expansion and the replacement of old pipes. But gas utility heating bills are on the rise all across the country, given both rising commodity prices and accelerated distribution pipeline spending. How are we containing costs for customers, and are our efforts a success? As the gap between average throughput and capacity needs grows wider, the pipeline system will become less and less efficient and our current cost recovery practices will push people off of the gas system faster and faster. But how will we know that this death spiral has begun? Are our policy responses enough?

On the flip side, we believe that with the right programs, rates, and incentives, market- and policy-driven electrification has the potential to bring customer bills down and increase electric grid efficiency and flexibility. But how will we know if our policies, programs, and regulatory frameworks are working? 

A new set of metrics to inform the next era of gas and electric heating regulation, customized to each state’s needs and goals, can help us chart, and then refine, our approach. The table below provides sample metrics that could help inform regulators and stakeholders of the emerging trends and challenges in the sector. Importantly, these, and any metrics should be the start and middle to a conversation about regulatory reform – not the end to it. 

Where can states begin this conversation? 

Many state Public Utility Commissions have open dockets to consider gas utility investments in light of the changing heating landscape. Illinois, Maryland, Maine, New York, and California can have this data and metrics conversation as part of their open “Future of Gas” or long-term gas planning dockets. Massachusetts is reviewing proposed reporting metrics in its proceedings to evaluate gas utility Climate Compliance Plans (per its 2023 Order 20-80-B). Connecticut might refine or add metrics in its ongoing rate case related to its performance-based regulation framework. Colorado began this conversation by identifying challenges in Xcel Colorado’s first-ever gas infrastructure plan (GIP), continued it in an “M-docket,” and now has an opportunity to put out discovery requests, create settlement terms, or issue orders in Company’s second GIP.

Regardless of where it happens, we hope that states begin this conversation now so that they can make better informed decisions over the next tumultuous decades.