A major decision sets Colorado on a path toward safer, cleaner heat and homes

In 2021, the Colorado legislature passed a law that required investor-owned utilities, like Xcel Energy, which provide gas to homes for heating, to reduce emissions by 22% from 2015 levels by 2030.

This Clean Heat law spelled out a few ways for Xcel to meet that goal:

1. Electrification – switching to electric-powered appliances like heat pumps and electric water heaters.
2. Energy Efficiency – reducing energy use in homes by improving installation and upgrading windows so they retain heat better.
3. Substituting Fuels – blending in so-called “renewable natural gas” and “green hydrogen” with the gas in our pipelines to reduce emissions.

The law didn’t mandate which of these strategies should take a smaller or larger role but it did specify that cost must be taken into account.

However, the challenge is even bigger than reducing emissions by 22% by 2030. Meera pointed out that since 2015, the baseline for the cuts required by the law, Xcel’s emissions from gas for heat grew by 10%.

So, we actually need to achieve a cut of 30% from today’s levels by 2030.

Since people can’t shop around for their utility, Colorado has a utility regulator called the Colorado Public Utilities Commission (PUC) to protect consumers and ratepayers.

Any plans by for-profit, investor-owned utilities, like Xcel, on how much to charge customers and what to spend that money on must be approved by the PUC.

The PUC operates a lot like a court room with a utility’s proposal as the main topic that is debated. The ultimate decision makers are the three PUC Commissioners who are appointed by the Governor.

Utilities, like Xcel, and other interveners including environmental groups, business associations and the Utility Consumer Advocate can request information, submit written testimony and even get to question each other before the Commissioners and their staff.

The public is also allowed to submit comments and speak at public hearings.

The PUC Commissioners weigh all the information and ultimately make a decision.

Heat pumps and efficiency.

Before Xcel’s Clean Heat plan approval process launched at the PUC, a set of environmental groups including Meera’s Western Resource Advocates, NRDC and the Southwest Energy Efficiency Project developed a set of recommendations for what the Clean Heat plan should focus on.

Ultimately, they proposed that the main strategies should be electrification (like heat pumps) and energy efficiency measures – not only because they are the best ways to cut pollution but they are also the most cost effective.

But there is a challenge. Whether it is heat pumps or improved efficiencies, these strategies need to be done in home after home after home. They require individual action to install these new appliances and make these upgrades.

The good news – we’re seeing progress even before the Clean Heat plan has even been approved. For example, Meera points out that in 2023, Xcel had enough incentives in place to help 3,000 individuals install heat pumps.

The challenge – we’re starting from a low bar because these technologies have not been widely adopted yet. And we need about 350,000-400,000 more heat pumps deployed to meet the 2030 goal.

As Meera says – we need a large scale, market transformation away from gas and to technologies like heat pumps.

Ultimately, this transition is about more than reducing pollution.

For example, Xcel invests about $500 million a year in it’s gas infrastructure – maintaining and replacing pipes for safety and reliability reasons and expanding the system. Ratepayers usually pay for this on our utility bills and Meera highlighted that, since 2019, those base rates have nearly doubled.

This doesn’t even include the spikes and volatility from the cost of gas as a fuel. Just in the winter of 2022-2023, the cost of gas shot up by 40% resulting in some people’s utility bills doubling.

Consumers would clearly benefit from not being beholden to a fuel to heat our homes that is so volatile. And there is an urgency to shift away because much of the gas infrastructure we’re investing in now will be paid off over 60 years. So, building more now could lock people into gas dependence through 2080.

So every dollar we can shift away from new gas now, avoids locking us into a 60 year gas commitment.

In 2023, Xcel submitted their first draft of their Clean Heat plan to the PUC.

Surprisingly, their initial plan included spending money on strategies to reduce emissions that weren’t even contemplated by the 2021 law.

Specifically, Xcel proposed investing in something called certified natural gas and in carbon offsets. In our conversation, Meera highlighted that Xcel envisioned approximately 30% of their emission reductions would come from these two sources.

Meera pointed out that this was problematic because neither of these strategies reduce emissions from burning gas.

Certified natural gas is a type of gas that has been “certified”, often by an unregulated 3rd party, that the gas was produced in a way that reduced methane leaks in the production and transportation of the gas.

Ultimately though, it’s still gas, and burning it still produces the carbon emissions that the Clean Heat plan is suppose to reduce. That’s why it wasn’t included as a strategy in the 2021 law.

Xcel’s original plan also included hydrogen blending as an emission reduction strategy. While that is considered an eligible strategy by the 2021 law, Meera pointed out two problems:

1. It’s expensive.
2. It only has a small impact.

Meera helped break it down like this:

• You can only really shift 5-20% of the volume of the fuel that’s in the gas pipelines to hydrogen before you risk leaks or even explosions.
• But the benefits are less than that percent would indicate.
• Hydrogen has a much lower energy content per unit volume compared to gas, and would only be about 1.5% to 7% equivalent in energy (and that’s what will get you the emissions reductions).

So hydrogen will likely just get us a 1.5% to 7% emission reduction.

Hydrogen also has costs we can avoid if we don’t need to support gas pipeline infrastructure. Hydrogen needs big pipeline investments, which we’ll have to pay as ratepayers, with small pollution benefits.

Ultimately, the PUC’s final decision made some significant changes to the initial proposal from Xcel, and in Meera’s opinion, is a significant win for the climate and affordable energy in Colorado.

The PUC approved a Clean Heat budget of around $440 million for the period between 2024 and 2027. That’s in line with Xcel’s initial proposal.

However, the vast majority ($430 million) is focused on clean heat (like heat pumps) and energy efficiency strategies. Only about $10 million is allocated to so-called renewable natural gas and the PUC did not approve investments in hydrogen, carbon capture or certified natural gas.

To put $430 million into perspective, Meera pointed out that Colorado’s share of federal investments in home electrification and energy efficiency measures is about $140 million.

So, Xcel’s investments in clean heat will be three times as large.

Most importantly, Xcel’s Clean Heat budget and the federal assistance can leverage each other to bring heat pumps and clean heat strategies to scale, which we mentioned before is critical for our state to go from 3,000 heat pumps installed in 2023 to 350,000 more by 2030.

While we know the overall budgets, the details of how Xcel will invest $430 million (for example the size and scope of electrification and energy efficiency rebates) will be worked out in the next few months at the PUC.

We expect a lot of this money will go to rebates so customers interested in adopting a heat pump or upgrading their home with energy efficiency improvements will see big discounts and assistance.

Financing will also be a piece of this. And likely investments in workforce development so there are enough trained installers to meet the demand.

Meera does not hesitate in our conversation – this is nation-leading and precedent setting.

Colorado was the first state in the country to pass a law requiring a clean heat standard and Xcel is the first utility in Colorado to propose and have approved a clean heat plan.

Many states and utilities will be watching as we implement this plan.

And I’ll emphasize again, this will be transformational not just because of the size and scope, but because it is coming at the same time that federal and state governments are supporting home electrification and energy efficiency improvements.

In addition, Meera emphasized the PUC Commissioners seemed to really recognize that we don’t just need to invest in clean heat strategies, but we need to be smart about it.

She points to the PUC’s decision to expand a program that focuses on all electric new homes. This is significant because not only is that the place where heat pumps and electric hot water heaters can be most cost effective, but it’s an example of a way to eliminate the cost of building and maintaining gas pipelines too – avoid installing them in the first place.

Ultimately, the biggest cost benefits will come to ratepayers and consumers when we don’t have to spend money on both the wires to move electricity and the pipes to move gas.

All electric homes removes an expense from ratepayers forever, and eliminates our reliance on a volatile fuel and the price spikes we’ve seen recently.