Colorado gas rule ignites debate over pace of electrification

Xcel Energy Inc.’s plan to comply with a novel Colorado law requiring it to cut natural gas emissions is pushing the state further into a national debate over how aggressively utilities should help homeowners electrify their homes.

Under a first-of-its-kind state law, Colorado is requiring gas distribution utilities to submit plans to state regulators showing how they would reduce greenhouse gases 22 percent by 2030 compared with 2015 levels.

Xcel — the state’s largest gas distributor — filed the first such plan last week, laying out what it calls a “diverse portfolio” that includes renewable natural gas, hydrogen blending, certified natural gas and carbon offsets. The greatest share of the reductions — about a quarter of the emissions cuts — would come from the conversion of 200,000 customers to electric heat pumps and appliances.

The filing comes amid a national push from the federal government and some states to electrify homes and boost their efficiency. Last year’s Inflation Reduction Act provides $2,000 in federal credits for residential heat pumps, or up to $8,000 for low- and middle-income consumers. Last month, the administration laid out guidelines for states, territories and the District of Columbia to get $8.5 billion in efficiency and electrification rebates.

But the proposal from Minnesota-based Xcel — which is also a major electricity provider — shows how some utilities are trying to balance that push against their investments in existing infrastructure and consumer demands. Jack Ihle, the utility’s regional vice president for regulatory policy in Colorado, said the company has questions about the “scalability” of electric appliances for homeowners and sees a portfolio that continues gas fuel use as a way to reach the state’s economywide net-zero emissions goal by 2050.

“Our plan is meant to bring choices to customers whether they’re very interested in electrification or they’re satisfied with the gas service they have,” Ihle said in an interview. “Our plan is designed to take the best steps over the next seven years to position us for the cleanest service in either future.”

But environmentalists say the utility’s plan doesn’t do enough to move the state away from gas entirely by getting homes and businesses on cleaner electric appliances.

“No matter what portfolio you look at, you’re going to see a ramp-up of heat pumps over the next several years in Colorado,” said Meera Fickling, a senior climate policy analyst with Western Resource Advocates. “We think we can meet [the 2030 goal] much more cheaply and efficiently and set up the 2050 goal through a program with more electrification and energy efficiency.”

That’s especially true, Fickling said, with a variety of state and federal incentives that are making heat pumps more affordable for consumers.

The debate over the viability of rapid electrification is playing out across the country as the Biden administration and states work to reduce the burning of fossil fuels across the economy.

A report from Western Resource Advocates and other environmental groups released last month found that Xcel could achieve the majority of its required emissions cuts in Colorado through electrification alone by converting gas-powered furnaces, kitchen appliances and water heaters to all-electric models. Doing so, the report said, would be cheaper than keeping fuel flowing through gas pipelines, especially with more spending from Xcel to incentivize electrification.

The cost reductions would be felt by consumers, the report found, since heat pumps can be cheaper to operate when replacing outdated infrastructure. But it would also avoid $51 million in spending on gas line extensions and as much as $477 million on fuel costs through 2030, according to the report.

Fickling said that while Colorado is the first state to require utilities to create gas decarbonization plans, others have worked to either phase out gas from new buildings or incentivize electrification. New York, for example, passed a law this year banning natural gas in most new buildings before the end of the decade, following the lead of several cities that have enacted similar regulations.

“Every independent study and our research has demonstrated that electrification with efficient appliances is the most important path for building decarbonization,” said Mark Kresowik, senior policy director for the American Council for an Energy-Efficient Economy, a nonprofit research organization that was not involved in the report.

The opportunity to take a systemwide review of its gas and electric system, he said, is a “huge opportunity for utilities like Xcel” that could also help lower the cost of transition for customers.

In its filing, Xcel outlines a limited role for electrification and heat pumps as part of a broader portfolio that also keeps its natural gas business active. The utility’s Clean Heat Plus portfolio would convert some 200,000 natural gas customers to electric equipment, and it would also clean up the gas it continues to send through the system.

“Natural gas remains the most affordable way to heat customer homes and businesses. And customers deserve more choice to determine their own energy futures,” said Xcel Colorado President Robert Kenney in a statement.

That includes the purchase of “certified” natural gas, part of a growing market of fossil fuels that have been independently verified for having low emissions at every point in the supply chain. Xcel estimates that certified gas would account for about a fifth of its emissions reductions through 2030, although it also acknowledges that the market for that gas is still emerging.

Independent watchdogs have also raised concerns about existing certifications for responsible natural gas.

The plan would also see the utility capture methane from sources like landfills and put that into the system, diverting emissions that would otherwise escape into the atmosphere. It also includes plans for blending natural gas with “green” hydrogen made from renewable energy, an initiative for which it could draw on federal incentives.

Xcel’s Ihle said that, while electrification plays a “strong role” in its portfolio, the company is concerned about how quickly consumers will embrace it. It took 15 years for the company to deploy 100,000 rooftop solar systems, he said. Meeting the electrification goal would require twice that in about half the time.

“We’re seeing numbers that lead to a degree of scaling that we’re not certain will come to pass,” Ihle said.

Ihle also said the company does not agree with the environmentalists’ study and thinks electrification would not be as cheap as claimed without policy changes to drive down costs.

Xcel’s filing models an electrification-only plan, which would cost $472 million a year, compared to $163 million annually for the preferred plan. The company said that leaning on electrification could significantly raise costs for consumers — who would have to pay to upgrade their homes — and on the overall electric grid. The costs to upgrade the grid in particular, Ihle said, could negate the avoided spending on gas pipelines.

The company’s filing also says that the “customer experience with using heat pumps and contractor experience with installing them could affect the rate of uptake.”

Specifically, Xcel cited research with the National Renewable Energy Laboratory (NREL) in Golden, Colo., that found that heat pumps do not perform as well at altitude, where many of its Colorado customers live. According to a press release from Xcel, running one model of heat pump at Golden’s altitude of 5,675 feet above sea level reduced its efficiency between 5 and 12 percent.

Neither Xcel nor NREL has publicly released the research. Xcel spokesperson Tyler Bryant told E&E News that it would be released following a second phase that tested heat pumps’ performance at more than 10,000 feet above sea level.

That has led to concerns about the reliability of the data from groups such as the Energy and Policy Institute, which tracks and frequently criticizes utilities.

In a post on X, the platform formerly known as Twitter, Joe Smyth, a researcher with the Energy and Policy Institute, said Xcel was “trying to use the credibility of the National Renewable Energy Lab to undermine public perception of heat pumps in Colorado.” Smyth called on NREL to “correct the record.”

In a statement, NREL spokesperson Wayne Hicks said the laboratory was still completing its technical analysis and “has intentions to publish its findings in partnership with Xcel Energy.”

“NREL partners with key stakeholders in the building technologies sector nationwide to ensure credible, objective, and science-based research to advance our mission to accelerate a reliable, affordable, and equitable decarbonized energy system,” Hicks added. “These partners include the federal government, utility providers, manufacturers, and community organizations.”

While Fickling is still reviewing Xcel’s filing, she said it is “feasible” to see a greater increase in heat pump usage sooner than the utility thinks. That, she said, would be crucial to meeting the state’s long-term goals.

“This plan isn’t about getting us just to 2030, but to 2050,” Fickling said. “Heating and cooling stock takes so long to turn over, so it’s important that we invest in the next 10 years. The gas furnace we install in 2030 could still be running in 2050. This plan could serve as a model for how we ramp up that market.”