In a reversal, Xcel Energy won’t use carbon offsets or certified natural gas to clean up its gas system

· Nov. 17, 2023, 4:00 am
A gas stove heats up a pot.A gas stove heats up a pot.Joe Wertz/CPR News
A gas stove heats up a pot.

Xcel Energy’s plan to reduce climate pollution from its extensive Colorado natural gas network no longer relies on two controversial ideas: using ratepayer money to purchase carbon offsets and certified natural gas. 

The company submitted a revised version of its so-called Clean Heat Plan last week. It lays out a range of programs to comply with a first-in-the-nation law requiring Colorado gas companies to cut climate-warming emissions 22 percent below 2015 levels by 2030. 

A final plan approved by state utility regulators will determine the future of heating and cooking in Colorado. Xcel Energy currently delivers natural gas — a methane-based fuel that warms the climate when it burns and leaks — to 1.5 million customers across the state. 

Customers will cover the cost of any final plan through a new charge on their monthly utility bills. 

The question is the best path to cut emissions from natural gas networks, which currently heat about two-thirds of Colorado homes. Environmental groups insist the answer is to insulate buildings better while replacing gas stoves and furnaces with electric alternatives powered by renewable energy. Meanwhile, Xcel Energy and the oil and gas industry have argued those strategies could hike energy costs and potentially overwhelm the electric grid.

The final decision will likely set a clear precedent for other gas utilities, including Summit Utilities, Atmos Energy, and Black Hill Energy. Each is scheduled to submit their own Clean Heat Plans by the end of the year.

A plan to cut emissions elsewhere

Xcel Energy has tried to convince state regulators to sign off on strategies other than electrification, including mixing clean-burning hydrogen into the existing gas supply and delivering fuel recovered from sources like landfills and sewage treatment plants.

Under its original proposal submitted in August, the company also proposed using offsets and certified natural gas to cover about a third of its progress toward the 2030 target. Both would theoretically allow the company to "cut" emissions without replacing appliances or modifying its gas system.

Carbon offsets, for example, finance projects that reduce emissions elsewhere, often through tree planting or agriculture projects. Certified natural gas is fuel produced after meeting standards to avoid methane leaks and other environmental damage.

But a coalition of climate groups and consumer advocates filed a motion in September demanding regulators remove those strategies, noting the plans don’t align with the original legislation.

Regulators scheduled a hearing to consider the matter in early December but dropped those plans after Xcel Energy agreed to submit its new revised plan.

A commitment to a profitable system

The current debate over the plan is testing Xcel Energy’s attempt to brand itself as a new breed of climate-friendly gas utility. 

In 2021, the company announced it would eliminate the climate impact of its natural gas business by 2050, complementing an earlier promise to shift to carbon-free electricity by the same year.

Those goals, however, have yet to lead Xcel Energy to abandon its gas business. 

Bob Frenzel, the company’s president and CEO, sits on the board of the American Gas Association, a powerful trade organization that’s often fought policies to promote all-electric homes and businesses. Another utility executive was also a founding member of Coloradans for Energy Access, a non-profit dedicated to a secretive fight to block local movements to heat buildings with renewable electricity instead of natural gas. 

In addition, Xcel Energy has insisted it can cut greenhouse gas emissions while preserving a role for its highly profitable Colorado gas network, which financial filings show delivered about $2 billion in revenue last year. One prominent example is a proposed pilot project to mix hydrogen into the natural gas supply for Box Elder Creek Ranch, a subdivision near Hudson, Colo. 

But hydrogen blending is one small piece of the emissions cuts promised through the Clean Heat Plan. The company has hoped to achieve far more significant emissions reductions through offsets and certified natural gas. 

While the company no longer plans to include those programs, it hasn’t presented an alternative to hit the legally mandated target. Its latest plan would only achieve the 65 percent emissions reduction required by 2030.

In written testimony, Jack Ihle, an Xcel vice president of regulatory policy, said the plan makes “the greatest practicable progress” given the state’s other policies to encourage residents to move away from natural gas.

The company also isn’t dropping either plan completely. Ihle told regulators the company “reserves the right” to propose offsets in a separate process. 

While its revised plan doesn’t rely on certified natural gas to comply with the law, it’s asking regulators to allow it to purchase the same amount and recover the cost through an existing gas surcharge. 

Ihle said commissioners should consider whether the move “can further the state’s economy-wide emissions reduction goals.” 

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