Bill on desk of Colorado governor seeks to tilt table toward building energy efficiency

by Allen Best

Big Pivots

A legislative bill that landed on the desk of Gov. Jared Polis last week may be just as important in Colorado’s energy journey as the first renewable energy standard approved by state voters in 2004.

That standard required Xcel Energy to generate 10% of electrical generation from renewable sources by 2015. That bar now looks quaint: Xcel and virtually every other utility in Colorado expect to achieve 80% renewables or higher by 2030. At least two utilities aim for 100%.

Now comes a focus on fossil fuels used in buildings to warm them as well as heat water and food. HB 21-1238, the bill approved last week, and three others still in the Legislature seek to reduce emissions caused by the combustion of methane, a powerful greenhouse gas and the primary constituent in natural gas.

Just as the renewable standard did in 2004, these bills in 2021 collectively define the beginning of a new path for Colorado. This challenge is different, though. Instead of displacing a handful of $1 billion coal-fired power plants with renewable energy delivered by maybe $2 billion in new transmission lines, the legislation takes aim at consumption of natural gas in millions of existing homes and businesses in Colorado.

This is unlike Berkeley and other local governments in California and other states: Berkeley in 2019 banned natural gas hookups in new multi-family buildings. Other cities soon followed with various bans on natural gas. Colorado’s measures can better be described as firm nudges. As Eric Blank, chairman of the Colorado Public Utilities Commission, observed at a recent meeting, Colorado just doesn’t operate in the same way as California.

This was published in Big Pivots (No. 40) on June 8. Big Pivots is an e-journal chronicling the great energy and water transitions in Colorado and beyond. Sign up for copies at BigPivots.com.

It will likely take 30 years for Colorado to complete its shift in electrical generation from non-polluting sources. This shift now beginning in the building sector will likely take just as long, perhaps longer. It will be essential if Colorado is to meet its 2050 target for a 90% reduction in emissions. Combustion of natural gas and propane inside buildings produces a tenth of Colorado’s emissions.

HB21-1238, which was sponsored by Rep. Tracey Bernett, a Democrat from Boulder, and Sen. Chris Hansen, a Democrat from Denver, has a wonky title, “Concerning the Modernization of Gas Energy Efficiency Programs.”

This bill requires the utilities commission to set targets for gas utility demand-side management programs. The goal is to tamp down the demand for natural gas by improved efficiency or replacing it with electricity that in coming years will come from renewable sources.

What is being contemplated? Think programmable thermostats, more insulation, or even electric hot-water heaters and cooking stoves instead of gas. With electricity coming from renewable sources, the carbon—and methane—footprint will be much lower. One other benefit: As many testified in legislative hearings, having fewer fumes from natural gas in homes will improve public health.

Guiding the commission in evaluating the demand-side programs will be three new metrics.

One is the social cost of carbon. The social cost of carbon attempts to account for the damages caused by pollution, carbon dioxide specifically. It was $46 per short ton when Colorado first adopted this as a decision-making metric in 2019 for evaluation of resource plans submitted by electric utilities. The Biden administration elevated it to $68.

Closely related is the social cost of methane, the primary constituent of natural gas. The federal government has assigned a cost of $1,756 per short ton, which reflects the much greater warming potential of methane as compared to carbon dioxide.

The third metric also takes a long-term view. The commission must discount future customer costs and utility bill savings at the long-term rate of inflation rather than the utility’s cost of capital. Laurent Meillon, the chief executive of Capitol Solar Energy, explains that switching to the 30-year average rate of inflation of around 3% will give gas customers higher rebates for installing energy- efficient and renewable energy technologies that cut demand for gas.

The bill “takes into account the interests of our children better by not heavily discounting their future,” said Meillon while leaving on a Memorial Day weekend rock-climbing in Wyoming.

Meillon has been lobbying for this for a decade, including several legislative sessions. The effort was a slog, more like backpacking into an isolated 13,000-foot peak in the San Juans than the sprint of climbing a canyon wall.

The bill also requires the utilities commission to collaborate with the state’s Air Quality Control Commission, the body with the primary authority for reducing greenhouse gas emissions, to account for reductions in emissions achieved.

If there are costs associated with reducing demand, they will be much less over time, whether through better insulation or more expensive technology. The Southwest Energy Efficiency Project estimates that the bill will allow customers of Colorado’s natural gas utilities—Xcel, Black Hills Energy, Atmos, and Colorado Natural Gas—to realize net economic benefits of $600 million to $700 million from 2022 through 2030. That same work will also cut the equivalent of 800,000 tons of carbon dioxide emissions.

Across Colorado, natural gas hookups are already being eschewed in favor of new technologies. In most cases these occur at higher-end homes, such as in Boulder County, or affordable housing units such as Basalt Vista, a 27-unit project in Basalt. At the latter, air-source heat pumps eliminate the need for natural gas for heating and also provide cooling. If front-end costs are somewhat higher, utility bills are much lower, an average of $15 a month.

But those and other projects remain the exception. Colorado is still adding 30,000 to 40,000 homes and 5,000 to 10,000 commercial units a year, nearly all of which rely upon natural gas. This bill won’t eliminate natural gas. The bill specifically precludes the commission from doing that or requiring replacement of gas appliances.

Three other bills still being considered would also push back against combustion of fossil fuels in buildings for heating and other purposes. Senate Majority Leader Stephen Fenberg is a prime sponsor of SB21-246, which would address the same task from a different angle. It would task the commission with establishing energy savings targets and approve plans for Xcel Energy and Black Hills Energy to promote replacement of fossil fuels with electricity in buildings. This bill assumes that electricity during this decade will increasingly come from renewable sources.

Another bill, SB 21-264, would require the gas utilities provide “clean heat” plans with the commission to demonstrate how they will reduce greenhouse gas emissions 5% by 2025 and 20% by 2030, both compared to 2015 levels. Municipal gas utilities must file plans for hitting the 2030 target.

What constitutes a clean-heat resource? Ironically, it’s methane. Think dairies, landfills, and sewage treatment plants – or methane from coal mines. The idea is to displace natural gas from the built environment that has to be extracted from the ground by using the methane from existing sources. On coal mines, the thinking is that they exist anyway and it’s best to provide financial incentives to harvest the methane being emitted.

Yet a third bill, HB21-1286, would require owners of large buildings to collect data on energy use and meet performance standards. It doesn’t require that natural gas be abandoned, but that requirement would nudge building owners to use it more efficiently.

Observing this year from Basalt, former State Sen. Gail Schwartz recalls her own efforts to introduce similar legislation a decade ago.

During that same time, for several summers she drew together some of the best minds in energy to pick their brains about what steps Colorado needed to take next. Among them, she says, was Meillon. He and others argued for the need to encourage use of non-carbon sources in buildings. In the Legislature, the focus was on cleaning up electricity. Buildings, she says, were a bridge too far. It was more than what was possible then.

Now as president of Roaring Fork Habitat for Humanity, Schwartz is overseeing planning for a net-zero affordable-housing project at Rifle, one with no natural gas hookups. In Longmont, that same sort of project was completed several months ago. Called GreenSpire, the 44 housing units similarly are carbon neutral. Meillon hopes that the building’s symbolism will result in Polis using the building’s parking lot as the venue for signing HB21-1238 into law.

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