Colorado residents could be paying a lot more for home energy, following the state’s decision last week to turn away from natural gas as a home cooking and heating fuel, experts said.

Some 1.9 million Colorado households warm their homes each winter using gas. That’s also how tens of thousands of businesses heat their buildings. But that could change significantly in the near term under an order handed down by the state’s three-person Public Utilities Commission.

Policy experts and advocates were all ears on Dec. 1, when energy regulators ordered Xcel Energy – the state’s biggest utility company – and other non-municipal utilities to slash their carbon output by 41% by 2035 as a step toward a 100% carbon-free future fired by solar and wind.

The only way to reduce carbon that much is by switching out the gas-fired furnaces, stoves and appliances of as many as 600,000 customers and changing them to electric heating. That’s according to the Colorado Energy Office, which was among two state agencies that cautioned the utility commission against its ultimate decision.

‘EXCESSIVE COLLATERAL DAMAGE‘

Some environmental activists embraced the commission’s decision, while it spawned shock and surprise among many other advocates, some of whom were confused by the order.

“This will cause excessive collateral damage for those least able to afford it,” said Sara Blackhurst, president and CEO of Action Colorado, a nonprofit community advocacy group based in southern Colorado.

​“Meeting the approved goal will be … challenging and difficult to achieve,” Michelle Aguayo, a spokeswoman for Xcel Energy, told The Denver Gazette in a written response. She added it “will increase customer costs.” 

Although state legislation passed in 2021 had required any cost of carbon cutting to be capped at 2.5% of customers’ annual gas bills, sources suggested the actual costs of a conversion might easily exceed $12 billion – or higher.

News of the order happened just as Xcel warned customers of an impending major rate hike. This week, Xcel notified that it had submitted a proposal to the PUC for a 9.93% increase to take effect next summer. Small businesses would see a 9.48% rise.

Missing almost entirely from the Public Utility Commission’s order was any mention of rates or rate increases.

In the Dec. 1 order, 28 pages in length, there were three uses of the word “rate” or “rates” apart from references to “ratepayers” — utility parlance for customers.

Some advocates said the impact of such a transition would be shouldered entirely by customers.

“Who pays for those solutions are ratepayers,” a senior executive at a large utility told The Denver Gazette, who asked to remain anonymous to freely discuss the subject.

The Denver Gazette spoke with a dozen utility experts, company spokespeople, consultants, and consumer advocates, practically all of whom offered a negative assessment of the order, on whether the reduction could be carried out in 10 years and how it could be apportioned and financed.

Virtually all said they are hesitant to go on record in criticizing an order that began in the Colorado legislature and was handed down by the commission that directly oversees their industry’s operations.

‘IT’S PAID BY THE CUSTOMER’

“The biggest misdirection is in saying it is not directed at customers,” the senior executive said. “Electric costs are going up to pay for those transitions. It’s a simple understanding of how utility programs work, whether by a non-jurisdictional utility or an investor-owned or municipally-owned utility. It’s paid for by the customer.”

Those costs could be astronomical, according to experts.

The 600,000 customer figure, cited in testimony by the Colorado Energy Office in tandem with the Colorado Department of Public Health and Environment, works out to be around a third of the state’s households using gas as their primary heating and cooking source.

Discussion of the climate goals in the order are specific to metric tons of carbon reduction, but the language gets vague as to whether customers would be required to switch out specific appliances or whether they would be entirely converted, starting with their gas furnaces.

If a conversion cost in the $20,000 range, the tab would be $12 billion.

However, that may not figure in the systemic costs of altering the gas distribution system and of gearing up electric production, transmission, and supply to meet any jump in demand, experts said.

Meanwhile, experts are frank in admitting there is little evidence that customers are anxious to have their gas ranges converted to electric or their heaters switched out for ground-source electric heat pumps.

“What if the consumer says, ‘I’m good with what I have?’” the senior utility executive asked.

The order also brings into question what responsibilities utilities have to their customers – for whom they are supplying a popular commodity, the executive added.

A source familiar with the commission’s internal workings who declined to be named questioned the origins of the 41% reduction figure, suggesting it seems arbitrary and in conflict with the enabling legislation.

This source noted that the major affected utilities had each submitted pleadings, and all had effectively countered that the approach isn’t realistic in a 10-year timeframe.

UTILITIES SOUGHT LOWER TARGETS

In pleadings leading up to last week’s decision, Dallas-based Atmos Energy, which supplies gas to some 129,000 Colorado customers, asked that the target be held at 22%, which was specified for 2030 in the original Senate bill requiring utilities to create “clean heat plans.”

Atmos told the commission it has an “overarching duty to ensure just and reasonable rates for customers,” adding higher target levels failed to acknowledge that customers continue to demand natural gas as a fuel. Even meeting the lower target by 2030, the company said, would require average annual costs of $55 million.

When asked about the decision, Atmos would only tell The Denver Gazette that its 2024 clean heat plan focused primarily on incentives to help customers improve the efficiency of their existing appliances, and that the company is working to reduce greenhouse gas emissions, while also prioritizing safety, “energy choice,” affordability, and reliability.

Atmos serves customers in areas including Greeley, Steamboat, Craig, Salida, Gunnison, Canon City, Lamar, and Durango.

In like manner, Black Hills Energy, which serves some 200,000 gas customers in southern Colorado, pleaded that recent targets are not achievable without “incredible investments.” Black Hills added that baseline data used by the commission in setting the new requirements are no longer accurate due to significant growth.

Following a query about the decision, a Black Hills representative would say only that the new reductions are significantly greater than what the legislature originally required, and that the company would balance state policy requirements with customer affordability.

“Recent survey results show that 90% of our natural gas customers value the ability to choose their energy source, and we will continue to advocate for their interests,“ Black Hills added in a written statement to The Denver Gazette.

Xcel Energy’s Aguayo told The Denver Gazette that her company, with 1.5 million gas customers in the state, is charting a similar course.  

“With the support of state agencies, we brought forward a reasonable proposal to balance emissions reductions and affordability,” she said in her written reply.

‘MORE AGGRESSIVE GOALS’

“As our current plan shows, the overwhelming majority of participating customers are choosing natural gas as their backup fuel source, and the shift to these more aggressive goals is not in line with customer expectations, thereby creating achievability and feasibility concerns for the future,” she added.

Using natural gas power plants to replace older coal-fired plants has been widely credited for a major decline in carbon emissions across the U.S. over the past decade. Gas emits around half the carbon dioxide per unit of energy, compared to coal as a fuel. ​

Some environmental advocates have long sought to eliminate fossil-fired energy, including natural gas, as the source to power homes and industries. They have argued that newer technologies – notably wind and solar, backed by batteries – have become cheaper over time, and Colorado should fully embrace them quickly as they are better for the environment and human health.

Critics of that transition have countered that it is happening too quickly – and that low-income residents will ultimately bear the cost of that rapid change in jobs lost and higher energy bills.

Multiple sources suggested that gas household customers and apartment renters have little or no awareness of the major changes that could soon be headed their way – or of the possible rate impacts.

Sources also pointed out that the state’s own agencies had advised the commission to accept a lower target.

The Colorado Energy Office and the Department of Public Health and Environment originally proposed a reduction of 41% across the three gas utilities by 2035. But the agencies later changed their target, suggesting 31%.

Achieving the higher target, they testified, is questionable “in a setting where the uptake rate is low” and where 600,000 customers would have to fully electrify – requiring a switch to electric water heating, cooking, and clothes drying, in addition to space heating.

Most electrification to date had been “partial electrification,” the agencies told the commission, where customers switch over some appliances while leaving others.

“If the trend of partial instead of full electrification continues, the required number of customers adopting electrification to reach the 41% target would likely be much higher than 600,000,” the agencies added.

They recommended more study to determine whether even a 31% reduction would appear ambitious.

The Denver Gazette spoke with Will Toor, executive director of the Colorado Energy Office, about the change in direction and whether he was surprised the commission had adopted the steeper carbon reduction goal than the agencies recommended.

“We certainly respect the decision the PUC made,” Toor said.

He added that the picture would become clearer as cost trends are revealed and as more is learned about whether new measures to recover lost methane can help meet the reductions.

‘CRAZY REAL QUICK’

“Utility costs are at the top of mind on both the electric and gas sides,” Toor added. “If it brings on a lot of demand and they need to be building new transmission lines, it can certainly affect rates. But a lot of upgrades are needed to distribution systems just because they are old.”

The Denver Gazette asked whether wind and solar, growing as a share of the grid’s capacity in Colorado, could actually be relied on to pick up demand in a major switch from gas.

Toor replied that a switch to greater electric might rebalance the annual demand of electric customers away from summer, when cooling demand peaks. But the supply side, he added, wouldn’t solely focus on wind and solar – but also on technologies like gas with carbon capture, geothermal, and small modular nuclear reactors.

However, the senior utility executive who spoke anonymously is less sanguine about a turnover.

“It gets crazy really quick. Every customer participates in those costs,” the executive said, musing over how a utility would pick which customers need to move over to electric.

The executive questioned whether broader costs of those utilities covered by the PUC action are being taken into account, including retrofitting their existing services where their territories for gas don’t necessarily align with service for electric.

“The system is sized to meet the load,” the executive added. “To retro existing service will be very expensive, and that’s been completely overlooked.”

That executive suggested that market considerations — the willingness of customers to cooperate and the workforce availability to carry out conversions — have not been well evaluated.

“If it’s desirable to drive customers to an all-electric economy, the best way to incentivize that is to make it as affordable as possible, but Colorado has done exactly the opposite of that,” the executive said.

“It’s a vanity that we can attack everything all at once and assume it will be free.”

Meanwhile, the cost implications arrive at a moment when Colorado’s job market could be headed for decline after a decade of growth. Latest jobs data shows the state continuing to show better than average employment.

However, unemployment is running above average in some areas, warned Brian Lewandowski, who heads the University of Colorado’s Business Research Division.

With the potential for serious rate increases a possibility, The Denver Gazette reached out to all three announced gubernatorial candidates to weigh in on the PUC’s action.

Attorney General Phil Weiser’s spokesman replied he would be unable to comment at this time. Following the PUC order, U.S. Sen. Michael Bennet’s campaign distributed what it calls a “cap-and-invest” plan to “Address Climate Change and Cut Energy Costs.” However, the campaign did not follow up on a conversation requesting a specific comment on the order.

‘A ONE-TWO HIT’

Sen. Barbara Kirkmeyer, R-Weld County, one of the Republicans running for governor, told The Denver Gazette that the PUC order is worrisome. 

“A mandate to transition away from reliable, affordable, clean natural gas to unreliable and more costly wind and solar energy just doesn’t make sense,” she said in a written reply. 

“The reality is pretty simple: people are going to pay more and have fewer options when it comes to heating their homes and keeping the lights on. When the PUC isn’t honest about the costs, it’s everyday Coloradans who end up feeling it the most,” she said.

Sara Blackhurst with Action Colorado noted that her organization serves counties around Pueblo, whose residents are already worried about potential job loss as its Comanche coal-fired power plant faces a scheduled closure.

The plant’s older Unit 2 generator, which had been scheduled to close this year, is being kept online after the newer, more efficient Unit 3 showed reliability issues, jeopardizing the stability of the grid.

Blackhurst said that, among the consequences of the order, is to “take effective replacements for Comanche off the table.”

“They went rogue. What they’re doing to my hometown is a one-two hit,” Blackhurst said about the PUC decision. “We’ve gone past go-along to get-along. Being polite has gotten us nowhere.”

Blackhurst copied The Denver Gazette a memo she sent to Gov. Jared Polis following the PUC’s order, questioning how home heating reliability would be maintained, how the load growth would be covered, and how low-income and rural households would be protected.

She also criticized the public messaging around electrification that she says depicts electric heat pumps as a cheaper alternative to gas heat.

“The real-world data — including from climate-conscious Colorado homeowners who already use heat pumps — shows a different picture,” she said.

“If heat pumps were truly cheaper in Colorado winters, we wouldn’t have to mandate them. People would choose them voluntarily,” Blackhurst wrote.