Aligning Gas Regulation and Climate Goals: A Road Map for State Regulators

Strategic Insights -

As the need to reduce greenhouse gas (GHG) emissions intensifies, state regulators face a critical challenge in aligning gas utility operations and rates with climate goals. The New York State Department of Public Service report highlights the disconnect between states' adoption of GHG emissions targets and the ongoing business-as-usual framework of retail gas utilities. This report presents recommendations for State Public Utilities Commissions (Commissions) and regulators to drive reductions in GHG emissions, prioritize regulatory oversight, and support safe, reliable, and affordable service.

Key Takeaways:

  • The current gas utility regulatory framework assumes static or increased natural gas usage, ignoring climate goals and leading to wasteful investments in infrastructure.
  • The transition to a lower-carbon energy system requires revisiting and refining existing policies, programs, and processes to ensure gas usage is aligned with climate goals.
  • Gas utilities' short-term forecasting and planning exercises often conflict with states' long-term climate objectives, exposing utilities and customers to risks of under-collecting or stranding infrastructure.
  • Regulators can close the gap between climate goals and gas utility actions by implementing inclusive and transparent decision making, requiring rigorous long-term planning, and coordinating near-term decisions with long-term goals.
  • The three recommended steps: (1) establish inclusive and transparent decision making, (2) require rigorous long-term planning, and (3) coordinate near-term decisions and long-term goals, are based on EDF's experience engaging in specific gas regulatory proceedings and informed by pilots and early-stage activities in certain states.
  • Low-income ratepayers are disproportionately affected by higher utility bills, and regulators must prioritize measures to protect these customers from unnecessary costs and support continued provision of safe, reliable, and affordable service.

Statistics:

  • Existing gas infrastructure has an assumed useful life of 60 years or longer, which is mismatched with the timeframes of climate goals and could lead to stranded assets. (Source: Analysis)
  • Increasing rates resulting from stranded assets could lead to a utility death-spiral effect, where higher rates lead customers to electrify more quickly and raise the rates for remaining customers. (Source: EDF's experience)
  • Low-income ratepayers are the most affected by higher utility bills, but they are also the least able to make up-front investments required to electrify. (Source: Analysis)
  • State climate goals often extend for over 20 years, but gas utility forecasts and planning exercises are often limited to 5- or 10-year terms. (Source: Analysis)

Sources:

  • New York State Department of Public Service document, "Albany: New York State Department of Public Service" (date not specified)
  • EDF report, "Aligning Gas Regulation and Climate Goals: A Road Map for State Regulators" (date not specified)
  • Analysis and experience from EDF's engagement in specific gas regulatory proceedings