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Xcel’s Clean Heat Plan Approved In Colorado With Major Climate Wins

This decision will deliver significant affordability and climate benefits to Coloradans. Xcel projects total gas system expenditures of about $2.38 billion between 2023-2027, and much more beyond that five-year period. The Commission’s decision will begin to align this massive gas utility investment with Colorado’s climate targets, saving customers money and reducing the risk of stranded gas assets.

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The Colorado Public Utilities Commission today concluded deliberations on Xcel Energy’s first Clean Heat Plan, approving a portfolio of resources that will substantially reduce emissions from the natural gas utility primarily through investment in building electrification and energy efficiency. A final written order is expected in the coming weeks.

The approved plan brings a strong budget of up to $440 million from June 2024 through 2027, with the vast majority of funds dedicated to building electrification and energy efficiency measures. The portfolio is expected to achieve at least 725,000 tons of annual emission reductions by 2027, above those expected from Xcel’s existing electrification and energy efficiency programs. The Commission is directing Xcel to double down on electrification initiatives like all-electric new construction, incentives to switch to heat pumps, stacking incentives from federal funding, and promoting investments for low-income and disproportionately-impacted customers.

“The Commission has, in recent years, shown tremendous leadership by reigning in irresponsible gas spending, directing low-cost efficiency and electrification investments, and planning for a utility system aligned with Colorado’s climate goals,” said Alejandra Mejia Cunningham, Senior Manager for State Buildings Policy at NRDC. “While much work remains to be done, this is an exceptional next step in setting Xcel on the path to meet the 2030 clean heat goals.”

The portfolio largely reflects proposals developed by WRA, Southwest Energy Efficiency Project (SWEEP) and Natural Resources Defense Council, which Sierra Club and others joined in advocating for in the proceeding. The Commission agreed with these organizations that Xcel significantly overstated the expected costs of electrification, and that it ignored key benefits such as improved health from reducing air pollution by burning less gas. Earlier this Spring, the Commission approved a strong Gas Infrastructure Plan (GIP) for Xcel that incorporated numerous recommendations from the same groups, minimizing unnecessary gas system costs.

The Commission rejected Xcel’s proposals to include measures that would be incompatible with an affordable, equitable low-carbon future, such as hydrogen blending, biomethane, and “certified” natural gas. Hydrogen blending and biomethane are projected to have significant technical limitations and large costs and intervenors raised significant concerns regarding whether “certified gas” — sources that are reviewed by a third party that claim the fuel is produced in a manner less harmful to the environment — would achieve additional greenhouse gas reductions. The plan leaves open pathways to add limited amounts of these fuels to the portfolio in the future, subject to strict criteria that so far Xcel has not shown the fuels can satisfy.

“We know building electrification is the most effective, lowest-cost way to reduce gas system emissions as required to meet our state climate targets,” said Sarah Tresedder, Field Organizer for Colorado Sierra Club. “We are thrilled that the Commission is taking this critical first step to put Xcel’s system on the path to an electrified future, and is rejecting the company’s request to spend customer money on false solutions and risky hydrogen blending experiments.”

Xcel’s clean heat plan is the first of its kind in the nation, so it was critical for the utility and the Commission to get it right,” said Meera Fickling, Building Decarbonization Manager at WRA. “With its focus on cost-effective investments in building electrification and energy efficiency, this plan is a powerful example of how a major utility can spur the transition to clean energy resources in a way that will benefit all Coloradans. We commend the Commission for setting up guardrails against utilities using expensive technologies like hydrogen blending to meet clean energy standards. There’s no need to reinvent the wheel, when energy efficiency and electrification – powered by clean, renewable resources like solar and wind – can reliably and cost-effectively get us to a net-zero future and decrease the cumulative impact of harmful carbon emissions.”

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Xcel originally proposed to spend over $430 million on these false solutions through 2028, and to experiment with blending hydrogen into the gas used in a few hundred customers’ homes. Public health and environmental groups strongly opposed this pilot as intervenors in the Clean Heat proceeding.

“This Decision by the Commission represents an important first step in the challenging process to decarbonize the state’s natural gas utilities,” said Justin Brant, Utility Program Director for the Southwest Energy Efficiency Project. “Now comes the hard part, which will require transforming the market for heating and hot water appliances in Colorado. We look forward to working with Xcel Energy and the state to achieve these goals in the coming years.”

“There are many unacceptable health, safety, and climate risks associated with blending hydrogen into the residential gas supply,” said Lauren Swain, coordinator for PSR Colorado (Physicians for Social Responsibility). “Therefore we appreciate the PUC’s decision to remove hydrogen from the clean heat portfolio. PSR’s national report documents the increased risk of leaks, fires, and explosions associated with hydrogen blending, as well as its potential to increase nitrogen dioxide emissions, which are linked to asthma attacks and hospitalizations. We hope the Commission’s final decision will eliminate hydrogen blending from Xcel’s ratepayer-funded market transformation portfolio as well.”

Sierra Club, NRDC SWEEP and WRA filed a motion joined by nine intervenors that argued Xcel’s proposal to use certified natural gas and offsets violated the Clean Heat Statute. After media and community organizers raised awareness about the hydrogen blending proposal, dozens of customers expressed their concerns about it in public comments. The Commission heard these calls and pulled the plug on the pilot and spending, which Xcel had already started to back away from.

“As Xcel’s electric grid rapidly decarbonizes, thanks to the growing use of Colorado’s abundant solar and wind resources, deploying today’s high-performance electric heat pumps is the most efficient way to provide clean heating and cooling of our buildings,” said Chuck Kutscher of CRES (Colorado Renewable Energy Society). “The decision by the Commission to put us on a firm path to building electrification is a triple win for Coloradans because it will greatly reduce outdoor air pollution, indoor air pollution, and the greenhouse gas emissions causing climate change.”

The Clean Heat Plan process was created three years ago at the Colorado legislature with SB21-264, which sets enforceable climate pollution reduction targets for gas utilities. Other Colorado utilities’ plans are pending before the PUC and each utility must file a new plan to meet decreasing emission targets every four years.

Media Contact:

James Quirk, 908-902-3177, james.quirk@westernresources.org

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