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Independence Institute Tells the Public Utilities Commission to Pump the Brakes on De-Facto Gas Ban

Independence Institute Tells the Public Utilities Commission to Pump the Brakes on De-Facto Gas Ban

The PUC is holding a Zoom public comment hearing on these rules on Monday, September 19th at 9am. People who wish to participate in that hearing can find more information here. They can also submit written comments referencing Proceeding No. 21R-0449G by clicking here.


In the 2021 legislative session, the Colorado General Assembly passed SB21-264, which requires the state’s gas distribution utilities to reduce greenhouse gas emissions by 4% by 2025 and by 22% by 2030, from a 2015 baseline.

To demonstrate how they plan to meet these emissions targets, gas utilities are now required to file “Clean Heat Plans” starting in 2023 that will outline how they plan to curtail the use of gas either on the supply or demand side.

In anticipation of next year’s Clean Heat Plan filings, the PUC is considering the adoption of several rules that will govern the way in which the state’s gas utilities might meet their emissions targets under their forthcoming Clean Heat Plans.

One of these proposed rules, Rule 4210, would radically alter the way new gas lines are financed in an attempt to force future gas customers to pay more for the use of natural gas in their homes and businesses.

Independence Institute submitted the following comments to the Public Utilities Commission telling them not to approve this costly rule.


Dear Commissioners:

 

Independence Institute is a free market think tank located in Denver, Colorado. We appreciate the opportunity to provide our feedback to the commission about the Amendments to Gas Rules Implementing SB 21-264 & HB 21-1238.

Independence Institute is submitting the following comments in response to the proposed Rule 4210 – Line Extensions in Decision No. C22-0427-I, Proceeding No. 21R-0449G. We oppose this rule on the basis that it will unnecessarily increase the cost of housing at a time when Coloradans can least afford it, and it places undue cost burdens on a reliable yet politically disfavored source of fuel in contravention of current state law.

Housing affordability in Colorado is in a state of crisis. Studies have estimated that the supply of housing is roughly 200,000 units short to meet demand,[1] and the state’s population of residents continues to grow. At the same time, interest rates continue to rise, exacerbating the issue of affordability.[2]

Empirical studies have routinely shown regulatory burdens to be substantial drivers of rising housing costs[3], both by contributing to inventory shortfalls and by driving up the cost of new housing starts.

Mandating that new gas customers bear 100 percent of the cost of new line extensions would only add further cost burdens on the process of homeownership, both by increasing the list price of new homes and by outright discouraging developers from building desperately needed new units.

Coloradans are already reeling from 40-year high inflation and face a housing market with the 5th highest median home price in the nation.[4] The last thing Colorado residents need is another regulatory burden to exacerbate that crisis.

The commission appears to be aware of concerns surrounding affordability, as indicated by the addition of part (f) to the proposed rule. But including a suggestion that utilities “provide a narrative” to offer suggested approaches for income-qualified customers adversely affected by the rule is merely a half-measure and does not address the fundamental issue at hand.

First, by shifting the cost burden of new line extensions onto new customers, the proposed rule risks driving up the cost of housing. A narrative about income-qualified customers does nothing to address this concern.

Second, many low and middle-income gas customers currently on the system rely on the fuel for home-heating and appliances and may not be in a financial position to transition to electrified alternatives. By discouraging the addition of new gas customers over time—leading those who can afford it to select electrified housing options—it is these low- and middle-income Coloradans who will be forced to pay for maintaining an ever-greater share of the existing gas infrastructure.

Proponents of Rule 4210 point to the risk of “stranded assets” being a justification for adopting the proposed rule, but it is the customers who can least afford than transition to electric-only housing who risk being stranded with the burden of increasingly unaffordable energy should the rule be adopted.

The proposed rule is unnecessarily punitive toward natural gas. We understand the need for the commission to comply with state statutes, but the proposed rule is an unnecessary step toward those ends. GDUs can and should be allowed to meet emissions reduction benchmarks by other means without the need for artificial constraints on future gas customers or the incentivization of so-called beneficial electrification.

It is not the purview of the PUC to encourage beneficial electrification, as indicated by current state law stipulating that the commission “shall not require the removal of gas-fueled appliances or equipment from an existing structure nor ban the installation of gas service lines to any new structure.”[5]

Yet, the obvious intent of Rule 4210—which is not in dispute among its proponents—is to squeeze out the installation of new gas service lines in favor of all-electric alternatives.

Despite concerns raised by the commission and by supporters of Rule 4210 about the potential for stranded gas assets, demand for gas is not going to subside anytime soon. Roughly 70 percent of the state still relies on the fuel for home heating, and recent federal data from the U.S. Energy Information Administration is forecasting consumer demand for natural gas to continue increasing toward record levels across all end-use sectors this year.[6]

With consumer demand for the fuel still high, and electrified alternatives still financially out of reach for many customers, the risk of stranded assets will not be an issue for many years to come.

As Coloradans struggle with rising energy costs and the increased cost of living, this proposal would penalize working families by forcing them to choose unnecessarily between housing affordability and reliable energy. Coloradans should be free to choose whether to pursue gas or electrification without a regulatory thumb on the scale in favor of costlier options.

Independence Institute opposes the proposed rule on line extensions and strongly urges the PUC to reject its adoption. Short of rejecting the rule outright, the PUC should at the very least consider addressing the rule in a separate proceeding to allow for thorough evaluation of its potential costs and consequences for Colorado residents.

 

Sincerely,

Jake Fogleman

Policy Analyst

Independence Institute


[1] Common Sense Institute, The Uncertain Future Cost of Colorado’s Energy Infrastructure and Housing Affordability, https://commonsenseinstituteco.org/energy-infrastructure-and-housing-affordability/

[2] Wall Street Journal, Mortgage Rates Top 6% for the First Time Since the 2008 Financial Crisis, https://www.wsj.com/articles/mortgage-rates-hit-6-02-highest-since-the-financial-crisis-11663250402

[3] National Association of Home Builders, Government Regulation in the Price of a New Home: 2021, https://www.nahb.org/-/media/NAHB/news-and-economics/docs/housing-economics-plus/special-studies/2021/special-study-government-regulation-in-the-price-of-a-new-home-may-2021.pdf

[4] World Population Review, Median Home Price by State 2022, https://worldpopulationreview.com/state-rankings/median-home-price-by-state

[5] Colo. Rev. Stat. § 40-3.2-103(3.5)(b)

[6] EIA forecasts record U.S. natural gas consumption in 2022, https://www.eia.gov/todayinenergy/detail.php?id=53839