Governor Polis Signs Bill to Reduce Greenhouse Gas Emissions from Gas Utilities

On June 24, 2021, Governor Polis signed into law a bill to advance the state’s goal to reduce greenhouse gas (“GHG”) emissions from gas distribution utilities. Senate Bill 21-264 requires gas distribution utilities (“GDUs”) to implement clean heat plans which demonstrate the GDU’s strategy to meet specified clean heat targets.

The bill defines a GDU as a gas public utility with over 90,000 retail customers. Each GDU must file a clean heat plan with the Colorado Public Utilities Commission (“PUC”) that explains their proposal to reduce carbon dioxide and methane emission levels by 4% in 2025 (only 1% can be from recovered methane) and 22% in 2030 (only 5% can be from recovered methane). The calculation for baseline and projected emissions must include (1) leaked methane from the transportation and delivery of gas, (2) carbon dioxide emissions resulting from gas combustion, and (3) leaked methane emissions from gas delivery to local distributors. Each GDU’s clean heat plan must address the following scenarios:

1. The GDU will use the maximum practicable clean heat resources, comply with the cost cap (determined by the PUC), list leak reductions, and may or may not meet the clean heat targets, but demonstrates overall reductions in methane emissions; and
2. The GDU will meet the clean heat targets, using only clean heat resources, but will not meet the cost cap.

The GDU has discretion to include additional scenarios and the PUC may also request supplementary scenarios. Colorado’s largest GDU (determined by volume of gas sold) must submit a clean heat plan by August 1, 2023. All other GDUs must submit their plans by January 1, 2024.

The new legislation also provides clean heat plan requirements for municipal GDUs (a municipally owned utility that provides gas services to over 90,000 customers) and small GDUs (a public utility providing gas services to 90,000 customers or less). A municipal GDU must implement a clean heat plan by February 1, 2023 that demonstrates compliance with the 4% reduction of GHG emissions by 2025 and 22% reduction by 2030 and the plan must be approved by the entity’s governing body. A small GDU may file a clean heat plan pursuant to the same requirements as a GDU or it may submit a plan that proposes its own reduction targets, subject to the cost cap.

Colorado GDUs are encouraged to use already available tools, including energy efficiency, biomethane, hydrogen, recovered methane, beneficial electrification of customer end uses, and cost-effective leak reductions on the utility’s distribution systems to achieve GHG emission reductions. Additionally, where practicable, GDUs are requested to use their own employees to implement clean heat plan projects. For projects that require competitive solicitation, the GDU must inquire about the use of Colorado-based and out-of-state labor.

When approving a clean heat plan, the PUC must consider a cost test that includes the social cost of carbon and methane. Moreover, the PUC must ensure the clean heat plan advances the public interest, by analyzing the use of clean heat resources, the air quality, environmental and health benefits of the plan, the reliability and cost of the plan, and whether investments in the plan prioritize communities historically impacted by pollution.

Senate Bill 21-264 also requires the PUC to propose rules establishing recovered methane protocols by September 1, 2022. Further, the PUC must evaluate requisite resources for the effective regulation of GHG sequestration and report its findings by December 1, 2021.

Similarly, in Governor Polis’ 2021 GHG Pollution Reduction Roadmap,[1] the state government announced its plan to form a task force on carbon capture, use, and sequestration to research policies and action plans that align with Colorado’s GHG emission reduction goals. As the state government’s role in carbon sequestration policy grows, it is important for inquiries into sequestration regulation to address pore space ownership, the balance between carbon sequestration and advancing reductions in pollution, public incentives, and economic development related to carbon capture.

The purpose of Senate Bill 21-264 is to equitably and reasonably reduce Colorado’s greenhouse gas emissions and transition to a decarbonized economy. Implementation of these clean heat plans, along with support from the PUC, will promote Colorado’s overall goals to reduce GHG emissions to slow global warming and protect our environment.

If you have further questions, please contact John Jacus or Kelsey Johnson.

[1] https://drive.google.com/file/d/1jzLvFcrDryhhs9ZkT_UXkQM_0LiiYZfq/view