America is re-thinking the way it powers its homes and businesses, and we’re seeing this debate emerge in state legislatures, at public utility commissions, at county and city councils, and in our own kitchens and living rooms. This is because changing appliance economics and performance, consumer preferences, and state and local policies are driving support for clean, efficient, and affordable electric technologies. It is also because a realistic look into the future of energy indicates that we can expect a dramatic decline in the use of natural gas, and an unwieldy and expensive transition if we fail to plan for it.
Building electrification generally refers to the conversion of fossil fuel appliances in the built environment, typically spacing heating, water heating, cooking, and clothes drying, to electric appliances. Under the radar, a few states are doing in-depth work to study the trajectory of the energy transition and the implications it has for energy affordability and equity, the electric system, workers, planning processes, investment decisions, and more. This includes California, New York, Colorado, Massachusetts, Minnesota, Oregon, and most recently, Nevada.
In Nevada, two competing visions of the future of the gas system were debated during the 2021 legislative session: one would have green-lighted unnecessary gas system spending with little oversight, and the other would have instituted long-term gas utility planning that aligns with state policy goals, which require “zero or near zero” greenhouse gas emissions by 2050. Ultimately, no legislation was passed, but state leaders, including Governor Sisolak, took note.
So did the Public Utilities Commission of Nevada (PUCN), which decided to open a docket to investigate long-term gas planning in Nevada just a few months later. Over the course of this past fall, stakeholders, including AEE, environmental organizations, equity and community-based groups, electric and gas utilities, think tanks, business and worker associations, unions, and consumer and health advocates, have been answering questions in three phases. The first phase asked for an inventory of natural gas use in the state and about options for converting various gas end uses to other energy sources. It also asked stakeholders to consider what equity issues may arise under various energy transition pathways, and how low-income and historically underserved communities could be protected. The second phase focused on the impacts of electrification of natural gas end uses on the electric grid, particularly around resource adequacy and seasonal energy demand, greenhouse gas emissions, and the cost of electric system upgrades. The third phase related to the costs of installing and operating electric appliances, investment planning, and measures to mitigate rising gas service costs for customers. With many thoughtful responses to these questions filed in the docket, the Commission is building a base of knowledge and evaluating regulatory tools it can deploy to respond to the impacts of policy- and market-driven electrification.
This docket is important to AEE and the advanced energy industry for several reasons. First, the impacts of electrification on the electric system will create significant new market opportunities for advanced energy technologies and services while creating new job opportunities for workers. This includes clean electric generators and energy storage providers to support increases in electricity use and changes in load shapes, energy efficiency and energy management providers to help mitigate those demand increases, and distribution system technologies and distributed energy resources, like distributed solar, storage, and electric vehicles, to manage more dynamic energy usage on the customer side.
Second, the appliances installed through building electrification, such as air-source heat pumps and heat pump water heaters, are highly efficient and can add to the suite of flexible resources that can be managed in response to grid conditions, such as through utility demand response programs and with time varying rates. This flexibility will aid in integrating higher levels of variable renewable energy generation such as wind and solar.
And finally, AEE believes that robust, thorough planning for our energy future best prepares a state to avoid the potential negative impacts that an unmanaged transition may have on customer rates and the energy system. Early consideration of key issues, like how to build up electric generation, transmission, and distribution systems in parallel with expected load growth, the ever-present work of making our systems more resilient, and the assessment of realistic pathways for achieving state goals, will help ensure a safe, reliable, customer-centric, equitable, and affordable energy future that takes advantage of innovative technologies and services, falling clean energy costs, and the growing clean energy economy.
All of this has significant implications for the natural gas network. Among the most important issues to address are 1) how to evaluate and pay for new long-term investments when state goals indicate that those investments might become obsolete before the end of their useful lives, all while maintaining a safe and reliable system, and 2) how to ensure that low-income and historically underserved communities do not get unfairly burdened with rising costs as other customers transition away from natural gas. These issues require the thoughtful use of ratemaking reforms such as securitization, accelerated depreciation, and performance incentive mechanisms, as well as the design of impactful and targeted incentive programs and strategies that help vulnerable customers retrofit their homes so they can be a part of the energy transition.
The state and its utilities must also consider the appropriate use of limited supplies of alternative fuels like renewable natural gas and hydrogen, which are promising options for certain hard-to-electrify applications, such as some industrial activities, and how complementary policies, like revising gas and electric line extension allowances, a west-wide wholesale electricity market, and support for distributed energy resources and microgrids, can play different roles to support the transition.
The future of the energy ecosystem, and more specifically, the future of gas, requires systems-level thinking, creative solutions, and the use of all the tools in our toolkit. Because AEE represents the full spectrum of advanced energy technologies and services, we have a lot to offer this conversation. We look forward to additional engagement in this next frontier of the energy transition.