PUC adopts initial framework for natural gas utility integrated resource planning 

Last year, the Minnesota Public Utilities Commission (PUC) adopted CUB’s recommendation that gas utilities be required to conduct long-term planning that is transparent to the public, reviewed by stakeholders (like CUB), and ultimately approved by the PUC. On February 22, the PUC held its first hearing to establish requirements for these gas utility integrated resource plans (IRPs). Minnesota’s three largest natural gas utilities (CenterPoint, Xcel, and Minnesota Energy Resources Corporation, or MERC) will soon be required to file gas IRPs on a regular basis. This blog provides an overview of how this gas IRP requirement emerged in Minnesota and where it stands now. 
 

Why are gas integrated resource plans important? 

The decision to develop natural gas IRPs in Minnesota arose from CUB’s recommendation to use planning to mitigate the risk of future high customer costs associated with natural gas price spikes, like those seen during Winter Storm Uri in February 2021. 

This kind of planning is crucial, as gas utilities—and their customers—face tremendous uncertainty about their future. Advances in heat pump technology have made efficient electric heating commercially viable throughout our region, and federal, state, and utility incentives will likely expedite its adoption. Beyond space heating, residential and commercial customers are increasingly motivated to reduce greenhouse gas emissions and avoid the negative health impacts associated with natural gas used in cooking and other end use appliances by switching to cleaner alternatives. Indeed, reaching Minnesota’s statutory goal of net zero greenhouse gas emissions by 2050 will require significantly reducing gas use in buildings—or possibly eliminating it altogether. 

Any future with greater adoption of electrification will inevitably impact the gas system. Gas utilities pay for their long-term investments in pipes and other infrastructure through customers’ bills. These projects typically get paid off slowly, over the course of 40 years or more. If gas usage declines, then the rate per unit of gas will have to increase in order to recover those investments. At the moment, Minnesota’s gas utilities (whose profits depend on capital investments) are planning to not only continue investments as usual, but to increase those investments every year.  To protect ratepayers, the PUC must carefully consider whether it is prudent to continue investing in gas infrastructure and recovering those costs from customers over their multi-decade lifetimes.  
 

What did the PUC decide? 

After months of discussion among interested parties (including CUB, the gas utilities, state agencies, environmental advocates, and labor groups), the PUC formally established a foundation for gas planning that outlines what information utilities must include in their IRP filings. The PUC also established procedural filing requirements and set criteria for plan evaluation.  

Gas utilities’ IRPs will include a range of load forecasts: estimates of how much customer demand is expected in coming years. Utilities will consider traditional natural gas as well as various alternatives, like electrification, networked geothermal systems, energy efficiency, and renewable natural gas. Utilities will propose a resource mix that they believe will best serve ratepayers and the public interest by ensuring cost-effective, reliable, and clean energy. Importantly, the PUC explicitly required utilities to consider Minnesota’s 2050 economy-wide net-zero GHG emissions goal when developing IRPs.  Utilities must also be transparent about the infrastructure costs associated with each resource included in the utility’s plan. Furthermore, the PUC required utilities to develop alternatives analyses to evaluate whether there are feasible opportunities to use more cost-effective or environmentally cleaner options than planned gas system expansion projects.  

The PUC adopted an IRP planning horizon of 10 years, which was shorter than what CUB recommended. CUB initially requested that plans consider a planning horizon through 2050, to give stakeholders and the PUC a better understanding of the utilities’ progress towards the state’s decarbonization goal, as well as any resulting ratepayer impacts. CUB had also recommended that utility infrastructure—including required maintenance—be more explicitly considered in the plans. 
 

What’s next? 

Although the PUC has made significant progress, many questions about the IRP process remain. The PUC will soon issue a notice requesting additional comments on a number of topics. For example, although the PUC agreed with arguments made by CUB and other parties that increased electrification will require some level of coordinated planning between electric and gas utilities, what that coordinated planning will look like has not been decided. The alternatives analysis component will also require additional discussion, as parties agree a minimum cost threshold still needs to be set to determine which projects qualify.  

Moreover, the PUC has excluded investments related to “routine maintenance, safety, public works accommodation, integrity, and reliability” from the alternatives analysis; how to delineate which projects fall into those categories will likely need further qualification. The methods each utility will use to model and analyze different resource pathways, as well as major questions regarding how equity is integrated into the planning process, are also additional matters that will need to be further fleshed out in future comment periods.  

In CUB’s opinion, the IRP process would benefit from the input of Minnesotans who stand to be affected by gas planning decisions. In particular, the PUC could make decisions now that set up procedures to gather public input, including options that may be less onerous than a typical PUC proceeding. Comments from community groups will be particularly helpful at this stage.  

Lastly, the PUC, as well as the parties engaged in the planning process, have emphasized the need for gas planning to remain an iterative process. Although Minnesota has required electric resource planning for decades, there are significant differences in the challenges faced by natural gas utilities. As this new process is implemented, CUB believes planning requirements should continue to adapt as needed to achieve appropriate levels of transparency for the public, and to provide Minnesota’s regulators with adequate information to support the decision-making process. The PUC’s current framework allows these plans needed flexibility and room to grow.  

CUB will continue to work with other stakeholders in regular roundtable meetings to discuss additional details of the planning requirements. We’ll also work with members of the Clean Heat Minnesota coalition to help other organizations and community groups understand the proceeding and how to provide input.  

We expect the PUC will issue its next notice for comment in the coming weeks, with comments due this summer. The PUC plans to hold a hearing in August to make its final determinations and to set the dates on which Xcel, CenterPoint, and MERC will file their first IRPs.