PUC approves $55 million for Xcel gas decarbonization pilots

During the first week of February, the Minnesota Public Utilities Commission (“Commission”) approved Xcel Energy’s first Natural Gas Innovation Act (“NGIA”) plan to test options for decarbonizing the company's gas system. With a total of 13 projects, Xcel’s $55 million plan is expected to lower emissions by up to 687,000 metric tons, create almost 400 jobs, and provide valuable learning opportunities that will support Minnesota’s goal of achieving a net-zero emissions economy. 

As a result of advocacy efforts by CUB and numerous other stakeholders, the Commission directed Xcel to limit renewable natural gas (“RNG”) and carbon offset purchases, implement additional ratepayer protections, and invest more heavily in weatherization and electrification technologies. The Commission approved nearly all of Xcel’s proposed projects, but reduced several budgets to better align with the public interest. Funds for projects whose budgets were reduced or eliminated were redirected to commercial electrification and low- to moderate-income programs. Below is an overview of Xcel’s NGIA plan and several key Commission decisions: 

Xcel’s NGIA Plan 

Alternative Fuels 

Xcel requested to spend over $32 million on “alternative fuels” over the course of the five-year plan, including $24 million on RNG. The NGIA statute requires 50 percent of the plan budget be used for alternative fuels, but Xcel’s proposal resulted in approximately 60 percent of funds going towards these resources. While alternative fuels could play an important role in reducing system emissions, they do not exist in sufficient quantities to fully replace natural gas. CUB and other stakeholders expressed concern that spending more than necessary on these projects was an inappropriate use of ratepayer funds. The Commission ultimately lowered Xcel’s RNG budget by $3.24 million. 

The Commission also approved Xcel’s proposal to use nearly $8 million for blending hydrogen with natural gas. The resulting mixture will power a system that provides steam to an industrial plant. Because the learnings associated with the hydrogen technology will primarily apply to industrial customers, the Commission ordered Xcel to not recover the costs of the project from residential customers or small businesses.

Carbon Offsets 

In addition to lowering alternative fuel spending, the Commission also reduced the amount that ratepayers will have to pay for “carbon offset” programs related to tree planting and land management. Xcel proposed two different pilots that fit within this category. Through its first project, Xcel planned to purchase credits generated from improved forest management practices employed by the Bois Forte Band of Chippewa. The Commission denied this $2.39 million project, noting concerns about scalability and the land being outside of Xcel’s service territory. 

The second project involved planting trees in the greater Twin Cities metropolitan area and was duplicative of a similar pilot proposed in CenterPoint’s NGIA plan. Recognizing this overlap, the Commission raised questions about what new learnings would come from the tree planting, and whether the full pilot budget was necessary for the project to be successful. The Commission ultimately approved the pilot but at half the originally proposed size—it lowered spending by approximately $431,000 to match the $329,000 budget previously approved for CenterPoint. 

Strategic Electrification and Ground Source Heat Pumps 

Several of the projects proposed by Xcel were approved at their full budgets, including the Prairie Island Indian Community (“PIIC”) Weatherization/Electrification pilot. Through this project, Xcel will partner with PIIC and Dakota Electric (the electric utility serving the community) to conduct home energy audits, weatherize buildings, and electrify over 70 homes. 

Xcel’s community ground source heat pump (“CGSHP”) pilot will also proceed at its full budget of $10.03 million. The CGSHP pilot will involve testing relatively new technologies that draw on thermal energy contained within the earth to heat participants’ homes and businesses. Air source heat pumps will be installed and connected together to form a “looped” energy system that eliminates the need for natural gas space heating and increases the efficiency of building cooling. If successful, the pilot could be scaled up to serve more customers throughout Xcel’s service territory. 

New Low- to Moderate-Income and Industrial Electrification Pilots

In reviewing Xcel’s NGIA plan, the Commission recognized the need to invest in technologies that accelerate emissions reductions and provide direct benefits to low- and moderate-income ratepayers. The Commission therefore required Xcel to develop and implement two additional pilots using funds from the budgets that were reduced or eliminated as discussed above. 

The first pilot directs the company to invest $2 million into thermal energy storage and commercial air-source heat pumps. These technologies will help large commercial customers reduce gas usage and lower their emissions output. 

The second pilot directs Xcel to invest approximately $4.6 million into electrification, energy efficiency, and weatherization for low- to moderate-income customers in the company’s service territory. Together with numerous other stakeholders, CUB supports these changes to Xcel’s plan because they increase benefits and opportunities for residential ratepayers. Electrification, energy efficiency, and weatherization decrease the amount of gas needed to heat a home, thereby reducing emissions and lowering natural gas bills. Deploying these technologies and resources in residential neighborhoods can lessen pollution impacts while simultaneously making utility services more affordable. 

Ratepayer Protections

Beyond the pilots mentioned above, the Commission made several overarching decisions that were designed to increase transparency and secure ratepayer protections. These include setting restrictions on Xcel’s ability to move funds between pilots; requiring extensive reporting on costs, benefits, and emissions reductions; and setting appropriate objectives that Xcel must meet in order to show its plan was successful. 

CUB appreciates the ruling on Xcel’s NGIA plan and applauds the Commission’s decision to reallocate investments in a way that maximizes benefits for Xcel’s customers. At its core, NGIA is focused on lowering natural gas usage and reducing or eliminating system emissions. The pilots approved by the Commission will aid in this effort and provide valuable learning opportunities that will further contribute to Minnesota’s goal of achieving a net-zero emissions economy.