Aligning Utility Regulation with the Future Role of Gas

Delivering on deep decarbonization goals requires a reimaging of the processes by which capital is invested and decisions are made around the future of the gas system. Two recent reports explore these complexities: 

• Aligning Gas Regulation and Climate Goals from EDF
• Building a Resilient Energy Future: How the Gas System Contributes to US Energy System Resilience, an American Gas Foundation’s study prepared by Guidehouse
  

These papers may seem to present competing arguments, but the findings and recommendations are more closely aligned than one might think. 

Much of the current market focus on decarbonization centers around the growth and deployment of renewable electricity and electrification efforts. While these strategies are critical to delivering on the transformation, the role of low carbon fuels and gas system infrastructure is rarely discussed and is not fully considered as a valuable part of the future energy system. However, Guidehouse’s work in Europe (including the Gas for Climate initiative), continues to demonstrate that the most cost-effective and resilient decarbonized future energy systems include critical roles for gas system infrastructure and low carbon fuels.  

Let’s be clear: no pathway exists to meet decarbonization goals if natural gas continues to be used in its current capacity. Achieving decarbonization targets will require: 

• The removal of nearly all fossil fuels, including natural gas, from the energy system.
  
• The electrification of the majority of space and water heating in buildings with energy supplied by renewable, carbon neutral sources. 
  

Plan Today’s Infrastructure for Tomorrow’s Targets

Every day, regulators and policymakers make decisions that guide the investment of billions of dollars of ratepayer funds in infrastructure that will form the basis of the energy system for decades to come. In many cases, the infrastructure we invest in today will outlive mid-century decarbonization targets. If these investment decisions don’t consider future operating conditions, there is a high likelihood the system will be further burdened with large stranded asset costs related to infrastructure investments that don’t support achievement of decarbonization targets. 

If today’s infrastructure investment decisions are made with our future decarbonized energy system in mind, we can enable incredible transformation. Delivering on a decarbonized, resilient future energy system requires thoughtful planning today to optimize investments to deliver on transformational goals; facilitating the reliability, resilience, and affordability of the decarbonized end state. Comparing the EDF’s and American Gas Foundation’s key recommendations for regulators and policymakers reveals some informative parallels. 

Recommendations for Policymakers and Regulators

(Source: Guidehouse, American Gas Foundation, EDF)

These studies offer regulators and policymakers several fundamental recommendations they should integrate into their thinking to ensure that gas system regulation supports the achievement of deep decarbonization goals:

• Build transparency so all stakeholders can participate in the process.
  
• Establish definitions and consistency so the discussion is fact-based and market actors understand the decision-making process.
  
• Focus decision-making criteria on the goal of carbon reduction by confirming decisions consider all energy options instead of picking predetermined winners and losers (technologies, energy carriers, or otherwise). 
  
• Construct systems to align near-term decisions with long-term goals by updating methodologies and assessment tools to align with the useful life of assets and to consider future system impacts. 
  

Building on these fundamental principles, regulators and policymakers can align current decision-making processes with future energy system goals, limiting exposure to the high costs of stranded assets and providing pathways for all system actors to contribute to deep decarbonization goals. Building a transitional approach that fully involves the system and industry—which we have invested so heavily in—will result in a transition that more successfully delivers on equitable solutions for all market participants.