Fast changes on the horizon for Xcel Energy and clean energy in Colorado

July 20, 2023 | Justin Brant, SWEEP Utility Program Director

After almost a year of testimony and deliberations, the Colorado Public Utilities Commission (PUC) recently issued a decision in Xcel Energy’s demand side management (DSM) and beneficial electrification (BE) Strategic Issues proceeding. This important docket sets goals and budgets for Xcel’s energy efficiency and BE programs for 2024-26, while also addressing a number of important policy issues with these programs in the coming years. DSM is when consumer demand for energy is modified with financial incentives and behavioral change, through promotions, education, and more. BE means replacing fossil fuels with more environmentally friendly and economically sound energy means.

The Southwest Energy Efficiency Project (SWEEP) actively participated in the docket, submitting multiple rounds of testimony. Below is a summary of highlights in the Commission’s decision that will maintain Colorado as a leader in the energy efficiency and BE space, and significantly contribute towards the state’s decarbonization goals.

Beneficial electrification goals and budgets

As a result of legislation passed in 2021, the Commission adopted BE goals and budgets for Xcel for the first time in this docket. The goals the Commission ultimately chose begin at 257,000 dekatherms (Dth) of natural gas reduction in 2024 and increase to 1,143,000 Dth in 2026. Achieving these goals will reduce greenhouse gas emissions by over 106,000 metric tons of harmful carbon dioxide equivalents by 2026.

To achieve these goals, the Commission established budgets of $9.5 million in 2024, $21 million in 2025, and $37 million in 2026. This represents a nearly 20-fold increase from the current budget and a 21 percent increase over what was proposed by Xcel in this docket. In adopting ambitious BE goals and budgets, the Commission cited the influx of funds from the IRA that will likely drive participation and interest in electrification over the next several years

The adoption of these goals result from significant work by SWEEP and our partner organizations. In addition to requiring Xcel to develop ambitious BE programs that target all sectors of the economy, these goals will also be the foundation for emissions reductions in its Clean Heat Plan, where it will need to lay out the suite of energy efficiency, BE, and other resources it will use to meet emissions reduction requirements for its gas utility.

Gas and electric energy efficiency goals and budgets

In this decision, the PUC also established electric energy efficiency goals of 440 gigawatt hours (GWhs) for 2024-26, with a budget of $78 million per year. These goals represent a decline from Xcel’s current goal of 500 GWhs, but represents the reality that a significant portion of its electric energy savings has been from its home lighting program, which is being phased out this year. This goal still represents annual savings of approximately 1.5 percent of sales, maintaining Xcel’s position as a leader in our region on energy efficiency. Again these goals are significantly higher than those originally proposed, and are the result of advocacy by SWEEP and our partners

The PUC also established gas energy savings goals of 814,000 Dth in 2024, 860,000 Dth in 2025, and 903,000 Dth in 2026, with an annual budget of $18 million. These goals represent an increase from Xcel’s 2022 gas energy efficiency target of 800,000 Dth. Similar to the BE goals, gas energy efficiency will be a foundation of the Clean Heat Plan.

Sunsetting gas appliance incentives

When the PUC increased Xcel’s gas efficiency savings goals and budgets, it signaled a dramatic shift in the types of measures that will be offered through gas efficiency by ending all market-rate gas equipment incentives by January 1, 2027. For gas water heating, the Commission will end all market-rate incentives beginning January 1, 2025.

The Commission also made major changes to new construction programs. As a start, beginning on January 1, 2024, Xcel will no longer offer incentives for gas-fired heating equipment, water heating, or air conditioning equipment in new construction. The Commission will require that residential new construction supported by Xcel’s energy efficiency program must be all electric by June 30, 2024. This is a huge advancement.

In a move designed to spur the important heat pump market, all incentives for residential air conditioning and commercial rooftop cooling units will end by January 1, 2024.

Taken together, these program directives, many of which were argued for by SWEEP, will result in dramatic changes to Xcel’s energy efficiency programs by eliminating incentives for many equipment types that would otherwise drive savings back to the company. The changes will be especially noticeable on the gas side, where Xcel will need to shift its programs to focus on weatherization and building measures, and away from gas heating and hot water appliances.

Demand response goals and budgets

The PUC also established demand response (DR) goals for the Xcel, including establishing winter DR goals for the first time. The goals established are 593 megawatts (MW) for summer and 281 MW for winter in 2024, 639 MW for summer and 301 MW for winter in 2025, and 663 MW in summer and 321 MW in winter for 2026.

The PUC also required Xcel to develop new DR programs in its forthcoming plans that take advantage of advanced meters that are currently being deployed across its service territory.

Finally, the concept of gas DR goals and programs came up for the first time in this docket. While the Commission did not establish specific goals, it signaled an interest in geotargeting gas DR to avoid spending by the gas utility. The Commission signaled that it will open a new docket to explore gas DR, virtual power plants, and other innovative DR opportunities in the coming months.

Equity and disproportionately impacted communities

This is the first Strategic Issues proceeding since the legislature defined Disproportionately Impacted Communities (DIC), and required Xcel to prioritize delivery of BE and energy efficiency programs to those living in these communities. To balance prioritizing those in DI communities, while not detracting from the Company’s existing income-qualified programs that target those most in need, the PUC established a tiered approach to prioritizing program delivery.

In the top tiers are those that can verify income at or below levels to qualify for federal energy assistance, who either live in a DIC or do not. These customers would continue to receive fully subsidized programs. The next tier are customers that attest to these same income levels, without providing documentation, while the lowest tier would be all other customers who reside in an identified DIC.

In addition to defining the provision of programs to income-qualified customers, the Commission also moved towards adopting an approach, where spending for income-qualified programs should be in proportion to their representation in the total population of households that the Xcel serves. Xcel is required to show progress towards meeting this directive, aiming towards a more representational approach.

Finally, the Commission directed Xcel to work with stakeholders to investigate the possibility of offering point-of-sale rebates to income-qualified customers and those in DICs. This would be a big benefit to allow customers to receive direct discounts on products, without needing to pay full price and receive an incentive check after the fact. If developed, such a program will also dovetail nicely with incentives available through the IRA, which must be available to low and moderate income customers at the point of purchase.

On-bill financing

Finally, the Commission approved Xcel’s proposal to develop an on-bill financing program. The details of this program, including the sources of capital still need to be worked out, but on-bill financing represents a great opportunity to reduce barriers to installation of energy efficiency and BE measures, by reducing or eliminating the need for customers to come up with the full cost up front. This can be especially important for income-qualified customers, who the Commission found should be the initial focus of such a program.

The decision in this docket represents a huge step forward for Colorado on electric and gas sector decarbonization and should maintain Colorado’s position as a leader in these areas. SWEEP is proud of its role in pushing Xcel Energy to do more and applauds the Commission for its leadership. There are still many important details that need to be worked out, and SWEEP looks forward to continuing to work with Xcel and other stakeholders on the implementation of these programs — leveraging the forthcoming federal funds to the maximum extent possible.