“Future of Gas” in Oregon is Uncertain
The past year has brought a critical question to the Oregon Public Utility Commission (OPUC): how to transition Oregon’s stand-alone natural gas utilities off of fossil fuels as the state pursues its climate goals while protecting customers? In other states, dual-fuel utilities have the option to shift profits from their gas service to their electric service, but that transition path isn’t as clear for Oregon’s gas utilities. In the Natural Gas Fact-finding Investigation (UM 2178) docket, regulators asked Oregon’s three regulated gas utilities how they intend to meet customer needs while also meeting state decarbonization goals. Many other states have initiated similar “Future of Gas” proceedings, recognizing the conflict between emissions reduction requirements and continued gas usage and expansion of the gas system. The Oregon proceeding is now nearing completion after over a year of modeling and presentation by the utilities, input from third-party experts at the Regulatory Assistance Project, significant stakeholder and public participation, and deliberation by the Commissioners.
The gas utilities initially modeled improbable scenarios that increased gas customer counts over time, offset by large investments in energy efficiency and increasing their reliance on alternative fuels, including renewable natural gas (RNG) and hydrogen. In response to feedback from stakeholders requesting more realistic assumptions that reflect the likely scenario in which residential and commercial customers transition to all-electric solutions and alternative fuels are limited in supply, the Commission required the utilities to model the following additional scenarios: (1) a scenario in which customer counts stay the same or decline due to building electrification; and (2) a scenario in which alternative fuels and utility-led efficiency solutions are limited. Climate and energy justice advocates point to these modeling results as showing that decarbonization requires declining reliance on gas.
Meanwhile, a new study specific to Oregon found that electrifying buildings that currently use gas and also replacing inefficient electric resistance heating with heat pumps would lower overall energy system costs for households and businesses. If this were implemented across the state, Oregonians would benefit from a cumulative savings of $1.1 billion (net present value) to $1.7 billion through 2050. Another analysis showed that all-electric new construction in Eugene and Milwaukie, two cities considering electrification policies, would both reduce greenhouse gas emissions and help reduce upfront construction and operating costs.
Oregon regulators are starting to grasp that the economics of continued reliance on gas for the state are tenuous, and put customers at risk as gas prices rise, the cost of greenhouse gas emissions continues to increase, and more communities choose to electrify their buildings. Various electrification analyses point to building electrification as the most cost-effective and viable decarbonization path, compared to investing in alternative fuels for building decarbonization. It remains unclear, however, whether Oregon regulators are prepared to create new regulation that will put the state on a building electrification pathway, given that stand-alone gas utilities’ business models would be threatened by such a pathway without a viable off-ramp, such as district heating. Although the OPUC has yet to release its final report in the “Future of Gas” proceeding, it is expected that these questions will remain open until policymakers and regulators tackle the big question of how to restructure gas utility business models to manage the decline of the gas system.