Colorado’s New Legislative Boost to Clean Energy

A posterized scene of solar panel farms and mountains in the background

Colorado is one of a growing number of states that are implementing increasingly aggressive strategies to curb greenhouse gas (GHG) emissions. These state efforts are more important than ever, given the federal government’s inaction and obstruction on cutting GHG emissions.

At the end of May, Governor Jared Polis signed Senate Bill 19-236, which reauthorized the Colorado Public Utilities Commission (PUC) and, in so doing, put in place a suite of modern PUC responsibilities that could serve as a model for other state commissions. In particular, the statute includes explicit new obligations when planning for future electricity needs, such as the consideration of non-wires alternatives, the needs of communities impacted by plant closures, and the climate costs of fossil fuel-sourced energy.

Together with other energy-related bills recently signed into law, Colorado’s rearticulation of PUC responsibilities promises to shape how resource and system planning decisions are made, with an eye towards cutting the climate impacts of electricity generation through a process that must now account for the negative externalities of fossil-fuel-fired power generation.

Here are some of the noteworthy features of the PUC reauthorization:

Cost of Carbon. The PUC must require utilities under its jurisdiction to consider the cost of CO2 emissions when determining the cost, benefit, or net present value of their proposals. The PUC is to base the cost of CO2 emissions on the most recent assessment of the social cost of carbon developed by the federal government, and, beginning in 2020, this value may not be less than $46 per short ton.

  • Why it’s exciting: Internalizing the costs of greenhouse gases associated with electricity generation promotes cleaner resources by ensuring that the true costs of fossil-fuel-fired generation are reflected in planning. Prior to the new law, the PUC was allowed to consider the social costs of greenhouse gas emissions. The PUC had, in fact,required its largest utility, Xcel Energy, to take into account damages from CO2 emissions in its planning in 2017. The new legislative directive requires consideration of the cost of CO2 emissions in a broad range of proceedings and sets a slightly higher value than the PUC used in the Xcel case. Other states are at different stages of incorporating the cost of GHG emissions into their utility planning.

Distribution System Planning. The PUC must establish a filing process for distribution system plans; promulgate rules to define terms such as “microgrids” and “distributed energy resources”; and develop a method to evaluate costs and net benefits of using distributed energy resources, which are not centralized and are often cleaner resources.

A transparent planning process that takes all of these issues into account and makes clear that the old way of doing things no longer serves the needs of consumers is crucial to incorporating new energy resources and needs into the grid, while ensuring efficient investment.
  • Why it’s exciting: How we generate and use electricity is quickly evolving with the growth of cleaner technologies, such as storage and renewables, and new demands like electric vehicle charging. A transparent planning process that takes all of these issues into account and makes clear that the old way of doing things no longer serves the needs of consumers is crucial to incorporating new energy resources and needs into the grid, while ensuring efficient investment. Other states are also incorporating goals such as emissions reduction and integration of distributed energy resources in their distribution planning.

Performance-Based Ratemaking. The PUC is required to investigate financial performance-based incentives and metrics that will better align utility operations and investments with “public benefit goals including safety, reliability, cost efficiency, emissions reductions, and expansion of distributed energy resources.”

  • Why it’s exciting: In a traditional regulatory model, the more electricity a utility sells, the more money it makes. But this puts the profit interest of the utility in direct conflict with conservation and some clean energy goals. Performance-based ratemaking can reward utilities for providing reliable, clean, and affordable energy to consumers, even where that means resources are used less or are owned by third parties and consumers, not the utility.

Clean Energy Planning. Each qualifying utility must include a clean energy plan with the first electric resource plan that it files with the PUC after January 1, 2020. This plan must achieve the statutory clean energy targets and make progress toward the state’s 100% clean energy goal. The law requires that the plan result in “an affordable, reliable, and clean electric system.” The plan must also describe its impacts on a variety of important issues, such as safety, reliability, renewables integration, and resilience, as well as workforce and community impacts if the plan includes accelerated plant closures.

  • Why it’s exciting: It is clear that we need to reduce GHG emissions, and the power generation sector is a huge contributor. Although this need is urgent, this requirement will help the state and utilities develop plans to mitigate the impacts on workers and communities of changing resource needs. Delayed action on measures that will inevitably be necessary would lead to less planning time and an increase in the associated costs and burdens.

Authority Over Cooperatives. Electric cooperatives, which are not operated as for-profit corporations (unlike investor-owned utilities), have historically not been regulated by the PUC. The new law requires wholesale electric cooperatives to submit an integrated or electric resource plan to the PUC for approval. The PUC must develop rules to consider these plans that include whether the plan meets the energy policy goals of the state.

  • Why it’s exciting: Tri-State, a large generation and transmission cooperative that supplies power to 43 electric cooperatives that serve customers across Colorado and several other states, is heavily reliant on coal and has rebuffed some of its members’ attempts to shift towards cleaner resources. With many large generation and transmission cooperatives in a similar, coal-heavy position, the ability of a large co-op to successfully transition to cleaner resources will serve as an indicator of feasibility for similarly-situated member co-ops across the U.S.

This new law solidifies Colorado’s position as a clear leader on clean energy. The good news for consumers, public health, and the environment is that Colorado does not stand alone, particularly as public opinion and economics demonstrate the benefits of transitioning to clean energy across the country. Not surprisingly, state utility commissions have a crucial role to play in transforming the power sector. Directing these commissions, as well as the consumer advocates that practice before them, to include the financial impacts of climate change as part of the public interest can help accelerate this shift and ensure a clean energy future that works for customers, utilities, and the environment.