Brattle Economists Develop Regulatory Action Plan for Gas Utilities to Navigate the Energy Transition
In a new report released today, economists at The Brattle Group present a three-step action plan for natural gas utilities to transition to a decarbonized future. The study, “Implementing Regulations,” is the final installment in Brattle’s three-part series, “The Future of Gas Utilities Series: Transitioning Gas Utilities to a Decarbonized Future,” which outlines the key challenges and opportunities the gas industry faces in decarbonizing and provides guidance on how utilities can navigate the energy transition in a fiscally and socially responsible way.
Access to capital, system planning processes, and regulatory oversight will put gas utilities in a unique position to plan and implement the large infrastructure transitions needed in decarbonization, according to the study authors. This effort will require full cooperation from all stakeholders in the energy sector. Implementing any solution pathway requires a long-term view that considers system economics in the context of a gas utility’s political, regulatory, and competitive circumstances. Given the long lead time and the level of preparation required, it is vital for gas utilities to translate their long-term visions into short-term requirements that can be set in motion today with a three-step action plan.
The action plan includes the following:
- Pilot Projects and Experimentation
Today, gas utilities should request that regulators approve decarbonization pilot projects for demand-side programs and demonstrations of emerging alternative gas technologies. These include alternative fuel tariff options and non-pipeline solutions.
- Bridge Solutions
Over the next several years, gas utilities should work with regulators and stakeholders to expand traditional cost-of-service regulation to accommodate new planning criteria, participation rules, and pricing for meeting decarbonization goals.
- New Ways of Doing Business
In the longer term, pilot technologies and exploratory services can become full-fledged business lines for gas utilities operating in a rapidly decarbonizing future.
The Brattle study points out that new business lines will be required for gas utilities to meaningfully achieve decarbonization goals and targets. Once these are in place, potential action items include updating evaluation metrics for new investments; gaining permission to selectively own non-delivery assets; coordinating decarbonization efforts with electricity businesses or electric utilities; and expanding to less regulated markets where utilities can facilitate market development.
Gas utilities seeking to motivate and fund the decarbonization of their systems may seek out new or improved market mechanisms, such as thermal renewable energy credits (T-RECs).
“Increased coordination among stakeholders – especially between gas and electric utilities, and between gas utilities and technology providers – is needed to ensure decarbonization is achieved in the most cost-effective way on a system basis,” noted Brattle Associate Dr. Long Lam, one of the study’s coauthors.
The Future of Gas Utilities Series will culminate in a virtual symposium – which will draw from topics covered in the series, bringing together Brattle and industry experts to debate key challenges and opportunities facing the gas industry – on December 7–8, 2021. For more information and to register, please visit the symposium website.
“The Future of Gas Utilities Series” is authored by Principal Frank Graves; Associates Josh Figueroa, Dr. Long Lam, and Dr. Kasparas Spokas; Senior Research Analyst Tess Counts; Research Analyst Shreeansh Agrawal; and former Senior Research Analysts Maria Castaner and Katie Mansur.