On December 6, 2023, the Massachusetts Department of Public Utilities (DPU) issued an order in the 20- 80 proceeding that sets a new regulatory framework for the future of natural gas distribution in support of the Commonwealth’s climate goals. The order was released following a two-year investigation into the role of local gas distribution companies (LDCs) in achieving net-zero greenhouse gas (GHG) emissions by 2050 that was supported by analysis from E3 and ScottMadden. The order reviews the eight decarbonization pathways and six regulatory design recommendations analyzed by E3 and ScottMadden and addresses the wide range of stakeholder comments received throughout the proceeding.
About the E3 and ScottMadden Analysis
The eight decarbonization pathways analyzed by E3 and ScottMadden that achieve the Commonwealth’s net-zero emissions target by 2050, as well as interim targets, demonstrated significant differences in nature and scope, ranging from pathways that fully decommission the gas distribution system in the long-term to pathways that retain a large role for gas through the procurement of renewable natural gases (RNG). The analysis found that while all pathways imply transformational changes for the Commonwealth, the LDCs and their customers, pathways that strategically use the state’s gas infrastructure alongside and in support of electrification are likely to carry lower levels of challenge. Our analysis recommended the LDCs and the DPU to begin implementing decarbonization strategies together with alternative regulatory designs, including cost-recovery mechanisms, deployment of pilots for innovative strategies such as networked geothermal and targeted electrification, and ways to evaluate and enable customer affordability.
Setting a new regulatory framework
Order 20-80 details the regulatory principles the DPU will use to guide the evolution of the natural gas distribution industry towards GHG reduction, while safeguarding ratepayer interests and identifying areas for further investigation. Without indicating a preferred pathway or technology, the Department recognizes an important role for the LDCs in supporting customer adoption of decarbonized heating technologies. At the same time, the Department recognizes concerns regarding affordability and equity and launched a separate proceeding on January 4, 2024, dedicated to examining innovative solutions to address the energy burden associated with the clean energy transition.
As part of its regulatory framework, the Department directs LDCs to file individual Climate Compliance Plans every five years starting in 2025 that include performance metrics to promote the achievement of climate targets. In addition, the LDCs are directed to study the feasibility of piloting a targeted electrification project in coordination with relevant electric distribution companies, and are required to conduct a comprehensive review of the forecast of the potential magnitude of stranded investments, including the impact of accelerated depreciation on cost recovery. For future cost recovery proposals for new distribution system investments, the LDCs are required to demonstrate that non-gas pipeline alternatives, such as energy efficiency, demand response, targeted electrification and networked geothermal, were considered. Further, to dissuade gas customer expansion and align rate design with climate objectives, the Department instructs LDCs to revise their per-customer revenue decoupling mechanism to a decoupling mechanism based on total revenues.
In addition to setting the new regulatory principles for the gas system as outlined above, the 20-80 Order supports several recommendations from the E3 reports, including:
- Support for customer adoption of and conversion to electrified and decarbonized heating technologies.
- Support for pilots and deployment of innovative electrification and decarbonization technologies and strategies, with an emphasis on targeted electrification and networked geothermal.
- Support for strategies that manage the cost of gas infrastructure, such as non-pipe alternatives (NPAs), and strategies that evaluate alternative cost recovery mechanisms.
- Support for a revision of the current “per customer” revenue decoupling mechanism to a reconciliation of total revenues.
- Support for ongoing evaluation and implementation of strategies to maintain customer affordability during the transition.
- Support for the development of LDC transition plans and monitoring progress.
Several recommendations from the E3 report were not supported by the Order:
- The DPU notes that it was not convinced that pursuit of a broad hybrid heating strategy and the use of rate-payer funding to support such strategies is a viable path forward.
- The DPU does not support regulatory modifications that would make it possible for LDCs to procure renewable gas into their supply portfolio.
In its order, the Department expresses its appreciation for the Decarbonization Pathways Study and commended the LDCs and the E3/ScottMadden team for their comprehensive efforts in estimating the costs and economy-wide GHG emissions reductions involved in transitioning the natural gas system. The E3 and ScottMadden reports, including detail on the stakeholder engagement process, are available at www.thefutureofgas.com. The order and full investigation history are available at https://eeaonline.eea.state.ma.us/DPU/Fileroom/dockets/bynumber/20-80.