A new Minnesota law aims to help natural gas utilities innovate and diversify their businesses as the state works to eliminate carbon emissions.
The Natural Gas Innovation Act encourages gas companies to file with regulators “innovation plans” that decarbonize their operations. Utilities can recover costs of pilot projects and use results to meet their goals in the state’s Conservation Improvement Program.
The legislation is aimed at helping gas utilities to introduce renewable natural gas, develop hydrogen-based fuels from renewables, fund energy efficiency projects, and encourage district energy, carbon capture and geothermal heating.
The law received widespread support from unions, utilities, clean energy groups, and both parties in the nation’s only divided state legislature. It became one of three major energy bills to reach Gov. Tim Walz’s desk this year.
Minnesota natural gas utilities can now help customers make that switch to electric heat and move into a host of other energy solutions related to decarbonization.
“Natural gas is indispensable to meeting Minnesota’s energy needs,” said Brad Tutunjian, vice president of CenterPoint Energy in Minnesota, in a prepared statement. “This new law will help promote new Minnesota-produced, low-carbon or zero-carbon gas resources that can diversify the state’s energy supply, improve waste management and support new economic development.”
From 2005 to 2018, Minnesota has seen a significant increase in emissions from natural gas and a decline in pollution from electricity production. In 2018, natural gas and electricity generation produced roughly the same level of emissions but pollution from the electric system continues to decline as natural gas pollution climbs.
Natural gas emissions from residential buildings increased 32% since 2005, with the industrial sector up 18% and commercial properties up 15%. In addition, pipeline and production leakage causes methane to escape into the atmosphere, causing eight times the warming power of carbon dioxide over the first 20 years of emissions.
Still, natural gas will be hard to replace, heating two of every three homes in Minnesota and holding an important role as fuel for powering heavy industrial processing and transportation. Yet gas companies hoping to broaden their product offerings and generation mix have been constrained by regulatory oversight.
State regulations have limited the ability of gas companies to propose electrification strategies and incorporate green fuels such as renewable natural gas. Great Plains Institute Vice President Brendan Jordan said natural gas companies in Minnesota are only allowed to sell natural gas at cost and earn a regulated rate of return on the gas pipeline distribution infrastructure.
“The structure is not as flexible as it needs to be and does not allow the kind of experimentation and innovation we will need to figure out how to decarbonize that sector,” he said. A new report from the e21 Initiative convened by Great Plains Institute and the Center for Energy and Environment showcases several approaches to decarbonizing natural gas, he said, and gas companies can now act on its recommendations.
The legislative change comes after CenterPoint Energy tried and failed in 2019 to introduce a five-year pilot to allow a limited number of commercial and residential customers to buy renewable natural gas, or biomethane, through a green tariff program. Minnesota regulators later agreed to allow CenterPoint to open its pipeline system to RNG produced in Minnesota.
CenterPoint senior communication specialist Ross Corson said the innovation act allows the company to better “help our customers meet their energy needs reliably, affordably and sustainably” and “to support Minnesota’s renewable energy and climate goals.” The company now has more options for providing energy solutions than just natural gas, he said.
The law permits natural gas companies to sell electric heating technologies such as air-source heat pumps and geothermal or aquifer thermal applications, said Margaret Cherne-Hendrick, director of energy transition for Fresh Energy, which also publishes the Energy News Network. It rewards “strategic electrification” that maintains gas backup for dual heating solutions by allowing CenterPoint to sell electric space heating and electric water heaters.
“I think it’s notable that we will potentially see a gas utility moving forward with electrification plans,” she said. “I think it really signals an appetite, and an acknowledgment, that the business model as it stands today is going to need to change and adapt to be able to serve customers in a decarbonizing economy.”
Cherne-Hendrick said the bill acknowledges that some industrial processes will be hard to electrify. Companies will continue to use natural gas for production while its use could decline for space heating as electric solutions take hold. Less carbon-intensive approaches such as renewable natural gas and hydrogen come with their own set of problems, she added, mainly the need to significantly increase energy generation for their production.
“There are folks who believe we should just be replacing fossil gas in the pipes we use today with renewable natural gas and green hydrogen,” Cherne-Henrick said. “But that’s an enormous extra volume of gas to produce that will be energy-intensive. We think that’s too expensive and doesn’t really decarbonize” the gas system.
The bill also requires utilities to submit a “utility system report and forecasts” document along with their innovation plans that outline capital and fuel investments, incentive programs and carbon emissions in pilot projects, a move that will protect ratepayers paying for anything not related to decarbonization. The Public Utilities Commission will also open a “Future of Gas” docket, she said, joining just a handful of states who have similar initiatives.
Typical approaches to reducing natural gas consumption have run up against limitations that the bill may address. Center for Energy and Environment regulatory policy manager Audrey Partridge said utilities have not had many tools to address natural gas emissions aside from energy efficiency.
“Clearly, as we’re watching emissions go up from natural gas in buildings and businesses, we can see that our efforts on energy efficiency are not enough to really curb natural gas emissions,” she said. She believes geothermal heating could become more popular in Minnesota, when even the best cold-climate air source heat pumps might suffer against frigid polar vortex conditions.
Laborers’ International Union of North America of Minnesota & North Dakota has more than 800 members working in the natural gas industry, according to marketing manager Kevin Pranis. The law will help preserve jobs and potentially create new work in hydrogen, renewable natural gas and other areas related to the gas industry.
“This idea that we were just going to get rid of the gas system was disconcerting,” Pranis said. “We worked on this with the pipefitters and plumbers’ unions. They’d all want to put their skills to work rather than be told, ‘Well, your skills are done; they’re not needed anymore.’ Our folks wanted a shot to put our skills to work.”
Pranis said union members remain unsettled as the state’s energy generation transitions to a cleaner system. The bill, however, moved beyond the polarized camps on natural gas by finding commonality between utilities, clean energy groups and unions. It also recognizes “a need for a diversified solution” rather than just one based on electrification, he said.
“This was one of the rare legislative experiences where it felt like there was just as much enthusiasm from our side and the utilities as there was from the clean energy side,” Pranis said. “I can’t think of another bill where each side was claiming ownership proudly.”
What innovation natural gas companies propose remains to be seen, but CenterPoint Energy is not waiting to take advantage of the new law. It has said it will submit its first innovation plan to regulators later this year.
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