A tale of two states: utility overspending and high energy bills

Recently, both the Colorado and Minnesota Public Utilities Commissions faced a similar question: whether to allow utilities to charge customers for the cost of expanding the gas system despite declining gas usage in both states.  

The commissions chose different directions. In Colorado, utility regulators rejected large portions of Xcel Energy’s plan to spend $567 million of customer money on planned gas infrastructure, directing the utility to pursue cheaper, electric alternatives. In Minnesota, regulators upheld a little-known, outdated policy known as line extension allowances (LEAs), a decision that will expand the fossil fuel system, raise gas bills, and delay a transition to cleaner, more affordable energy. 

To better understand line extension allowances, it’s important to understand gas utilities’ business model. Utilities such as CenterPoint and Xcel don’t make a profit on the amount of gas they sell, but they do make money by building and replacing gas pipelines, which incentivizes them to spend on fossil fuel projects and pass the costs on to consumers. That’s where LEAs come in. The policy allows Minnesota’s gas utilities to spend roughly $34 million on new gas pipelines each year, leaving existing customers to repay those costs while the utilities earn a profit on those investments.

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Spending on fossil fuel projects has already caused Minnesotans’ energy bills to skyrocket. Over the past five years, the typical Minnesota gas bill has increased 32%, despite customers using 23% less gas during the same period. That’s because gas customers are paying more for the cost of gas pipeline spending than they do for their actual use of gas. 

LEAs incentivize the expansion of the gas system at a time when gas use is declining and customer preference is increasingly turning to efficient electric alternatives like state-of-the-art heat pumps. Heat pumps outsold gas furnaces for the past four years and are quickly closing the gap on air conditioning. As the transition to electric alternatives occurs, sinking money into the gas system risks stranded assets and tethers communities to the inherently volatile cost of gas. 

The superior efficiency of heat pumps makes them ideal to heat and cool a home. Even at zero degrees Fahrenheit, a heat pump achieves twice the efficiency of a standard gas boiler. Heat pumps combine heating and air conditioning in a single package, an important upgrade as extreme summer heat becomes more common, especially for the 24% of Minnesota households that lack central air conditioning.

Instead of hampering the transition to heat pumps and electric appliances, Minnesota’s utility regulators and policymakers should be facilitating it. For inspiration, they can look at Colorado’s embrace of clean heating. 

In 2023, Colorado passed legislation that eliminated line extension allowances for Xcel. Since then, the state’s Public Utilities Commission has gone a step further, challenging the assumption that every aging gas service line should simply be replaced with a new one. Instead, the commission directed Xcel to give customers a choice: either replace their gas connection or redirect investments toward modernizing their homes with efficient electric technologies, the utility equivalent of cancelling an auto-renewing subscription before it locks you in for another term. 

Related: Minnesota kicks the can on gas line extension allowances

Colorado’s embrace of clean energy shows what Minnesota is missing out on: a chance to take bold climate and affordability action. In total, 13 states are moving to reconsider LEAs, including California, Colorado and New York, which already have ended the policy statewide. These states are advancing an affordable energy future by reining in the gas system spending and empowering customers to choose efficient electric appliances. 

Minnesota must seize the moment to embrace the affordable, clean energy future at our fingertips. There are opportunities available to policymakers, such as creating clear statutory targets for reducing gas sector emissions, challenging overinvestment in the gas system, supporting equitable access to efficient fuel switching and ensuring Minnesota’s gas utilities are evaluating alternatives to gas expansion. Pursuing these can reduce reliance on the gas system, help households upgrade to electric alternatives and lower energy costs.

Failing to end line extension allowances was a major misstep by the Minnesota Public Utilities Commission. But there are still opportunities available — opportunities that can end our reliance on the volatile cost of gas and an aging, expensive gas system and deliver clean, affordable cooling and heating to more Minnesotans.

Alex Lopez is the regulatory policy lead at Rewiring America. 

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