US State Regulators Should Legislate a Unified Energy Sector To Reach Net Zero, Researchers Argue

To help speed decarbonization, state regulators should plan around a unified energy sector, according to a new Stanford-led report. Without coordinated action, the energy transition could become slower, more expensive, and more inequitable, the authors warn.

As competition between gas and electric utilities heats up due to clean energy-promoting policies that emphasize replacing gas with electricity, state regulators need to overhaul their approach to regulation, scholars at Stanford and the University of Notre Dame argue. A new white paper led by the Climate and Energy Policy Program at the Stanford Woods Institute for the Environment lays out a case for unifying electric and gas utilities and instituting coordinated planning to make the transition to zero-carbon buildings more efficient and cost-effective.

"Utility regulators are facing a uniquely difficult combination of climate, safety, and equity concerns as they contemplate how to decarbonize gas networks,” said paper coauthor Joshua Lappen, a postdoctoral research associate at the University of Notre Dame and fellow at the Future of Heat Institute. “By recognizing the competition taking place between gas and electricity, regulators can find new opportunities to proactively manage the building-energy transition."

The white paper, The Unseen Competition in the Energy Transition: Acknowledging and Addressing Inter-Utility Competition to Achieve Managed Decarbonization, calls for state public utility commissions (PUCs) to formally plan around a unified energy sector. The report warns that continued competition between gas and electric utilities could delay decarbonization, saddle ratepayers with higher costs, lock in unnecessary investments in fossil fuel infrastructure, and disproportionately burden low-income energy users.

Competition or unification

While electric and gas utilities have traditionally operated in distinct markets, climate policies are increasingly pushing these sectors into competition, particularly in building heating and cooking, which have been dominated by gas utilities for decades in many areas. As technologies like electric heat pumps and induction stoves become more efficient and widespread, gas utilities have launched aggressive campaigns to protect their market share. The federal Inflation Reduction Act has further intensified this competition by offering subsidies for electric appliances, fueling what the authors describe as a "patchwork of duplicative energy monopolies."

"In many parts of the U.S., gas and electric utilities are now providing nearly identical services, but customers are paying for the maintenance of two separate distribution systems," the authors write. This, they argue, creates economic inefficiencies that could be avoided through better planning and coordination.

The white paper advocates for PUCs to consolidate planning processes for gas and electric utilities, treating them as components of a single energy sector. This would allow regulators to optimize investments across both systems, minimize stranded assets, and ensure that decarbonization proceeds equitably and quickly.

The authors recommend that regulators consider consolidating gas and electric utilities that serve the same territories, potentially merging them into unified energy service providers. This would not only streamline decarbonization efforts but also help maintain service safety and reliability and protect ratepayers from escalating costs.

Managing the transition

The report highlights the risks of inaction, warning that gas utilities are incentivized to  continue to expand fossil fuel infrastructure with lifetimes longer than decarbonization timelines and creating financial risks for consumers.

By managing competition between gas and electric utilities through proactive regulation and planning, the researchers believe the U.S. can accelerate its transition to a decarbonized energy system while protecting both ratepayers and the economy.

“Times have changed,” said paper coauthor Amanda Zerbe an early career climate law fellow at the Stanford Law School  Environmental and Natural Resources Law & Policy Program “To reach our climate goals, we have to start treating gas and electric utilities as a single energy system."

Reference: Lappen J, Wara M, Mastrandrea M, Zerbe A. Unseen competition in the energy transition. 2024. doi: 10.25740/XX485HD7415

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