NW Natural has delayed its plan to spend more than $40 million on a state climate action program that could set back the utility’s ability to meet mandatory greenhouse gas reduction goals.
NW Natural, the state’s largest gas utility, recently modified its request to purchase $40 million in Community Climate Investment credits, known as CCIs. The utility previously applied to buy the credits on Nov. 1. According to a Oct. 13 letter, NW Natural is now delaying that purchase until June, or when the Community Climate Investment program is in place, after seeking advice from Oregon regulators and others who said the program wouldn’t be operational by November.
“They wanted us to delay recovery until CCIs were actually available to purchase,” Kathryn Williams, NW Natural’s vice president of public affairs and sustainability, said. “We do not know when those CCIs will be available. We are eagerly awaiting news on that.”
CCIs are essential to NW Natural’s operations because the company, which only sells fossil fuel gas as its product, must offset its carbon emissions enough to meet state-required climate goals.
According to an Sept. 14 letter from the company to state regulators, it will need to purchase 308,396 CCIs to be in compliance with Oregon’s climate goals from 2022 through 2024.
Delaying the credit purchase until June may make that more challenging.
Community Climate Investment credits
The Community Climate Investment program, which stems from the Oregon Department of Environmental Quality’s Climate Protection Program, sets limits on greenhouse gas emissions from oil and gas companies. Each year the program lowers fossil fuel emission limits with a goal of reducing 90% of greenhouse gas emissions by 2050.
Companies regulated under the program can either reduce their actual emissions or buy CCI credits. Those credits would invest money in renewable energy projects, energy efficiency retrofits, and lowering emissions in disadvantaged communities.
According to DEQ, one CCI is equivalent to reducing at least one ton of greenhouse gas emissions.
DEQ estimates the CCIs could be available early next year.
Despite NW Natural’s proposed purchase being the largest yet for the CCI program, the utility is suing to roll back the regulations. Recently, the Oregon Court of Appeals reviewed the case, but has not yet made a decision on the lawsuit.
Not having the program in place creates transparency issues, Williams said, as it’s not clear to NW Natural how the CCIs investments will lower emissions. She noted it’s unclear if the program will actually be in place before the end of the first compliance period.
NW Natural has indicated it would pass the CCI costs onto customers, and if the program is not operational before the end of the 2024 compliance period, that could raise people’s bills significantly.
“We’d like to spread those costs for customers rather than waiting until the last year or in some cases that last month where we have to demonstrate compliance,” Williams said. “You could potentially be stacking two to three years of CCI investments into a very short billing cycle.”
According to Williams, there could be at least an 11% increase for residential customers, about 14% for small commercial customers and at least a 32% increase for large industrial customers.
General rate increases typically go through an 11-month long approval process, according to the Oregon Public Utility Commission’s Kim Herb. The PUC’s role is to ensure Oregon utilities implement the least cost actions for customers.
“A rate increase is influenced by a lot of things,” she said. “To specifically call [CCIs] out may not accurately represent the things that affect the rates, especially because there will be other [renewable natural gas] costs that would also affect rates.”
Williams called CCIs the “most expensive compliance instrument in North America” and said the utility plans on relying on a combination of carbon capture, hydrogen, CCIs and renewable natural gas to meet Oregon’s required climate goals.
NW Natural plans to rely significantly on renewable natural gas in that mix, a move that has regulators and customer advocates concerned.
Short and long term goals
Renewable natural gas is a type of biogas made from decomposing organic matter. The gas is often produced by capturing byproducts from landfills, livestock operations or wastewater treatment. It’s primarily methane — a greenhouse gas that is 86 times more potent at trapping heat in the atmosphere than carbon dioxide over a 20-year period.
Doubling down on renewable natural gas to offset carbon emissions has groups like Oregon Citizens’ Utility Board concerned.
Executive director Bob Jenks said, this year, gas prices are low and NW Natural is able to use renewable natural gas as a short term strategy to be in compliance with state climate goals, but as gas prices increase, it’s going to get more expensive. He said purchasing CCIs is the better option for the utility, as well as the customers.
“If you’re looking at that investment strategy and the strategy that maximizes investment opportunity and shareholder profits, then clearly RNG is superior,” Jenks said. “But if you’re looking for one that minimizes rates and has the biggest positive impact on customers, it’s probably the CCIs.”
The Alliance of Western Energy Consumers, a lobbying group for 40 large industrial energy consumers in the Pacific Northwest, also expressed concern about NW Natural’s climate offset plans — both because of the heavy reliance on renewable natural gas and on the costs of purchasing CCIs.
Executive director Bill Gaines said the organization and the utility debated on how to approach the high cost of CCIs and its comparison with RNG to lower emissions.
“The quantities of RNG are very small relative to the amount of CCIs that are required,” he said. “Typically, the unit cost of RNG is higher than the CCIs which in the utility industry… So we’re not necessarily thrilled about a whole lot of RNG.”
The Oregon Public Utility Commission still needs to review and approve NW Natural’s proposed CCI purchase.