Energy, Exclusives, Gold Dome, Jake Fogleman, Uncategorized

Fogleman: Policy blunders helping along higher energy costs

Households across Colorado are still grappling with elevated energy costs that have seen utility bills skyrocket just as the temperatures outside have started to drop. And that is to say nothing of the cost of groceries, housing prices, rent, vehicles, and many other examples of life’s necessities that have gone up in price due to near 40-year high inflation.

Roughly 70 percent of Colorado homes rely on natural gas for heat, and the costs associated with using the fuel have increased as much as 50 percent year-over-year in some areas of the state.

But worry not, the City of Boulder has solutions to the rising costs of your home heating bill.

According to the city’s website, “When natural gas costs rise, a simple way to save money is to cut back on how much natural gas you use in your home.”

Ah, yes why didn’t I think of that?

The advice continues: “Turn down your thermostat and dress in layers: It’s not just up to your furnace to keep you warm. Dressing in layers can keep you warm while relying less on your heat source.”

In other words, at least one city government’s solution to citizens struggling with rising energy costs is to let them wear coats.

But anyone with a basic understanding of free markets knows very well the forces at work creating the current calamity in energy pricing. When supply is constrained, and demand spikes, price naturally rises.

Policy blunders abound

Certainly, blame for the volatility shaking the energy market cannot fully be placed at the feet of Colorado, or even national, elected officials.

A once in a century pandemic combined with unexpected labor market turmoil and shifting consumption patterns can throw a hell of a wrench into the supply chain. Costs resulting from the failure to winterize gas production in Texas have also come home to roost.

But the deliberate choices of our elected officials have certainly helped along the problem.

It was not the supply-chain disruption that passed Senate Bill 181 in 2019, which spawned a litany of new regulatory rules for energy production that added $300 million to the cost of operating in Colorado. (It also spawned an attempt by folks in Boulder County to ban fracking).

It was not the Covid pandemic that revoked access to new gas production on federal lands. Nor was it the high turnover in the labor market that cancelled vital pipeline infrastructure for transporting natural gas to market.

In other words, uncontrollable forces have indeed constrained the gas market, but deliberate policy decisions have added to the dilemma, tying the hands of our local producers who would otherwise be able to respond to price incentives and boost production to meet customer demand.

And now the Public Utilities Commission (PUC) is considering another rulemaking sure to put a damper on the natural gas industry in the state. Based on Senate Bill 21-264—which requires the state’s four regulated gas utilities to submit clean heat plans that show how they will reduce emissions 22% by 2030—the PUC will be establishing how to govern the natural gas utilities’ progress toward reducing emissions and their attempts to recover costs associated with the reductions.

The proposed rulemaking sounds eerily familiar to the one currently requiring Xcel to submit a Clean Energy Plan. The one that in its latest iteration is prepared to sign the death warrant of every last coal plant on Xcel’s fleet by 2035.

The economic costs to coal communities aside, Colorado is capable of powering the state with less coal. Progress in natural gas, solar, and wind power production have made coal all but obsolete in more normal circumstances. (It’s worth noting that volatility in the gas market has seen coal use spike globally, another unintended consequence of constraining LNG producers).

But if the new clean heating plans are to take the same trajectory as Xcel’s approach to coal, gas production could be in for its eventual march to the gallows.

The case for natural gas

In many ways, Colorado’s natural gas reserves have been the goose that laid the golden egg.

The state is America’s seventh largest producer of natural gas, and eleven of the country’s 100 largest natural gas fields are found right here in Colorado. Advancements in horizontal drilling and hydraulic fracturing techniques (“fracking”) have allowed Colorado to double its output of natural gas since 2000, enriching local communities and providing good, high-paying jobs outside of the metro corridor.

It has also been a major boon to reductions in carbon emissions. The U.S. has seen a steady improvement in its emissions thanks to the market-driven substitution of natural gas for coal in electricity generation.

And while some in Colorado would have us go full bore into wind and solar, the fact remains that such technologies cannot yet reliably and efficiently replace existing generating capacity without the support of an independent source of baseload production.

This point is not in dispute among Colorado’s energy utilities.

“At this time, there are no viable, at-scale, alternatives to natural gas use that both reduce emissions and still provide customers with the energy they require to stay safe and comfortable at home,” Brooke Trammell, an Xcel regional vice president, said in written testimony to the PUC.

Even the European Union—which in many ways is far more hawkish on climate policy than the U.S.—has acknowledged the continued role of natural gas as a “green investment” for confronting climate change.

Yet, what are known as environmental, social and governmental (ESG) pressures on shareholders and increasingly stringent state and local regulations continue to form the two hands wrapped firmly around the throat of Colorado’s golden goose. With each new regulatory rule, each new activist-driven public pressure campaign, the grip around the goose’s neck tightens. One day it will prove fatal.

The result will be higher energy costs for consumers, less reliability, and a diminished comparative advantage with the rest of the country and the rest of the world.

There’s a passage in Ernest Hemingway’s novel The Sun Also Rises in which a character named Mike is asked how he went bankrupt. “Two ways,” he answers. “Gradually, then suddenly.”

Asking oil and gas producers to continue to operate with one hand tied behind their back is sure to share the same course of action.

Jake Fogleman is an energy researcher at the Independence Institute, a free market think tank in Denver.


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