Section 40-2-138 - Projects for the production of clean hydrogen - proceeding - hydrogen hub projects - rules - reports - definitions(1) As used in this section, unless the context otherwise requires: (a) "Clean hydrogen" means: (I) Green hydrogen, as defined in section 40-3.2-108 (2)(j); or(II) Hydrogen that is produced through a process that results in lifecycle greenhouse gas emissions rates that are within the lifecycle greenhouse gas emissions rate ranges set forth in 26 U.S.C. secs. 45V (b)(2)(C) and 45V (b)(2)(D), as amended.(b)(I) "Clean hydrogen project" means a project that results in the production of clean hydrogen by an investor-owned utility.(II) "Clean hydrogen project" may include pipelines, electrolyzers, environmental controls, monitoring equipment, dedicated renewable energy sources for electrolysis, the purchase of clean hydrogen from third parties, and an upgrade to a turbine at an electric generating station if that upgrade is part of a state or federal application for a regional clean hydrogen hub under 42 U.S.C. sec. 16161a.(c) "Cumulative impacts" means the incremental effects of a clean hydrogen project on the environment, including effects on air quality, water quality, water resource availability, climate, and public health, that a clean hydrogen project has when added to the impacts from other past, present, and reasonably foreseeable future development of any type on the relevant area, including an airshed or watershed, as determined by rule by the commission, or on a disproportionately impacted community.(d) "Disproportionately impacted community" has the meaning set forth in section 24-4-109 (2)(b)(II).(e)(I) "Hard to decarbonize end use" means industrial uses that include: (A) The generation of heat of at least one hundred fifty degrees Celsius for industrial purposes; and(B) Addition as feedstock for industrial purposes, including manufacture of steel, ammonia, fertilizer, and chemicals.(II) "Hard to decarbonize end use" does not include the direct use of hydrogen for residential or commercial heating.(f) "Hydrogen hub project" means a project that is part of an application for federal funding by a partnership of regulated utilities, private partners, and companies and may include state or federal government agencies in collaboration with other states that is designed to utilize available federal funds and tax credits, which may include the production, transport, and use of clean hydrogen.(g) "Lifecycle greenhouse gas emissions rate" means lifecycle greenhouse gas emissions, as defined in 26 U.S.C. sec. 45V (c)(1)(A), as amended, measured in accordance with any applicable federal internal revenue service regulations or guidance.(h) "Office" means the Colorado energy office created in section 24-38.5-101.(i) "Qualified use" means the use of clean hydrogen in the state for: (I) Hard to decarbonize end uses;(II) The operation of a heavy-duty motor vehicle, as defined in section 25-7.5-102 (11); and(2) The commission shall initiate an investigatory proceeding, no later than September 1, 2023, to consider: (a) The potential for clean hydrogen projects operated by investor-owned utilities subject to regulation by the commission to contribute to meeting the greenhouse gas emission reduction goals described in section 25-7-102 (2)(g), including lifecycle greenhouse gas emissions rates, with a preference for qualified uses;(b) The impact of clean hydrogen projects on the emission of air pollutants other than greenhouse gases and human health;(c) Potential markets for clean hydrogen in Colorado;(d) The impact of clean hydrogen production on water quality and quantity in Colorado;(e) The potential impacts of pipeline leakage and best practices for mitigation;(f) The potential for the development of clean hydrogen to help create or sustain jobs in Colorado, including utility jobs;(g) The cost, capabilities, and market availability of clean hydrogen technologies, including pipeline investments;(h) The appropriate roles for investor-owned utilities in the production, sale, or use of clean hydrogen, including considering whether costs may be recovered from ratepayers;(i) The potential impact of investor-owned utility investments in a clean hydrogen project on ratepayers, including on bills, rates, and rate stability, and options for avoiding potential cross-subsidization and cost shifting across rate classes;(j) Principles and requirements for any tariffs for the sale of clean hydrogen to third parties, including principles and requirements to ensure that costs arising from the development, production, transport, and delivery of the clean hydrogen under those tariffs are not borne by customers who do not take service from those tariffs;(k) The process and data necessary and available to implement a requirement for the adoption of methods for:(I) The measurement of lifecycle greenhouse gas emissions rates, including for hourly matching of electricity used;(II) The tracking of the deployment of new renewable energy resources or use of curtailed renewable energy to meet electricity requirements for production of clean hydrogen in the same load balancing area; and(III) The commission to determine when at least two hundred megawatts of electrolyzers are operational in the state;(l) The process and data necessary for an investor-owned utility to conduct a cumulative impact analysis of a clean hydrogen project and any process necessary to avoid adverse cumulative impacts on disproportionately impacted communities, if any, which may include the commission considering:(I) The time frame over which a cumulative impact analysis should be conducted;(II) The geographical scope of a cumulative impact analysis; and(III) Whether the cumulative impact analysis should be compared to alternative projects;(m) Requirements for any application for a clean hydrogen project, in addition to the requirements described in subsection (3)(a)(VI) of this section and subject to subsections (4) and (5) of this section;(n) Any data or information necessary or available to evaluate a clean hydrogen project against alternative projects, including how to measure, track, and report lifecycle greenhouse gas emissions rates, cumulative impacts, and the cumulative impacts and individual impacts on jobs, local economic benefits, and water use by clean hydrogen projects under the commission's jurisdiction;(o) Opportunities to encourage non-utility production of clean hydrogen in Colorado, including opportunities for an investor-owned utility to propose a tariff for the sale of renewable energy that would otherwise be curtailed; and(p) Any other relevant issues that the commission determines are necessary to consider.(3)(a) No later than December 1, 2024, unless the office files a notice with the commission stating that the federal department of energy has extended or otherwise altered the deadline regarding funding for a hydrogen hub project, the commission shall adopt rules that:(I) Unless the commission determines that investor-owned utilities should not develop clean hydrogen projects for cost recovery from ratepayers, establish requirements for the presentation of a clean hydrogen project to the commission for the commission's approval;(II) Establish requirements for lifecycle greenhouse gas emissions rate accounting for clean hydrogen projects;(III) Address the appropriate role of investor-owned utilities in the production, sale, and use of clean hydrogen, including whether and how costs may be recovered from ratepayers and appropriate treatment of revenues from clean hydrogen sales;(IV) Address how investor-owned utilities may use competitive solicitations in a clean hydrogen project and any limitations for the use of competitive solicitations to develop the clean hydrogen project;(V) Establish a requirement that any planned or potential use for the clean hydrogen in buildings or gas distribution systems of an investor-owned utility be proposed to and approved by the commission through a clean heat plan, as defined in section 40-3.2-108 (2)(b); and(VI) Address what is required in an application by an investor-owned utility for a clean hydrogen project, subject to subsections (4) and (5) of this section, including: (A) A comparison of a clean hydrogen project to alternative projects, including an analysis of the costs and benefits of the clean hydrogen project compared to alternative projects;(B) A description of how the investor-owned utility will measure and track the annual and cumulative lifecycle greenhouse gas emissions rates and the emission of other air pollutants in accordance with the rules adopted pursuant to subsection (3)(a)(II) of this section;(C) A description of how the investor-owned utility will: Minimize the lifecycle greenhouse gas emissions rates of the clean hydrogen project, conduct leak detection throughout the life of the clean hydrogen project, and conduct a cumulative impact analysis of the clean hydrogen project;(D) An assessment of the annual water volume that will be used in the clean hydrogen project, including the source of water to be used;(E) A description of any planned uses, including potential end uses by the investor-owned utility's customers, of the clean hydrogen produced through the clean hydrogen project, with a preference for qualified uses;(F) A description of any planned sales of clean hydrogen to non-utility customers, with a preference for qualified uses;(G) A description of the proposed method of cost recovery for the clean hydrogen project, including information regarding which rate classes will cover the costs of the clean hydrogen project;(H) A description of the total revenue requirement for the clean hydrogen project;(I) A description of the rate and bill impacts of the clean hydrogen project;(J) A description of any tariffs for the sale of clean hydrogen produced by the clean hydrogen project;(K) A proposal for the allocation of revenues received from the sale of clean hydrogen produced by the clean hydrogen project to non-utility customers among customers and the investor-owned utility, including which party bears the risk that the amount of revenue anticipated from the clean hydrogen project is not ultimately received;(L) A cumulative impact analysis framework; and(M) If the investor-owned utility plans to use a competitive solicitation process as part of the clean hydrogen project, a description of how the planned competitive solicitation process will be used and in what circumstances the process will be used.(b)(I) The rules adopted by the commission pursuant to subsection (3)(a)(II) of this section must include requirements for:(A) The matching of electrolyzer energy consumption with electricity production on an hourly basis, if the technology is available;(B) Identifying the applicable energy source, if the investor-owned utility is reporting the energy source as resulting in zero emissions for clean hydrogen production and demonstrating that the electricity used to produce clean hydrogen comes from renewable energy that would otherwise have been curtailed or not delivered to load or from new zero carbon generation that began production no more than thirty-six months before the start of the operations of the electrolyzer; and(C) The deliverability of renewable energy used by the electrolyzer into the same load balancing area as the electrolyzer.(II) The commission shall make the rules adopted by the commission pursuant to subsection (3)(a)(II) of this section effective no later than January 1, 2028, or no later than one year after the deployment of hydrogen electrolyzers in the state exceeds two hundred megawatts, whichever is earlier.(c)(I) In developing the rules pursuant to subsection (3)(a) of this section, the commission shall consider the potential for federal funding for clean hydrogen projects and that clean hydrogen projects implemented by investor-owned utilities may be necessary to secure federal funding.(II) In developing the rules pursuant to subsection (3)(a)(II) of this section, the commission shall consider what information and market mechanisms are necessary and available for hydrogen producers to comply with the rules. If the federal internal revenue service issues guidance that meets or exceeds the rules, the commission shall adopt rules that comply with the guidance.(d) If the office files the notice described in subsection (3)(a) of this section with the commission, the commission shall coordinate with the office to determine an appropriate date for the adoption of the rules described in subsection (3)(a) of this section.(4)(a) The commission shall allow an investor-owned utility to present to the commission a stand-alone application for a clean hydrogen project for which an investor-owned utility has applied for federal funding as part of a hydrogen hub project at any time before June 1, 2024, unless the office files a notice with the commission stating that the federal department of energy has extended or otherwise altered the deadline regarding funding for a hydrogen hub project. The application may only address elements of a hydrogen hub project that are not located in the Denver metropolitan area.(b) The application process described in subsection (4)(a) of this section must be consistent with the requirements of subsection (3) of this section. An investor-owned utility seeking approval of a clean hydrogen project pursuant to subsection (4)(a) of this section shall also demonstrate that a time-sensitive review of the investor-owned utility's application is necessary based on the timing requirements for obtaining necessary funding, not including tax credits, from, or a partnership with, a federal or state agency for the acquisition of necessary facilities and that the funding or partnership cannot be accomplished through any pending or future electric resource planning process.(c) If the funding or partnership described in subsection (4)(b) of this section, including any associated contracts, awards, or timing requirements, allows for competitive solicitations as part of the development of the clean hydrogen project, the commission may direct the investor-owned utility to issue a solicitation to acquire the necessary projects or facilities for the clean hydrogen project. The commission shall review any approved competitive solicitation process and bids received prior to the investor-owned utility's acquisition of the necessary facilities for the clean hydrogen project. An investor-owned utility that filed the clean hydrogen project application pursuant to subsection (4)(a) of this section may submit a bid in response to a solicitation pursuant to this subsection (4)(c).(5)(a) In reviewing, approving, denying, or amending an application pursuant to this section, the commission shall consider, at a minimum:(I) Whether it is in the public interest for an investor-owned utility to invest in the elements of the clean hydrogen project as set forth in the application;(II) The potential contribution of the clean hydrogen project in meeting the greenhouse gas emission reduction goals described in section 25-7-102 (2)(g), including lifecycle greenhouse gas emissions rates;(III) The impacts of the clean hydrogen project compared to alternative projects, including: (A) Rate and bill impacts;(B) The impacts on rate stability; and(C) Any other impacts identified by the commission pursuant to this subsection (5)(a);(IV) The use of competitive solicitations, if any;(V) If the clean hydrogen project contemplates the sale of clean hydrogen, the potential for cross-subsidization and cost shifting across rate classes;(VI) The impacts of the clean hydrogen project on the utility workforce in the state, including the use of "best value" employment metrics pursuant to section 40-2-129;(VII) The impacts of the clean hydrogen project on a community's tax base and revenues;(VIII) The uses of the clean hydrogen produced by the clean hydrogen project, with a preference for qualified uses;(IX) The public health and safety impacts of the clean hydrogen project; and(X) The availability of federal funding for the clean hydrogen project.(b) The commission shall review any clean hydrogen project application submitted pursuant to this section in accordance with any applicable electric resource planning rules.(c) In reviewing, approving, denying, or amending an application pursuant to this section, if the clean hydrogen project is proposed to be sited in an area that would affect a disproportionately impacted community, the commission shall weigh the applicant's cumulative impacts analysis and determine whether, on balance, the clean hydrogen project will have a positive effect on the disproportionately impacted community. Any proposal that will have net negative cumulative impacts on any disproportionately impacted community must be denied. The commission's determination must include a plain language summary of its determination.(6) Notwithstanding any provision of this section to the contrary, an investor-owned utility shall provide notice to the commission of any application for federal funding as part of a hydrogen hub project, including: (a) Any hydrogen hub project milestones;(b) A description of any deadlines for submission of materials to support the application, including whether any additional filings will be required; and(c) To the extent known or consistent with any requirements or limitations of the federal department of energy or any related joint memorandums of understanding or other contracts entered into by the investor-owned utility and the state, information regarding when funding awards will be determined.(7)(a) An investor-owned utility that operates a clean hydrogen project approved pursuant to this section shall submit to the commission an annual report that shows: (I) The lifecycle greenhouse gas emissions rates from the clean hydrogen project;(II) The greenhouse gas emissions from the clean hydrogen project;(III) Any emission of other air pollutants from the clean hydrogen project;(IV) The water use of the clean hydrogen project;(V) Production volumes and sales of hydrogen, including types of customers and uses;(VI) Project development and cost updates for projects with cost recovery from ratepayers; and(VII) Net cumulative impact updates for projects located in disproportionately impacted communities.(b) If the clean hydrogen project includes the production and the use or consumption of clean hydrogen by the investor-owned utility, the investor-owned utility shall report the lifecycle greenhouse gas emissions rates of the clean hydrogen project separately by each production facility and use.(c) The annual report must include information that allows the office to make the verifications required pursuant to section 39-22-557 (4)(a)(II).Added by 2023 Ch. 237,§ 2, eff. 8/7/2023.2023 Ch. 237, was passed without a safety clause. See Colo. Const. art. V, § 1(3).