Dive Brief:

• The California Public Utilities Commission on Thursday unanimously voted to entirely eliminate ratepayer subsidies for the extension of new gas lines beginning in July, amid a statewide push to decarbonize the building sector. 
• Current subsidies for gas line extensions are “a vestige of the past,” dating back to an era when the state wanted to promote the expansion of the gas system — but that policy no longer makes sense in light of California’s greenhouse gas emission reduction goals, CPUC Commissioner Clifford Rechtschaffen said at the agency’s voting meeting.
• “By eliminating these subsidies, we eliminate a financial incentive that is now a perverse incentive — an incentive for expanding the gas system to serve new homes and commercial facilities as opposed to building those facilities completely electric,” Rechtschaffen added.

Dive Insight:

California builders and developers previously had access to a variety of ratepayer-funded subsidies to help pay for new connections to the gas utility system – they could have a portion of their costs offset by fixed allowances per residential unit, refunds paid back over a decade, or a one-time 50% discount. Some $622 million has been spent on these gas line subsidies in the service areas of Southern California Gas Company, Pacific Gas and Electric Company, San Diego Gas & Electric Company, and Southwest Gas Corporation over the last five years, regulators estimate.

Under the new order, these allowances and discounts will end beginning in July saving ratepayers some $164 million a year, according to regulators. It will also reduce the risk of investing in infrastructure that will no longer be useful over the short or medium term, Rechtschaffen said. 

While other states have adjusted, reduced, or been thinking about similarly getting rid of gas line extension subsidies, California is the first to fully eliminate them, according to Rechtschaffen. However, he also emphasized that the order does not ban new gas line connections, and that owners and developers of new buildings will still be free to install new gas hook-ups, consistent with local regulations.

“They just won’t do so at ratepayer expense. We want to send a strong market signal showing that we’re committed as a state to building electrification,” he added. 

The decision also included an application process to request exemptions for a narrow band of non-residential projects that regulators believe might still warrant subsidies – those that can demonstrably reduce greenhouse gas emissions, align with California’s climate goals, and have no feasible alternatives to the use of natural gas, including electrification. 

CPUC Commissioner Genevieve Shiroma said she appreciated this aspect of the decision, “with the understanding that there is a potential for cleaner fuels that can aid us in our goal for decarbonizing the grid while maintaining reliability.”

Climate advocates hailed the CPUC’s decision. Matt Vespa, senior attorney with Earthjustice, said in a statement that the vote is a “palpable sign that the future is electric for homes and buildings.”

“California’s vote today to end gas line subsidies should spur a trend in other states looking into the obvious benefits of all-electric housing,” Vespa added. 

The decision is also a win for environmental justice communities, and is a critical step toward eliminating all gas use in buildings, Jennifer Ganata, legal counsel for the California Environmental Justice Alliance, said in a statement.

“Moving from gas to clean electrification in buildings will also protect low-income households, especially renters, from experiencing harmful rate increases from paying for stranded assets as gas demand decreases,” Ganata added.