Dive Brief:

• The California Public Utilities Commission on Monday released a proposal which, if approved, would get rid of gas line extension subsidies for all customers beginning in July 2023.
• Eliminating allowances, refunds and discounts tied to extending gas lines will bring California closer to its greenhouse gas emission reduction goals, as well as save ratepayers hundreds of millions of dollars every year, according to regulators.
• The proposal is one of many steps being contemplated in California to further the decarbonization of buildings, said Matt Vespa, senior attorney with Earthjustice. “There is already movement towards all-electric construction, but we’re not fully there yet. By eliminating the gas line extension allowances, it is now taking away a certain economic incentive to install gas in new homes,” he said.

Dive Insight:

California’s current gas rules offer a variety of subsidies to a customer, builder or developer who wants to connect to the gas utility system – while the total cost of the gas line extension is initially paid by the applicant, a portion of those costs are then offset, with ratepayer funding, including through allowances – fixed amounts that are awarded by appliance per residential unit – as well as refunds over ten years, or a one-time, 50% discount. 

According to the CPUC, in 2021, three of California's four large gas utilities spent more than $104 million on allowances; four large gas utilities spent roughly $2.9 million on refunds; and three of them spent around $23.4 million on discounts. In total, regulators estimate that four utilities spent at least $622 million over the last five years on gas line subsidies. If current policies continue, that figure is expected to reach $819 million over the next five years.

Last November, CPUC staff put out a proposal that recommended eliminating these subsidies for all customer classes, noting that they were initially designed to encourage gas usage. The current system incentivizes builders to install more gas appliances to reduce their costs, and as a result, lock in the resulting greenhouse gas emissions for between 10 to 20 years depending on the lifespan of the appliance, the proposal concluded. 

If the proposed decision is approved, it would eliminate gas line subsidies for both residential and non-residential customers effective July 1, 2023. The proposed decision can be voted on at the commission’s Sept. 15 meeting at the earliest. 

“The current gas line subsidies were established during a period when the state’s energy needs, and policy goals were very different from today’s,” and they no longer align with California’s greenhouse gas and affordability goals, the proposal states. 

If the proposal is approved, it could serve as a signal for other states, Vespa said.

“Every state is a little bit different… but the fundamental ratepayer equity, climate and air quality benefits are the same,” he said.