California needs to acknowledge these emerging trends and begin formulating a gas system transition plan. Prudent long-term planning and management of the gas transition will allow us to minimize and stabilize rate increases. The consequences of failing to do so would be detrimental for California’s economy, causing energy cost inflation, industry destabilization, job loss, and significant hardship for the state’s working families.
There are two paths available to California: a smart, managed path that maximizes benefits and minimizes costs for everyone, or an uncontrolled path that is reactive and costly. The reactive path is most likely to hurt those least likely to afford the transition: low-income residents. The smart, managed path must consider equity and protect customers from unaffordable gas bills by enabling them to electrify.
In order to achieve this impact, California must start planning the gas system transition now
To achieve the managed path, policy-makers should consider the following recommendations:
1) Initiate interagency, integrated long-term planning for gas demand, infrastructure, and the transition of the delivery system. This long-term planning should include: • The institution of a California Gas System Transition Plan, which should be updated at least every three years; • The development of improved gas demand forecasting analysis, including consideration of building electrification that will increasingly occur due to individual consumer economics; • A statewide assessment of existing gas infrastructure, options for infrastructure contraction and other cost reductions, and identification of customers that have limited options for electrification; • An initial phase with pilot projects that target decommissioning segments of the gas distribution system and transitioning buildings within that segment to all-electric service, or downrating local transmission lines to distribution pressure. Pilot projects should look to maximize avoided gas delivery system investments and minimize the costs of conversion to all-electric homes; • An assessment of the technologies that exist to electrify residential, commercial and industrial buildings with a focus on gaps in available technologies; and • An analysis of financial tools and funding that can be used to ease the transition away from fossil gas for lowincome customers. 2) Consider requiring all new residential and commercial construction to be all-electric as quickly as possible, to mitigate future stranded gas infrastructure costs and to avoid committing to decades of future GHG emissions from gas combustion in buildings. Consider elimination of gas line extension allowances as a first step in that direction. 3) Identify alternatives to significant new investments in the gas delivery system, not otherwise needed to maintain system safety and reliability, such as electrifying neighborhoods to avoid replacing aging gas infrastructure or downrating local transmission lines to distribution by reducing the pressure as a means of reducing future maintenance costs. 4) Anticipate and organize a just transition for the gas delivery system workforce and any corresponding support services, such as customer service center staff and “call before you dig” workers. 5) Develop a comprehensive strategy to ensure low-income and disadvantaged communities are empowered through, benefit from, and are not left behind in the transition. This should include: • Producing a study on the barriers preventing lowincome customers from transitioning to all-electric buildings and residences, conducted and completed by the CEC with input from the public and other relevant state agencies, with a focus on rental, multifamily, and existing homes. The CEC should provide recommendations on ways to address these barriers and initiate pilot projects designed to determine the best ways to reduce these barriers; • Conducting meaningful engagement with and involvement of low-income and disadvantaged communities throughout the gas transition. Meaningful engagement, at a minimum, includes outreach and education in multiple languages and coordination with community-based organizations; • Designing bill protections for all low-income customers; • Developing programs and resources to enable communities to electrify, and prioritizing resources to transition low-income and disadvantaged communities; • Creating a one-stop shop for low-income customers to allow them to pair the transition to electric technologies with other programs including energy efficiency, weatherization, and solar and storage installation; and • Ensuring protections for renters to prevent displacement, including rent stabilization and justcause eviction protections. 6) Clarify that a gas utility’s “obligation to serve” could be met with alternative fuels when doing so would avoid significant future investments in the gas system, reducing costs for all gas customers. 7) Consider aligning financial recovery of new gas infrastructure investments with the time horizons determined in the integrated long-term gas infrastructure plan, and adjust depreciation schedules for existing assets to better reflect actual “useful life” in light of changes resulting from California’s decarbonization goals. Consider securitization to mitigate the upfront rate impacts of faster depreciation schedules and ultimate decommissioning costs. These financial tools should include protections that ensure that the bills of low-income customers will not increase. 8) Consider ratemaking adjustments such as the following to cushion the impact of the transition on customers, particularly low-income customers: a) Consider modifying the current cost allocation for the gas distribution system to better reflect changes in users and usage patterns, mitigating some residential customer rate increases. Unless this is paired with efforts to reduce gas system costs, however, changes to cost allocation merely transfer the pain from one group of customers to another; b) Explore minimum bills or fixed charges for nonlow-income customers who desire gas service, and for the 5-10% of residential premises that are vacant at any point in time and thus not paying anything toward the cost of staying connected. Alternatively, consider segmenting the residential class into fulland partial-requirements gas customers; and c) Consider offering financial tools such as pooled public funds, on-bill financing, and an increased CARE rate discount to low-income customers to enable access to affordable energy services throughout the gas transition. CALIFORNIA’S GAS SYSTEM IN TRANSITION: EQUITABLE, AFFORDABLE, DECARBONIZED AND SMALLER 3 9) Explore external funding sources to recover gas transition costs from sources beyond gas utility customers, such as the electric customers who benefit from increased electric load and taxpayers more broadly.