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Building Toward Decarbonization

Policy Solutions to Accelerate Building Electrification in High-Priority Communities

California’s progress toward statewide carbon neutrality by 2045 relies on two related transitions: completely decarbonizing the state’s electrical grid; and shifting as many energy sources and fuels to electricity as possible. Transitioning buildings from natural gas to electricity–their heating and cooling systems, water heaters, and cooking equipment–is among the state’s highest priorities for the coming decade. But the transition also presents significant regulatory, economic, and infrastructure challenges, from high retrofit costs to utility regulations that may inhibit the removal of gas service. These challenges could substantially hinder progress throughout the state, particularly in communities with limited capital to finance projects, high proportions of renters, and older construction.

Residential and commercial buildings are responsible for over twenty percent of California’s greenhouse gas emissions. Building decarbonization is a critical component of the state’s carbon neutrality plan.

Natural gas-powered appliances like stovetops, furnaces, and water heaters generate substantial emissions. Powering these appliances instead with electricity could save up to 10 percent of statewide greenhouse gas emissions as the grid decarbonizes. They also can significantly improve indoor air quality and public health.

Without adequate planning, electrifying buildings could unintentionally put a substantial burden on lower-income communities that lack capital and capacity to retrofit buildings, are home to a greater number of multifamily structures, and suffer from higher rates of air pollution and environmental injustice. As state and local leaders develop plans to accelerate building electrification, they must also develop processes to identify high-priority communities for targeted resources, incentives, and policy and technical support.

Policy Needs

Policy Solutions

Clarifying policy priorities and goals to spur action towards electrification

Develop consistent state policy to catalyze conversation, planning, and investment in the transition


Issue an executive order affirmatively declaring that advancing building electrification is a policy priority for California

An executive order could set valuable benchmarks for state agencies and advocates alike while coordinating action through leadership at the head of the state government. This executive order could direct the California Energy Commission to craft Title 24 building energy efficiency standards that require electrification in new and modified structures; the Public Utilities Commission to direct gas utilities to accelerate their depreciation schedules for gas infrastructure; the Air Resources Board to update its Climate Change Scoping Plan to include a formal finding on the timeline of reduction in natural gas use necessary to achieve state climate goals (which could, in turn, inform utility planning processes and state infrastructure and funding decisions); and, together with local air districts, to take action to require electrified appliances in service of both indoor air quality and greenhouse gas emission reduction; and the strategic Growth Council to update its Affordable Housing and Sustainable Communities Program (which uses cap-and-trade funds to support housing and transportation developments designed to promote public health and reduce emissions) to require applicants to use fully electrified construction.

State legislature

Enact a law setting a clear timeline for the electrification transition

Key energy regulators already have the legal authority to achieve much of the transition, but a clear legislative mandate would help to achieve several critical milestones, including creating a firm, consistent deadlines for all agencies to end natural gas in new structures and appliances, followed by a phase-out timeline for existing buildings; affirm regulators’ legal authority over existing structures; eliminate legal barriers to reducing gas service, such as the legal obligation to serve; build a forum for aligned rulemaking and incentive funding allocation among several agencies and public entities (e.g., labor and environmental advocates); and appropriate new funds and redirect existing funds toward technical assistance, financial support for customers who cannot afford the full costs of a retrofit, and incentives that support all-electric construction.

State legislature

Clarify the utility obligation to serve in order to facilitate the transition away from natural gas

California’s utilities are generally required to provide service at standard rates to any customer interested in receiving it as a condition of their right to operate in the state. This “obligation to serve” derives in part from a statutory directive that the Public Utilities Commission require gas utilities to provide basic gas service to all customers, and experts frequently raise it as a barrier to mandatory replacement of gas service with electricity—should a customer call on the obligation to serve, a utility may be legally unable to withdraw gas service. Some see the obligation to serve as a major barrier to rapid electrification. The state legislature could amend the Public Utilities Code to clarify that a utility’s obligation to serve relates to energy services—heat, light, and power—and not specifically to natural gas or any other fuel, thus eliminating a potential legal barrier to electrification while still protecting residents’ right to essential services. Alternatively, the legislature could allow utilities to offer reasonable compensation in exchange for conversions or consider means to require holdout customers to pay the system-wide cost of maintaining service in electrifying communities.

Advancing state planning and utility investment efforts by overcoming political resistance around transitioning away from the legacy system

Facilitate clearer communication, certainty, and collaborative efforts to overcome obstacles faced by different actors

California Energy Commission and Public Utilities Commission

Initiate a joint process to identify pathways to financial certainty for the phase-out of existing infrastructure

The phase-out of natural gas infrastructure by a certain end date could generate a stranded asset problem that might threaten system maintenance and affordability for remaining ratepayers. But it could also jeopardize the financial health of the utilities if they are forced to abandon significant amounts of anticipated revenue, potentially diminishing their long-term ability to raise funds for essential operations. At the same time, stranded assets in a legacy sector could diminish overall investor confidence in emerging renewable energy and resilience infrastructure, slowing the flow of funds into necessary technologies. To ameliorate these risks, the Energy Commission and Public Utilities Commission could initiate a joint process to identify financial transition pathways—including strategies to reduce the costs of electrification, recover value early through the issuance of bonds to cover stranded assets, accelerate depreciation schedules, and even offer state writeoffs or financial support—and propose best-fit solutions to create certainty while advancing decarbonization goals.

California Labor and Workforce Development Agency

Collaborate with labor unions and community-based organizations to craft pathways and establish labor standards for workforce certainty in the electrification transition and to inform California Energy Commission and Public Utilities Commission planning

Tens of thousands of Californians are employed in the natural gas distribution sector. Moving away from gas and toward electric service will necessarily involve a transition for many of these well-compensated, highly-trained, and specialized workers over the coming decades. This transition will need to be both just (through retraining programs and support) and certain (based on clear timelines for local and regional infrastructure phase-outs) while supporting essential reliability and maintenance service. State energy leaders should engage proactively with labor representatives and community-based organizations to discuss certain dates for the transition and opportunities for retraining in other infrastructure sectors that offer similar compensation and require comparable levels of technical expertise.

California Public Utilities Commission

Review utility expenditures to ensure that the costs of gas promotion and lobbying activities are not recovered using ratepayer funds

Gas utilities’ funding of industry groups formed to promote natural gas and fight electrification potentially use ratepayer funds. A lack of transparency in these groups’ funding sources limits public observers’ ability to determine where activities like safety promotion and public engagement on energy efficiency end and lobbying efforts begin, clouding regulators’ and advocates’ understanding of how ratepayer funds are being used (including potential violations of federal law and past Public Utilities Commission decisions). The commission’s Public Advocates Office has already initiated an investigation of some of these expenditures. In November and December 2020, the commission proposed hundreds of millions of dollars in fines in connection with lobbying activity. But enhanced action (including more stringent investigations, enforcement, and auditing of gas utility expenditures) may be needed to ensure that the costs of promotional advertising and lobbying to encourage gas use are borne by utility shareholders, and to inform the public on the nature of “balanced energy” industry groups.

Enabling communities to reach consensus on transition priorities

Alleviate stakeholder capacity limitations and resistance from shifting fuel sources

State legislature

Appropriate funds for the California Energy Commission and California Public Utilities Commission to fund outreach and technical assistance through community-based organizations

The state should ensure funding for trusted local organizations to lead the electrification push at the local level. This outreach may be especially needed for cooking appliances, where allegiance to gas can run high and where the natural gas industry actively promotes the legacy technology via social media influencers; and at the intersection of civil rights issues and gas access and affordability. Community-based organizations can be particularly effective at both conducting outreach to demonstrate the functionality and health benefits of electrification (a role that community choice aggregators have also embraced) and facilitating technical assistance for project installation and financing. These education and capacity-building functions could be essential to drive electrification in the highest priority communities where resources may be limited.

California Public Utilities Commission

Direct electric utilities to develop advanced dynamic rates to increase the financial benefits of electrification by compensating customers for real-time use changes in response to grid needs

Consumers can realize long-term financial benefits of electrification through savings and grid benefits generated through the demand response and load management capacities of advanced electrified appliances. All-electric space heating and cooling systems, water heaters, and clothes dryers, connected to the grid through smart meters, can be set to run at moments when excess power supply is greatest. But consumer participation will depend on monthly bill savings. While California electric utilities have recently begun to employ time-of-use billing to encourage off-peak consumption for residential customers (and have long done so for commercial and industrial customers), more dynamic rate structures like real-time pricing (which varies pricing on short intervals and changes daily) could better reward customers for the adoption of electrified technologies.

California Energy Commission, Public Utilities Commission, and Air Resources Board

Initiate a public messaging campaign on the benefits of electrification

The health impacts of natural gas combustion are poorly understood among the public, even as researchers advance their understanding of how much indoor air pollution many Californians suffer daily. State energy regulators could undertake a public campaign to increase community understanding of the little-known harms Californians are experiencing from their legacy technologies and work with local public health agencies to disseminate the message. The public messaging could also help focus on electrification as an improvement of service, rather than removal or deprivation, and help deliver public cache to the new technology as has developed for rooftop solar and electric vehicles, while also addressing electrification’s role in supporting grid reliability by reducing demand at peak times, thus reducing the likelihood of power shutoffs.

Addressing challenging electrification economics that make it difficult for some to transition their home or workplace

Create incentive programs and target public funds to boost equity and ensure access to electrification for high-priority communities

State legislature

Appropriate short-term funds to help defray the upfront costs of retrofitting and installation for high-priority communities

While the long-term financial benefits of electrification are likely to increase, the high upfront costs of retrofit and installation work are unlikely to decrease substantially in the short term. State-appropriated (or utility ratepayer-sourced) incentive funds could help directly cover part of the upfront costs of installation for qualifying customers in lower-income and disadvantaged communities.

California Public Utilities Commission

Incorporate into rates, with equity offsets, all public costs of natural gas’ public health, climate, and stranded asset risks

While maintaining energy affordability is essential, the state currently underprices natural gas by failing to account for key hidden costs of natural gas combustion and infrastructure. In particular, current gas prices may not fully incorporate public health impacts, upstream greenhouse gas emissions, and stranded assets risks of natural gas infrastructure. By failing to incorporate all long-term social costs in the prices consumers pay, gas utilities and regulators effectively afford gas an unearned economic advantage over electricity, slowing consumer adoption of new technologies. The Public Utilities Commission could remedy this underpricing by directing gas utilities to include customer rates the full health cost of indoor natural gas combustion, include the full upstream climate impacts of their supply chain in customer rates, and accelerate depreciation schedules for their current infrastructure and/or reduce the return on equity for specific assets and reflect the change in customer rates. To help mitigate upward pressure on gas bills for low-income customers as a result of these actions, the Commission could raise the gas service discount for qualifying customers in the California Alternative Rates for Energy program (currently capped at 20 percent) to match the discount for electric service (30-35 percent). Alternatively, the Public Utilities Commission could update its cost-effectiveness metrics to more appropriately incorporate health and climate impacts; or require utility shareholders to confront some or all of the health and climate costs based on the “polluter pays” principle.


Work with customers, retrofit providers, and community-based organizations to identify appliances ready for replacement in existing buildings and target them for electrification

Most customers will not consider upgrading residential or business appliances until an existing unit is near its end of life—at which point they need service quickly and may not be prepared to consider a more efficient, higher-cost alternative to their current technology. Advanced smart meter technology can tell utilities (and their customers) when a heating/cooling system, water heater, or even electrical panel needs replacement or upgrade, which can prompt retrofit and technology providers to engage in an electrification upgrade. Utilities could proactively identify such appliances in smart meter-equipped households/businesses, contact the customers to discuss retrofit and financing options, and recommend retrofit providers with customer permission. Community-based organizations could serve as trusted resources to help facilitate contact between utilities and customers.