As California transitions to all-electric appliances, which is the most cost-effective way to reduce pollution from our buildings, state leaders face a pivotal choice: Keep pouring billions into new gas infrastructure that is likely to be underutilized or realign our spending with the clean energy transition. New analysis from Energy + Environmental Economics (E3) shows just how enormous the financial stakes are.
The study finds that targeted electrification, which equips homes served by aging gas pipelines with energy-efficient electric appliances, can save utility customers between $15-26 billion in gas infrastructure costs by 2045 by bypassing costly gas pipeline replacements. But California is running out of time to take advantage of these savings. The Legislature needs to act this year by strengthening and passing Senator Min’s Senate Bill (SB) 1221, and the California Public Utilities Commission (CPUC) should support by improving oversight on planned gas pipeline investments within its Long-Term Gas Planning Rulemaking.
Gas Utilities Spend Millions Each Year to Replace Pipelines
Investing in gas pipelines today is like buying a (very expensive) BlueRay player just before the dawn of streaming – it’s not a wise investment. Yet gas utilities continue to invest millions of dollars each year in gas pipeline replacements that customers are expected to pay off over five decades or longer, even as households transition to clean, all-electric appliances in line with state climate policies.
Over the past decade, gas utilities spent more than $33 billion on gas infrastructure. Today, the “net value” of the system stands at $35 billion, which gas customers continue to pay back, plus interest, on their bills. Without intervention, the financial burden will only grow. E3 finds that California investor-owned gas utilities will more than double the cost of the system over the next two decades if business-as-usual continues: spending about $43 billion through 2045 to replace 8,900 miles of gas distribution pipelines, representing 6-10 percent of the distribution system. Notably, this number does not include the likely significant amount gas utilities are expected to spend on gas transmission infrastructure, which customers also pay for on gas bills.
Failing to adjust course will lead to crippling rate hikes as customers depart the gas system. Previous analysis from Gridworks and E3 found that, if spending in the gas system continues unabated while customers shift to clean energy, remaining gas customers could face rate increases of over 900 percent by 2050. Without intervention, low-income households are at risk of being stuck with the highest share of these costs as better-resourced households switch to clean electricity. Fortunately, targeted electrification provides a cost-effective alternative to pipeline replacement projects in many cases – offering a no-regrets chance to save gas customers money today and long into the future.
The No-Regrets Option: Targeted Electrification
The way targeted electrification works is simple: when a gas pipeline reaches the age where it needs to be replaced, the gas utility considers whether electrifying the households served by the pipeline would be more cost-effective than replacing the pipeline. If it is, the utility can work with households in the area to complete a targeted electrification project, delivering savings to all gas customers while also cutting climate emissions. E3 finds that replacing gas pipelines costs an average of $32,000 per customer, making electrification a cost-effective solution in most cases.
