CPUC Proposed Decision Risks Derailing Gas Transition

My UCLA colleagues and I have written extensively on the promising opportunity for SB 1221 to help interested communities transition off gas. Now, the California Public Utilities Commission (CPUC) has released its long-awaited proposed decision on its plans to implement the SB 1221 pilot program, and the proposal is…disappointing. The current design seems to set the program up to fail. 

Of biggest concern, the decision proposes to require pilot applicants to navigate a multi-stage process with duplicative and unnecessary hurdles likely to derail even the most promising projects.  

The CPUC proposes to require a formal application proceeding for each pilot rather than a more informal advice letter process. Historically, formal applications have taken considerably longer to resolve than advice letters, stretching years or more.  

Compounding this issue, the CPUC also plans to require a two-phase process to obtain the consent of the property owners within the pilot project areas. Before submitting an application, a utility would need to receive “non-binding expressions of interest” from 2/3 of the property owners within a pilot project area. Then, the utility would need to submit a formal application, which could take years to resolve. Then, the utility would have to go back to the property owners after the application is approved in order to secure a binding consent agreement. Meanwhile, in the years between the initial pre-approval and the eventual binding agreement, the property owners may move, pass away, need to buy an emergency gas appliance because their existing one burns out, or otherwise no longer be in a position to readily agree to the pilot. Requiring utilities to secure consent from potential participants twice—likely years apart—sets the program up to fail. 

We’ve seen that happen before. Delay associated with the formal application process is one of the main factors that derailed the largest proposed neighborhood decarbonization in California to date: the California State University, Monterey Bay zonal electrification project. Pacific Gas & Electric (PG&E) filed its initial application in that proceeding in August 2022, asking for an expedited decision by July 2023, in order to allow PG&E the time needed to retire aging pipes before they became an active safety risk. By January 2025, no decision had yet been made, and PG&E withdrew its application, citing the safety risks from waiting longer before removing or replacing the aging pipes. (Other issues were also at play there, but the lengthy uncertainty from the formal application process was a major factor.)  

In contrast, the advice letter process provides opportunity for CPUC review (with different levels of oversight depending on the Tier), as well as public comment, without requiring a full contested proceeding with witnesses, briefs, settlement conferences, and more that could drag each proposal along for years. As party comments have indicated, a well-designed advice letter process would allow for effective CPUC oversight, while also supporting pilot projects to progress effectively on the timeline envisioned by SB 1221. 

The CPUC has already added unnecessary delay to the process. SB 1221 was enacted nearly two years ago. The CPUC spent over a year of that time choosing “Priority Neighborhood Decarbonization Zones” (PNDZs) that they’ve now decided are irrelevant. (“In this early stage of the pilot program, the Commission believes it is prudent to allow pilots outside of the PNDZs if they otherwise meet the applicable statutory criteria.”) In making this determination the CPUC asserts that “SB 1221 does not explicitly require the pilots to be exclusively within the PNDZs.” This is a highly questionable interpretation of the statute, which establishes the pilot project program “to facilitate the cost-effective decarbonization of priority neighborhood decarbonization zones.” The pilot programs chosen may end up being similar, given that the same selection criteria will be used, but meanwhile, the Commission already spent over a year of everyone’s time on designating PNDZs they now plan to disregard.  

The SB 1221 pilots won’t solve the whole issue of how to ensure ratepayers are not left holding the burden of continued subsidization of an aging and increasingly costly and duplicative gas distribution system. In order to address the broader issues, bigger reforms will be needed.  But California does need to give this SB 1221 pilot program our best effort as a proof of concept and learning tool.  

SB 1221 is such a promising program—it’s vital that we do this, and we do it right. The CPUC should move from a formal application process to an advice letter review. The Commission should also move away from away from the two-phased “non-binding expressions of interest” from participants toward a clearer single-phase enrollment process. Meaningful community engagement will be essential to ensure the program is effective and equitable. That effort should be focused on robust engagement with community members, tenants, and property owners, not on bureaucratic red tape.