VX News here features a conversation with Earthjustice Senior Attorney Matt Vespa, and Building Decarbonization Coalition Executive Director Panama Bartholomy on AB 2313, the Home Energy Choice Act. Authored by Assemblymember Marc Berman, co-sponsored by Earthjustice and NRDC, and signed by Governor Newsom on September 30, the law makes California the first state to require gas utilities to offer customers an incentive to electrify before replacing their gas service line. Read the interview below.
“AB 2313 provides funding to help with the upfront cost of electrification. Beyond just helping, it pays for a significant share of that cost, which helps people with affordability.” - Panama Bartholomy
Matt, Earthjustice co-sponsored the Home Energy Choice Act with NRDC, and on September 30 the governor signed it. How will AB 2313 ease the economic barriers for homeowners who wish to electrify their home appliances?
Matt Vespa: Let me first say what the bill affects. It applies when the gas utility comes to replace what’s called the service line to your house. That is the gas line connecting your gas meter, which is typically at your house, to the main gas line in the middle of the street.
Utilities typically spend quite a bit of money to do that. Everyone on the gas system pays those costs. It’s part of how utilities do business, and they earn a profit on that investment. Now, for the first time, if you are facing that replacement, the utility will first have to offer you a monetary incentive to electrify and get off the gas system instead. The standard incentive would be less than the avoided cost of replacing the line. For PG&E, we estimate that to be about $15,000.
That could go a long way toward helping someone replace polluting gas appliances with clean electric alternatives. That’s particularly true if you stack it with other incentives a local government or community choice aggregator may offer. So it can go a long way in making electrification possible, while also saving money for everyone else who would have had to pay for that gas line.
Panama, when we last spoke a couple of years ago, we discussed the policy and market incentives needed to scale building decarbonization. How does AB 2313 contribute to your long standing goals ?
Panama Bartholomy: It’s a really important piece of it. If you look at the election results from earlier this week, it’s very clear that affordability was the big winner and anti-climate action was the big loser.
AB 2313 provides funding to help with the upfront cost of electrification. Beyond just helping, it pays for a significant share of that cost, which helps people with affordability. We just finished some statewide polling. People are really supportive of getting off gas and onto highly efficient electric appliances, and they see the benefit of saving money over the longer term. What they need is a little help to make the switch, and this will be a very important tool for providing some of those incentives.
It also continues to send the right message to manufacturers and contractors. Again and again, California passes laws that redirect money away from the fossil fuel sector and invest it in electric alternatives. That tells the market California is continuing its incremental march in this direction. Manufacturers and contractors should be making their investments, training their installers, and bringing products to market consistent with that direction.
Matt, how do you answer SoCalGas and SDG&E’s argument that the AB2313 shifts costs to remaining gas customers? Does pricing the incentive below the avoided cost of the line resolve that concern, or does the broader stranded asset problem remain?
Matt Vespa: In my view, those arguments were made in complete bad faith. The moment you want a gas customer to leave the gas system is before you make an investment on their behalf. The Home Energy Choice Act addresses exactly the point when the utility is about to spend quite a bit of money to keep you on the gas system.
SDG&E and SoCalGas pay those pipelines off over 68 years, and they earn a profit on that investment for 68 years. So the other gas customers won’t fully pay it off until the 2090s. Think about that.
This has already happened. My co-sponsor at Natural Resources Defense Council went through it. The gas utility came to replace her gas line. She was in the process of electrifying her home and asked them not to. They replaced the line anyway. Now she’s off the system; she left on her own, because this law did not exist. Everyone else on that system is left paying for a gas line that is completely unutilized, because it only connected to her house.
So we’re getting in before these investments are made. We’re getting ahead of the stranded asset problem by avoiding investments that won’t be used. Frankly, very few service lines are going to be in use 68 years from now. These are bad investments, and we need to give people choices to get off them.
Matt, To follow up…. Who pays for the lines?
Matt Vespa: People are leaving with or without this bill. It’s happening anyway. So why not get someone off the system before that investment is made? There are bigger questions to answer around the remaining infrastructure and how we pay it off. This bill solves a narrower problem: it stops making things worse, because utilities no longer invest in systems for people who don’t want them. And to your earlier point, the payment a customer receives is less than what the utility would otherwise have spent, so there are savings there too.
There are significant issues around the system and stranded assets. But treating this bill as the solution to that larger problem, rather than as a way to stop adding to it, was the wrong approach.
How does AB 2313 let utilities ask the PUC to limit the program to specific replacement programs or geographic areas?
Matt Vespa: They can ask the PUC, but they have to have a reason, and we can review what it is. I’ll give an example from PG&E’s case where I thought it made sense.
The vast majority of PG&E’s service line replacements happen as part of a main replacement. They replace the main, and typically dozens of service lines get replaced in that process. That’s 90 percent or more of what they do. There are some one-offs where only a single service line is replaced. PG&E’s position was to focus on the mains, where they can reach dozens of customers on the same street with this offer. It’s easier to communicate, and neighbors could use the same contractor and save money through economies of scale. That’s an example of focusing on the program that would be easiest to implement, especially at launch, and leaving some of the outliers out.
From what I understand, Southern California is not quite the same. There, service-line-only replacements can cost a lot of money, so the incentive could potentially be higher. You look at what’s being offered and develop a program that makes sense, particularly at launch. You target the replacements with the highest likelihood of customer acceptance that are easiest to implement.
What’s your confidence in the current PUC handling these challenges the way you’d prefer?
Matt Vespa: The beauty of this program is its simplicity. There’s a standard incentive, and we’ve already worked through it with PG&E in their rate case. In their case, it’s $15,000, and they agreed to $17,500 for customers in disadvantaged communities. Then it’s a question of implementation, possibly with a third-party implementer. It’s really about giving the space to make this work. There aren’t a lot of interactions or judgment calls required to implement it.
Where things have been challenging is the bigger neighborhood-scale projects. There’s a lot of complexity there, and a lot of decisions about how to implement them and how to evaluate cost-effectiveness. The beauty here is that everyone gets offered the same amount. You say yes or no, there are a couple of steps, and you move on. We’re trying to make this as easy as possible for everyone involved.
There’s a new governor-elect. What changes, if any, are you hoping to see at the PUC under a new administration?
Panama Bartholomy: The new administration is coming in facing huge problems, but also really big opportunities as a result of the last eight years. On the problem side: wildfire liability, high electric rates, and continued large-scale investment in fossil fuel infrastructure, such as natural gas, that’s out of alignment with our clean energy and clean air goals. Add aging infrastructure and a whole set of other issues.
There’s also been amazing progress. The battery build-out has been globally leading. Over 80 percent of homes built in California this year have heat pumps for water heating or space heating. That’s incredible market progress he’ll be able to build on.
You haven’t heard a lot from him on this during the campaign, but what you have heard is encouraging. The big one that’s gotten a lot of news is his Power Hour proposal to provide free midday electricity for working families. That obviously isn’t the only thing he’s going to do, but it tells you a lot about how he’ll approach things. It builds on the leadership we already have in California. The only reason you can do something like Power Hour is that we’ve built so much clean energy and storage here.
It shows he’ll have a real focus on working families and on helping people with the energy affordability crisis. It also means he’ll have to invest heavily in electrification. You only benefit from Power Hour if your building has a lot of electric appliances. So he recognizes that he needs to reform energy and help working families. He has to do that through affordability, build it on clean energy, and rely on electric appliances. To us, that was like, wow, this guy really gets it.
The good news is there’s a ton of money in play right now. The state is sitting on nearly a quarter of a billion dollars of IRA money that hasn’t been deployed yet. We invest over a billion dollars a year in energy efficiency programs that are just begging for a reformer governor to reshape them and align them with our climate laws. So he has a ton of money to work with, and the conversation about making California Power Hour–ready is happening right now.
What does the commission most need to get right re incentive levels, notice, and the equity tier to drive uptake?
Matt Vespa: A number of commission programs could be redesigned and better utilized to align with our climate, public health, and affordability goals. For example, there’s a low-income energy efficiency program with a fairly large budget, I think a couple hundred million dollars.
SoCalGas in particular is spending a fortune on gas appliances in low-income homes. Those appliances are fully paid for, and they lock low-income households into polluting fuels. We talked earlier about stranded assets and who’s left on the gas system. Low-income customers are exactly the ones we want to prioritize getting off the gas system, so they aren’t stuck on it. Yet we have a commission program that locks them into a polluting fuel and into greater dependence on the system we’re trying to move them away from.
This is a live issue right now. We can shift all of that money toward equitable electrification. That means heat pumps that give them cooling and induction stoves that improve indoor air quality. There’s a lot of low-hanging fruit in using the money in these programs better and aligning it with our climate goals. That would be a very quick ask, and something the commission could do right away.
Then there’s the question of outside funding, because ratepayers shouldn’t be paying for all of this. How do we bring in outside money like the IRA, or other incentives, to address extreme heat and expand access to heat pumps? We need to look at the pots of money we have, optimize them, and then find other sources.
Panama, the CPUC just moved residential rate design onto its own track, with workshops in 2027. How much does AB 2313’s success hinge on electric rates?
Panama Bartholomy: If we’re going to electrify buildings, transportation, and industry, we need electric rates that support that transition. We need to stop investing in fossil fuel infrastructure so we can invest in the electric infrastructure instead, control rates, and have a rate structure that supports electrification.
So AB 2313, and all the other electrification efforts, really need good rate reform. I’m encouraged that the PUC recognizes this. I’m also encouraged that Governor-elect Becerra campaigned on the need to address electric rates. I’m hoping his appointments to the PUC will carry out those campaign promises, and that we get the rates we need to encourage electrification.
Matt Vespa: Can I add to that? We now have a couple of years of heat pump deployment and data from it. The TECH Clean California program looked at roughly 10,000 installations, including bill impacts and customer satisfaction.
First, customer satisfaction was off the charts. People like the health, comfort, and safety benefits. Some now have cooling they never had before. Heat pumps run better than furnaces and deliver a better temperature.
On bills, on average, it was pretty much a wash; there were actually slight bill savings from electrification overall. That doesn’t mean we can’t do more. Colder climates without much air conditioning see bigger bill impacts in winter, and we can adjust rates somewhat. All of that data predates the roughly $24 base services charge now on electric bills. With that charge, utilities collect more through a fixed charge and less through how much electricity you use. Part of the purpose was to make electrification more affordable. So the right signals are already there, and I don’t see rates as the impediment to AB 2313.
What I want to see is really good coordination with local governments and local energy providers. When this offer is made, there should be many touch points with trusted partners who can meet with people and explain the benefits locally. If it’s just a letter from the gas utility that someone might not open, it won’t be as effective as partners on the ground talking about the offer. That’s partly why the statute allows for a potential third-party implementer. It also requires coordination and information sharing with local governments, so the gas utility isn’t the only one that knows where these offers are being made. That’s where I want to focus on implementation.
There’s been some political backlash in LA against the Department of Water and Power over two-month billing. Consumers who went through the heat spells were shocked to see a two-month lump sum. Is that a surprise to you? Given the heat and climate-driven disasters we’re seeing, do you foresee any backlash to electrification?
Matt Vespa: Interestingly, I think it’s a great opportunity. As I understand it, a lot of inefficient air conditioning units pushed people’s energy consumption into higher tiers, and that higher-level usage was charged at a higher rate. People asked, “How did I get a bill this high?” That’s why.
The TECH data I mentioned found the greatest bill savings when heat pumps replace air conditioning in hot climates, because the heat pump is so much more efficient. You get big reductions in summer energy bills. It also reduces grid stress, because those inefficient AC units were drawing a lot of energy at peak times. So there are system benefits and affordability benefits. Heat pumps are actually the solution here, since inefficient air conditioning was at least part of the problem. That’s my take. I don’t live in LA, and LADWP’s rates are still lower than the investor-owned utilities’. But I’m sure it was a shock for people who weren’t used to bills like that.
Panama Bartholomy: And look, there’s no alternative. You’re not going to run a natural gas air conditioner. We need air conditioning. As you said, climate impacts are getting worse. We need more and more efficient air conditioning to give people the cooling they need while controlling costs. Heat pumps are the solution here. Matt’s right: this is an opportunity rather than a risk.
Panama, beyond affordability, how are consumers actually responding to heat pumps?
Panama Bartholomy: People love heat pumps. Mitsubishi released a study last year finding that nine out of ten people across the country who’ve installed a heat pump love it and would recommend it to friends and family.
The gas industry would love to pounce on any backlash or bad stories about heat pumps. The fact that you never hear widespread bad stories tells you that people like heat pumps. They like what heat pumps do for their homes and their bills. People love this technology, and I think interest will keep growing. Google searches for heat pumps hit their highest level ever this year, up 200 percent over the last five years. Our recent statewide polling also shows widespread awareness of and favorability toward heat pumps. We’re in a really great place for the technology.
Matt, California is the first state to adopt service line alternatives statewide. Bills are already surfacing in Illinois, Maryland, Minnesota, Oregon, and Washington. Although it’s early, what lessons from AB 2313 should those states take, and what should they do differently, if anything?
Matt Vespa: We called this bill the no-brainer of the legislative session because it saves everyone money. It helps someone electrify while saving other gas customers the avoided cost of a service line replacement. It gives people an option, so it’s choice-based and affordability-based. You’re seeing all these states want to introduce it because the idea makes a lot of sense and is very replicable. Service lines are being replaced across the country, and gas customers everywhere pay for them.
On lessons learned, I think the bill we put out is very strong, and we addressed a lot of issues. States may take slightly different approaches. What I want to understand, as implementation starts, is what the best practices are. How do we get acceptance rates as high as possible? We don’t really know that yet.
I have some ideas about what would make it a success, and we tried to build those into the bill to avoid pitfalls. One example, as I mentioned earlier, is preventing the utility from controlling all the information. Hopefully this becomes a race to the top in information sharing. We also built in an annual reconsideration of the program. As we learn what is or isn’t working in implementation, we can adjust how the program runs. Hopefully in a couple of years, we can talk about how to maximize adoption and let everyone take advantage of this opportunity.
Lastly, There obviously will be changes in the legislature after this election. Will Assemblymember Berman, the author of the bill, likely lead these initiatives in the legislature going forward?
Matt Vespa: Berman is still in office, and he’s been an incredible champion. You always want up-and-coming members to get into this space too. With every bill idea, you look at who might be the best fit. I don’t have much more to say on that, except that Berman has been a great author to work with. He’s so effective, and I’m glad he’s still there.
Panama Bartholomy: We’ve had really strong support for building decarbonization from legislative leadership over the years, from the top all the way through, and we expect that to continue. We’re also really encouraged by what we’re hearing from the new administration. With that partnership between the legislature and the new administration, the future looks bright for electrification in California.
