It will be difficult for California to hit its long-term greenhouse gas emission reduction targets under ideal conditions, with full buy-in from critical stakeholders. It will be even more challenging if one of the state’s major utilities is successful in slowing the low-carbon transition.
Last month, Greentech Media reported on the hurdles one San Francisco Bay Area family had to overcome to electrify their home and get off natural gas. That feature cited legacy state policy that favors natural gas as one obstacle to the electrification of buildings in California.
But another hurdle looms as well. Experts interviewed for the story identified a formidable force behind the legacy policy, the Southern California Gas Company (SoCalGas). The single-fuel utility has much to lose in a scenario where much of the state’s space and water heating shifts from natural gas to electricity.
You could even say it’s an existential threat for the utility. And, based on SoCalGas’ recent words and actions, the utility is taking the threat seriously.
In its latest Form 10-K, filed with the SEC at the end of February, SoCalGas was clear that electrification poses an unacceptable risk to its bottom line.
“California legislators and stakeholder, advocacy and activist groups have expressed a desire to further limit or eliminate reliance on natural gas as an energy source by advocating increased use of renewable energy and electrification in lieu of the use of natural gas,” the company wrote.
“A substantial reduction or the elimination of natural gas as an energy source in California, could have a material adverse effect on SDG&E’s, SoCalGas’ and Sempra Energy’s cash flows, financial condition and results of operations," according to the filing.
Allegations of misconduct
SoCalGas appears to be waging an all-out effort to maintain its customers’ dependence on natural gas. The company’s aggressiveness in pursuit of that goal is the subject of an inquiry by the Office of Ratepayer Advocates (ORA) at the California Public Utilities Commission.
A proposed decision on California’s 2018-2025 energy efficiency business plans by Acting Chief Administrative Law Judge Anne E. Simon, filed on April 4, describes “serious allegations regarding SoCalGas’ conduct with respect to codes and standards advocacy activities.”
Simon writes that ORA uncovered "evidence of SoCalGas’ misconduct" in three areas: “SoCalGas’ opposition to the U.S. Department of Energy’s proposed new efficiency standards for residential furnaces. SoCalGas’ use of ratepayer-funded studies to support its position against proposed standards. SoCalGas’s purportedly bad faith engagement with the other [investor-owned utilities] in joint codes and standards efforts.”
Regarding the furnace efficiency standards, ORA investigators obtained internal emails in which SoCalGas managers discuss “the potential for the proposed standards to raise the cost of some gas furnaces and thereby encourage fuel switching away from natural gas,” according to Simon's summary.
For instance, in a July 7, 2015 email to several SoCalGas colleagues, Sue Kristjansson, at the time the manager of codes and standards and zero net energy, noted that Pacific Gas and Electric Company (PG&E) intended to submit comments in support of DOE’s more stringent furnace rule.
“I haven’t read it in its entirety,” Kristjansson wrote, “but they assert that the [life-cycle cost] is positive and that the environmental benefits outweigh the rest. They even advocate for a 95 percent condensing furnace.”
She went on: “I figured that they would take a different position but the larger issue is that they are working in concert with the [California Energy Commission]. The CEC will be submitting a support letter and will reference PG&E’s support. So the wagons have circled.”
She signed off, “Looks like the game is afoot!”
SoCalGas denies any wrongdoing
In the case of the furnace rule, the state’s other investor-owned utilities and the California Energy Commission were united in asking DOE “to maintain and strengthen energy efficiency policies,” said Simon. ORA, meanwhile, found that “SoCalGas instead used the opportunity to request that the federal government reverse previously adopted or pending standards such as the 2015 furnace rule.”
According to Simon, ORA asserted that internal SoCalGas emails suggest, to quote the ORA comments, “a coordinated effort by [the American Gas Association] and SoCalGas to undermine the furnace standard.” Simon added that ORA documented “several situations in which SoCalGas appears to have frustrated the other IOUs’ efforts to advance higher standards.”
SoCalGas pushed back against the allegations. "In response to ORA’s allegations,” Simon writes, “SoCalGas denies any wrongdoing."
GTM reached out to SoCalGas for additional comment on the ORA findings, but did not receive a reply before this story was published.
Judge Simon concluded she was “convinced there is a potential for SoCalGas to misuse funds authorized for codes and standards advocacy.” Therefore, per the ORA recommendation, she said, “SoCalGas shall have no role in statewide codes and standards advocacy” other than transferring funds to program implementers.
Simon makes clear that ever since the CPUC authorized funding to advance energy efficiency efforts in California, the purpose of those funds has been to achieve more stringent standards. The proposed decision, she writes, “establish[es] a governance structure for the statewide programs that minimizes potential for any one IOU program administrator to obstruct these efforts.”
CPUC commissioners will vote on the proposed decision at an upcoming business meeting, likely on May 10.
Matt Vespa, staff attorney with the nonprofit environmental law firm Earthjustice based in San Francisco, has been following the ORA investigation. “I thought the evidence was pretty damning," he said in an interview with GTM. "SoCalGas’ position was contrary to the other IOUs, contrary to the CEC. The tenor of the emails — there was just such a hostility toward measures that are reducing gas consumption.”
Status of electrification bills
SoCalGas has also worked to thwart bills at the legislature in Sacramento that would encourage fuel-switching and promote electrification.
AB 3001, introduced by Assemblymember Rob Bonta, would have addressed one of the legacy policy barriers holding back electrification in California, the so-called “three-prong test.” The test stipulates that adopted policy must represent an improvement from an environmental, energy and cost perspective. Bonta’s bill would have added a greenhouse gas metric to the three-prong test and required the California Energy Commission to require new residential and commercial buildings to be electric-ready buildings from 2022.
In a recent legislative update, Charles Cormany, executive director at Efficiency First California, a trade group representing home performance contractors, wrote, “this proposal was heavily opposed, mostly from the Southern California Gas Company, and is now effectively dead.”
“Assemblymember Bonta will not be moving forward with AB 3001 this session. There will be no votes on the bill this year. Instead, he plans to reintroduce legislation next session,” Jerome Parra, a spokesperson for Bonta, told GTM in an email.
A bill still pending before the legislature, AB 3232, as introduced, would have required all new residential and commercial buildings in California to be zero-emission buildings by 2030. It also would have directed the California Energy Commission to develop a strategy to reduce greenhouse gas emissions in California’s buildings to 50 percent below 1990 levels by 2030.
The bill was later weakened via amendments. The 2030 zero-emission buildings target was stripped from the bill, and the 2030 greenhouse gas reduction target was lowered to 40 percent.
Even the amended bill was too much for SoCalGas. On April 20, George Minter, SoCalGas’ regional VP for external affairs and environmental strategy, published an op-ed in the Sacramento Bee urging lawmakers to vote no on the bill.
AB 3232, Minter wrote, is “aimed at taking away Californians’ right to make choices about the energy they use in their homes and businesses” and “would drive up energy bills, make housing more expensive and stall innovation.”
Minter concluded that SoCalGas “cannot support legislation that takes away our customers’ right to choose the most affordable energy source to meet their daily needs.”
For now, at least, Democratic lawmakers are pushing ahead. The amended bill passed out of the assembly’s Utilities and Energy Committee with an 8-5 vote on April 25.
This story was updated with a correction to Matt Vespa's quote noting SoCalGas' position was contrary to the CEC, not the PUC.