Executive Summary

Achieving California’s ambitious climate goals requires electrifying existing buildings that currently rely on natural gas for services such as heating and cooking. Utilities will eventually need to reduce or terminate natural gas service in portions of their service territories – or reduce those service territories themselves – with electricity service providing a substitute source of energy to heat buildings and power appliances like stoves and water heaters.

This process raises a number of challenging legal and policy questions. In California, section 451 of the Public Utilities Code articulates energy utilities’ “obligation to serve” their customers, requiring that they “furnish and maintain . . . adequate, efficient, just, and reasonable service” for customers in their service territories. Ordinarily, utilities cannot terminate service without providing “adequate” substitute service. And this requirement also grants customers certain due process rights, including adequate notice and an opportunity to be heard prior to service termination.

This paper evaluates the legal issues that the transition from mixed-fuel (natural gas and electric) to all-electric service may raise. Any electrification policy should satisfy these legal requirements and ensure that the transition is equitable. If not well managed, electrification might impose high costs on a dwindling number of natural gas customers, disproportionately impacting low-income individuals who lack the means or the control over their homes to electrify. But with a well-planned process, the transition to all-electric buildings can not only provide important indoor and outdoor air quality benefits but can also be affordable and equitable.

Electrification and The Obligation To Serve. Legal precedent in California has not precisely outlined whether and how utilities can substitute electricity service for natural gas service. It also remains unclear whether the obligation to serve requires utilities to provide natural gas in particular, or to support the end uses (e.g., heating and cooking) that natural gas service enables. But the California Public Utilities Commission’s previous interpretations of this obligation and interpretations of similar provisions in other states provide a general legal roadmap.

Relevant California Public Utilities Commission decisions have considered the convenience of the substitute service, and the particular impacts the substitution may have on vulnerable populations. When courts in other states evaluated substitution of service in the public transit context, they considered the number of people using the existing service, its profitability, the incentives available to smooth the transition, and the substitute service’s reliability, convenience, and impact on particularly reliant or vulnerable populations. Under these metrics, electricity may be an adequate substitute for natural gas service, but additional regulation or legislation will likely be needed to create legal certainty for utilities and the communities they serve. An incentive structure to reduce the costs of electrification – especially for low-income populations – will likely be crucial to reduce legal risk to utilities and ensure an equitable transition for their customers.

Policy Recommendations. To address the legal uncertainties raised by termination of service, the Legislature could grant the California Public Utilities Commission broad authority to (1) manage the transition, (2) trim natural gas service territories, or (3) approve substitution of electricity service for natural gas service. Alternatively (or in addition), the legislature could clarify that the obligation to serve applies to energy end-uses, not the type of energy that facilitates them.