Lessons Learned (So Far) in Targeted Building Electrification
In September 2019, Gridworks published, California’s Gas System in Transition: Equitable, Affordable, Decarbonized and Smaller. The paper noted that electrification of buildings in California would reduce throughput (the volume delivered) over the gas system. Doing so could result in increased gas rates for those who don’t electrify as utilities would need to recover the fixed costs of the gas system over smaller volumes. Such an outcome would be particularly problematic for low-income customers and disadvantaged communities, who are the least able to afford new electrical appliances and the electrical panel upgrades that may be required in older housing, particularly in instances where the tenant is renting.
The report also highlighted that one of the strategies for mitigating these adverse outcomes would be targeted electrification. Such targeting could serve two distinct but potentially overlapping purposes:
1) Geographically Targeted: By electrifying all of the homes served by a particular segment of the gas distribution system, those portions of the system could be retired, reducing the gas utility’s operations and maintenance (O&M) expenses and potentially avoiding the need for costly upgrades of older equipment—thereby mitigating rate increase pressures; and
2) Demographically Targeted: Targeting financial incentives for electrification at low-income and disadvantaged communities to ensure that they share in the economic and environmental benefits of decarbonization.
San Joaquin Valley Affordable Energy Pilot
Now, almost two years later, Gridworks has taken a close look at the state’s progress in pursuing targeted electrification. Electrification projects targeted at retiring portions of the gas system are still in their infancy. However, we can learn from the most direct experience with electrification to date: the San Joaquin Valley (SJV) Affordable Energy Pilot.
The San Joaquin Valley (SJV) Affordable Energy Pilot was approved by the CPUC in D.18-12-015. That decision authorized the electric utilities and other program administrators to provide free electrification measures to customers in eleven small, underserved communities in the SJV that have not historically had access to gas service and rely on propane or wood for heating purposes. Designed primarily to promote energy affordability rather than decarbonization per se, the Pilot offers free advanced electric appliances for space and water heating, cooking and clothes drying, along with panel upgrades and up to $5,000 per household for other building remediation measures needed to enable electrification, plus an additional 20% electric rate reduction on top of the CARE discount.
This year Gridworks interviewed 12 leading experts to gain insight to successes and setbacks of the SJV Affordable Energy Pilot. Then on September 15, 2021 we convened a workshop to share our takeaways from the interview and get additional feedback. 47 people participated, including on the ground program implementers, utilities, and EJ advocates to representatives from state agencies. We also invited PG&E to provide an update on their effort to decommission segments of the gas system.The sum of these conversations are outlined here and should guide the design and implementation of future targeted electrification efforts.
Importance of Direct Customer Outreach from Trusted Partners: Extensive customer outreach, utilizing CBOs active in the area and local Community Energy Navigators (CENs), was planned to introduce the Pilot and solicit participation. Unfortunately the Covid-19 epidemic hit just as the community outreach was slated to begin, forcing the program to rely on telephone contacts and email (although not always an option due to poor broadband accessibility) rather than direct person-to-person outreach by trusted local messengers. This depressed participation, as residents may be reluctant to engage by phone with callers not already known to them. Clearly direct person-to-person contact with someone the customer trusts is needed. In some cases, customers wanted gas service for years and are wary of an effort to convince them that new electric appliances will prove satisfactory and will result in actual bill savings. In other instances, customers are reluctant to swap out appliances in which they have already invested money for those they fear could be of lower quality.
Distribution System Upgrades Cause Delays: One major problem, particularly in PG&E’s service territory, has been the delay involved in implementing distribution system upgrades on the utility side of the meter (transformer and power line upgrades, etc.). These are sometimes needed to serve the increased electric load in participating neighborhoods and prove particularly time consuming when infrastructure is undergrounded. Once a customer signs up for the program, they may have to wait several months for the utility to perform the necessary upgrades before the new appliances can even be installed. This delay, together with a lack of communication about project status, has eroded customer confidence.
Unique Needs of Mobile Homes: A significant number of the dwellings in these communities are mobile homes, though typically not grouped into parks but rather on individual lots. Obtaining a permit for the work requires that the owner provide the title to the mobile home as well as a current registration (much like the requirements for automobiles), but many of the residents do not have these documents, and might even be liable for unpaid registration fees if they attempt to come into compliance. Moreover, the process was recently shifted from the DMV to the Department of Housing and Community Development (HCD), which only adds to customer confusion. It would help considerably if HCD had a simple amnesty process for waiving the fees associated with bringing the mobile home into compliance, as a complement to the Pilot.
Concerns Over Electric Reliability and Affordability: Recent publicity regarding Public Safety Power Shutoffs (PSPS) has also caused customers to question the reliability of electric service as compared to gas. This is true even if their own community has not experienced a PSPS event. Similarly, reports of expected electric rate increases due to wildfire prevention exacerbate concerns that electricity will be more expensive than gas. Some methodology for ensuring continued affordability is essential.
Space Constraints: Many participating homes do not have sufficient space for appliances indoors and instead store dryers, etc. outdoors. This often makes replacement with electric appliances impossible for safety reasons and for reasons of voiding the manufacturer’s warranty. In addition, the Pilot does not allow for the construction of an enclosure for the appliance as a permissible remediation cost.
Landlord-Tenant Problem: The familiar landlord-tenant problem also exists in this Pilot. Landlords must approve of the upgrades and sign an agreement not to evict the tenant without cause or increase rents by more than a nominal amount for five years. These restrictions have caused some landlords to reject participation, although a number have agreed to do so.
Lack of Broadband Access Limits Participation: As mentioned earlier, lack of broadband access makes communication with customers more difficult. Customers without broadband are also unable to leverage their smart appliances to participate in demand response programs, which limits access to a potential benefit stream.
Customer Service Matters: Quality of customer service has also been flagged. Instances in which installers are disrespectful or do not engage in a professional or helpful manner, undermine the initiative as a whole and result in lower program participation as neighbors share experiences with one another. The inverse is also true. Positive experiences cultivate trust and willingness to participate in the program. CENs are playing a critical role in this regard and need to be funded to actively engage with communities (in the relevant language) throughout the project, to educate residents on how to use the appliances and to ensure the appliances are functioning properly. Residents, for example, have been more open to electric stoves than expected, once they have been given the opportunity to learn more about induction technology. Additionally, some who initially declined to participate changed their minds after learning more.
Complementary Programs and Funding are Needed: We need to think about electrification holistically and understand that multiple agencies and organizations need to be involved along the way. In addition to electric appliances, we have to focus on treating the whole home and provide the flexibility needed for dealing with homes that are unique. We need greater synergy between energy and non-energy programs and to recognize the relevance of weatherization and the expansion of broadband access, for example, to successful outcomes. Even more, we need to understand that conventional “cost effectiveness” frameworks are not the best ways to think about electrification in underserved communities.
PG&E’s Efforts Targeted Electrification Efforts
PG&E has endeavored to identify sections of its gas system where upgrades and replacement can be avoided through targeted electrification. An intake process has been developed where departments across the company can flag the potential for avoided gas system costs. At present, the identification of opportunities, coordination with relevant customers, and calculation of incentives is manual and varies from project to project. The goal is to eventually automate more of this work.
Addressing Holdouts: Projects tend to be successful when they involve fewer customers. This is because the larger the project, the greater the likelihood is for “holdouts.” It is possible that executing targeted electrification projects at-scale will require revisiting the utility’s “obligation to serve” and its options for requiring holdouts to pay for the work being done to serve them, rather than passing it along to all gas customers.
Project Financing: Two project financing issues have also emerged. In some instances, the cost of retiring the gas pipe (which often involves cutting and capping the line after filling it with a slurry) exceeds the repair or replacement costs that the electrification project avoids. While retirement of large portions of the gas system is inevitable under California’s decarbonization objectives, bringing these expenditures forward in time needs appropriate funding. These activities should not be discouraged through improper application of a project cost-effectiveness metric that only focuses on “current” work. Early retirement avoids eventual maintenance and repair costs that would have otherwise been incurred if the pipe remained in service. Second is that the targeted electrification projects avoid the outlay of capital dollars in exchange for spending expense dollars in the form of electrification incentives. Since utilities earn a rate of return on capital expenditures, but not expense ones, there is a potential misalignment in the incentive for the utility to pursue targeted electrification pilots. This will prove particularly true in instances where one utility provides gas service and another provides electric.
California will not be successful in achieving its decarbonization objectives without participation from all of its communities. We need to acknowledge that we are at the beginning of a very long journey and that we cannot get where we need to go unless we ensure that all Californians share in the benefits of our efforts. We must believe in, leverage, and fund local expertise and organizations as trusted messengers and expert advisors on how best to design and implement programs, particularly in disadvantaged communities. Gridworks intends our observations to be used to inform best practices with respect to the design and implementation of future targeted electrification efforts moving forward. Working in concert with the consulting firm E3, the East Bay Community Energy CCA and others, Gridworks recently received a two-year grant from the California Energy Commission (CEC) to study the conditions under which such targeted electrification could best be achieved. We look forward to applying these lessons learned in that project.