Surprise Utility Fees Pose a Barrier to All-Electric Homes

Ending reliance on gas in buildings and supporting the installation of zero-emission appliances is critical to achieving our decarbonization goals by 2045. But state regulators must enact an important policy change to ensure that residential customers are not randomly hit with heavy costs to upgrade their electric service line and local grid when they need more power to run an all-electric home. Utilities must provide access to enough electricity for all customers who need it.

California is a leader when it comes to policy goals, regulatory requirements, and technological advancements that support all-electric buildings. For instance, Governor Newson’s clean building goals include 6 million electric heat pumps in buildings by 2030 and 7 million climate-ready and climate-friendly homes by 2035. The 2021 building code required “all-electric ready” new construction as of January 2023. An array of incentive programs are marshaling local, state, and federal resources toward the deployment of pollution-free and energy-efficient electric appliances. 

Most recently, the Bay Area Air Quality Management District strengthened building appliance rules to eliminate emissions of nitrogen oxides from residential and commercial natural gas furnaces and water heaters in the Bay Area. Similarly, and with the intention to promote statewide consistency, the California Air Resources Board is developing zero-emission standards for new appliances sold in California after 2027. Regulations like these are essential to the state’s decarbonization goals since space and water heating comprise nearly 90 percent of all building-related fossil gas demand, so electric appliances provide an opportunity for substantial emission reductions. 

However, a crucial piece still must be addressed to enable an equitable and affordable deployment of zero-emission appliances: ensuring that the utility (not the individual customer) is responsible for making sure the grid is ready for all-electric homes. A targeted approach to help existing residential customers handle these costs is overdue.

The Problem: Surprise Costs for Customers Trying to Do the Right Thing

When customers decide to install new electric appliances, they sometimes find they need more power. Often electric panel and service upgrades can be avoided, but when they can’t, customers have to ask the utility for access to more power. When the local grid isn’t ready for this increased demand, the utilities can charge customers thousands of dollars to upgrade the distribution grid or to run a new service line to the home. 

While zero-emissions appliances such as heat pump space and water heaters trigger service upgrades less frequently than electric vehicle (EV) charging or rooftop solar installations, and extremely high-cost scenarios happen relatively rarely, these unanticipated significant costs inhibit electrification and burden customers who are trying to reduce pollution in their homes and communities. 

For example, a study funded by the California Public Utilities Commission (CPUC) found that service line upgrades can cost customers $300 to $16,000. It also concluded that related costs—including trenching, easement costs, conduit replacements, and pole and transformer costs—can range from $2,850 to $30,000. This is on top of the cost a customer pays to upgrade their own electrical panel, which can range between $2,000 and $4,500.  

Inequality is Built into Grid Access

Moreover, these grid costs are more likely to harm already burdened and underinvested communities. A study published in Nature showed that in areas served by SoCal Edison and PG&E, some portions of the electric grid—especially in disadvantaged and predominantly Black neighborhoods—do not have the spare capacity needed to enable new electric loads without grid upgrades. Protecting individuals from these grid costs is an issue of equity in accessing zero-emission appliances.

The Solution: Utilities Should Be Responsible for Upgrading the Grid

Access to enough power to transition to healthy all-electric homes must be available to everyone. The California Public Utilities Commission should require the utilities to cover the full cost of upgrading the grid where needed. Homeowners would still be required to pay for their in-home upgrades, such as service panels and wiring, so there still would be a strong incentive to avoid unnecessary upgrades.

Clear Precedent for This Policy Change 

There is ample precedent for this policy change. The CPUC established an interim policy for covering grid improvements related to EV charging upgrades, rather than charging the individual EV customer. The costs were repeatedly found to be very low and this policy became permanent. In a recent study, Synapse Energy Economics found that, since 2011, electric vehicle drivers in California have contributed approximately $2.2 billion more in revenues than their associated costs to the grid. Because of this, EVs have helped apply downward pressure on rates for all customers. Covering electric service upgrade costs is also common practice outside of California’s private utilities. For example, the Sacramento Municipal Utility District (SMUD) does not charge residential customers anything for these upgrades.

Forcing individual customers to pay for grid infrastructure that will help California meet its climate and air quality targets is unfair and counterproductive, especially given that those already living in underinvested communities often have less grid capacity available. We urge the CPUC to act now to remove this barrier to transitioning to clean energy in homes.