Reducing Methane Emissions from California’s Natural Gas System - An Important Step Forward

On August 15, 2019, we adopted a groundbreaking decision to reduce methane emissions from the natural gas system, demonstrating California’s continued leadership in combatting climate change.

Background

In 2014, California passed Senate Bill (SB) 1371, with the goal of minimizing methane emissions from the natural gas system. Methane, the main constituent of natural gas, is a powerful greenhouse gas, 84 times more potent than carbon dioxide over a 20-year time frame.

2015 Decision

In 2015, the CPUC initiated a Rulemaking to accomplish the goals of SB 1371. Two years ago, as part of that Rulemaking, we required California’s largest gas utilities to file annual reports tracking methane emissions from their systems, comply with 26 best practices to reduce these emissions, and file biennial compliance reports.

This was a significant step forward. But there were issues that we could not fully address for want of data and experience in implementing these new requirements.

Moving Forward

With the benefit of utilities’ compliance plans, utility experience in implementing them, and input from a range of stakeholders, including consumer advocates and environmental groups, we were able to advance further with this new decision.

Going forward, utilities are required to evaluate the cost-effectiveness of their proposed measures to reduce methane emissions and include the social cost of methane in making this evaluation. For now, we will only be using this evaluation for informational purposes. But it will allow us to identify the measures that give us the biggest bang for the buck and help ensure that we are using our limited resources as efficiently as possible in addressing climate change. Including the social cost of methane will also ensure that we don’t undervalue the benefits of potential methane reduction measures.

We also adopted a limit on the extent to which California’s two largest gas companies can recover from customers the cost of methane emissions leaked from their systems, creating an economic incentive for utilities to minimize these emissions. These methane emissions are part of what is known as “lost and unaccounted for gas,” or LUAF. Specifically, beginning in 2025, if these utilities fail to reduce their methane emissions by at least 20 percent below the 2015 baseline, they will not get rate recovery for the amount of methane emissions exceeding this target. These emission reduction levels are feasible and in-line with the utilities’ own estimates of what they will achieve over this time period.

California Leads the Way

We are one of the very first utility regulators to adopt such a measure, which ties gas companies’ environmental performance to their bottom line. It is appropriate because we are authorizing very large utility expenditures on methane reduction measures and we want them to be successful. The utilities have 5 years and two additional rounds of compliance plans to achieve this target.

While the potential economic impact on the utilities if they do not comply is modest, the message is important. Californians are paying for utilities’ methane reduction measures. We expect results.