Jalal Awan is an energy and climate policy analyst at The Utility Reform Network. Opinions expressed are his own.
State utilities are spending billions of dollars every year to maintain and upgrade California's natural gas distribution system just as we're trying to wean ourselves off of this fossil fuel energy source that contributes to climate change.
One possible solution emerged from the state legislature and received Gov. Gavin Newsom's blessing when he signed Senate Bill 1221 into law in September 2024. The bill directs utilities to create "decarbonization zones" — designated neighborhoods where aging gas pipelines would be retired and residents helped to switch to electric appliances like heat pumps and induction stoves, funded by the savings from avoided pipeline replacements. The California Public Utilities Commission faces a monumental task in implementing this promising idea, but early evidence reveals how difficult it can be for regulators to uphold ratepayers' interests when utilities control the data and have their own financial priorities.
SB 1221, authored by Sen. Dave Min, D, and approved in 2024, directs the CPUC to create several decarbonization zone pilots throughout the state to test whether this approach really works. The good news is that the CPUC has identified 151 such zones throughout the state — including areas in San Jose, Los Angeles, and Elk Grove — but there are flaws in how the commission did this.
Despite the challenges with SB 1221 implementation, California cannot keep funding aging gas pipelines and expect to meet climate goals or rein in skyrocketing energy bills. Statewide, gas utilities are projected to spend about $43 billion on pipeline replacements between now and 2045. Replacing a single mile of pipe can cost $3 million to $5 million, or more. That money lands on gas bills — and utilities are rewarded for it, earning roughly a 10% guaranteed return on every dollar spent replacing pipelines.
SB 1221 was designed as a partial antidote to runaway spending on gas pipeline replacements. It directs the California Public Utilities Commission to approve up to 30 voluntary neighborhood decarbonization pilots, allowing investor-owned utilities to retire local gas lines and redirect savings to cheaper zero-emission alternatives, with priority for low-income communities. This is not a feel-good climate experiment; it is a cost-control strategy with a climate bonus.
So far, so reasonable. But as in regulation more broadly, the details are shaped by utilities, intervenors, and unusually heavy reliance on public comments.
Last year, the CPUC took the first step to operationalize SB 1221, designating 151 “priority” decarbonization zones statewide. Confronted with more than 9,000 census tracts, the commission needed a screening rule. It chose a threshold requiring at least 10% of local gas mains to be scheduled for replacement for a tract to qualify for pilot consideration. Set the bar higher, the commission reasoned, and places like Los Angeles and Elk Grove would be excluded. Set it lower, and nearly every tract would qualify.
On paper, the approach looks careful and well-reasoned. But two problems lie beneath the surface.
The first problem is participation bias. The CPUC appears to overweight regulatory engagement, advantaging communities with greater time, money, and expertise to navigate its obscure docket process. The result is a map dominated by civically organized, coastal, and largely white neighborhoods, while higher-burden inland and Central Valley communities are left out. If wealthier areas receive ratepayer-funded electrification while inland renters remain on aging gas systems, California risks accelerating the very “death spiral” SB 1221 was meant to avoid — shrinking the gas customer base and pushing rising pipeline costs onto fewer, poorer households.
The second problem is misaligned utility incentives. Electrification may make climate sense, but investor-owned utilities respond to profit maximization, not moral suasion. Under cost-of-service regulation, gas pipelines earn guaranteed returns while electrification carries risk. Pacific Gas & Electric’s decision to walk away from the Cal State Monterey Bay electrification project, despite its own analysis showing savings, illustrates the point, climate goals be damned.
SB 1221 seeks to realign incentives by granting the utility regulator broad authority over cost-effectiveness, allowing it to make utilities financially whole while nudging them away from unnecessary gas investments. It also lets the Commission retire gas lines when cleaner alternatives cost less, removing the “obligation to serve” once two-thirds of customers opt in. Whether SB 1221 delivers on its promise depends entirely on how regulators wield that authority.
To its credit, the commission kept the door open to future updates of SB 1221 neighborhood decarbonization zones in its decision. For the iteration due end of this year, it may start with pollution burden and vulnerability as the guiding principles for identifying pilot communities.
The latest CalEnviroScreen socioeconomic vulnerability scores, paired with focused outreach directed toward inland communities, the Central Valley, and California’s tribal nations, should shape the next map. Utilities must also be held to a transparent cost-effectiveness standard, with basic project data disclosed so the public can see where billions are going.
SB 1221 offers a rare opportunity to align climate action with lower bills and prudent spending of ratepayer dollars. That promise will only be realized if regulators resist the path of least resistance and direct neighborhood decarbonization to where it saves the most money and helps communities most in need.
