SB 377 amends Sections 651 and 784.2 of the California Public Utilities Code to change eligibility rules for biomethane procured through common carrier pipelines and to require the California Public Utilities Commission (CPUC) to allow recovery in rates of certain utility investments that enable interconnection between biomethane facilities and the gas transmission and distribution system. The bill also updates the list of environmental benefits tied to eligible biomethane projects.
Why it matters: the changes lower commercial and technical barriers for biomethane supply into California gas markets by easing delivery verification and by letting utilities include interconnection costs in rate base. That alters project economics, the balance between private and utility-built interconnection infrastructure, and places new verification and labor‑compliance obligations on projects claiming specific environmental benefits.
At a Glance
What It Does
SB 377 requires the CPUC, when it adopts biomethane procurement targets, to accept biomethane delivered via common carrier pipelines if it meets either specified inject-location criteria or demonstrates concrete environmental benefits; it adds displacement of conventional natural gas (with a prevailing‑wage/apprenticeship condition) to that benefits list. Separately, the bill directs the CPUC to permit recovery in rates for utility investments that achieve interconnection with biomethane producers by June 1, 2026.
Who It Affects
Gas corporations, core transport agents, biomethane project developers (including dairy cluster projects), and the CPUC are directly affected; ratepayers and suppliers of pipeline capacity will see indirect effects when interconnection costs and procurement rules change.
Why It Matters
By changing eligibility and cost‑recovery rules, the bill shifts incentives for who builds interconnection infrastructure and how biomethane is sourced and verified, with implications for project timelines, contract design, and ratepayer cost allocation.
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What This Bill Actually Does
SB 377 modifies how the CPUC treats biomethane for procurement programs and forces a near-term change to utility cost treatment for interconnection infrastructure. First, the bill rewrites the eligibility rule for biomethane that arrives through common carrier pipelines.
Previously, the statute required that such biomethane meet two specified tests; SB 377 makes meeting either test sufficient. One test focuses on injection location and physical flow into or toward California end users; the other requires demonstration that biomethane production yields tangible environmental benefits to California.
The bill also explicitly adds the displacement of conventional natural gas that reduces greenhouse gas emissions to the enumerated environmental benefits.
Second, SB 377 requires the CPUC to open the door to utilities recovering the costs of investments that create interconnections between biomethane generation (and associated gathering lines for dairy clusters) and the gas transmission and distribution network. The bill moves the CPUC from considering such recovery to mandating rate recovery of those costs by a statutory date.
This change is grounded in the bill’s legislative findings that rate‑basing interconnections reduces certain tax burdens faced by private projects and therefore lowers total procurement costs.Third, the statute keeps procedural and allocation mechanics in place: the CPUC must consult with the State Air Resources Board and ensure consistency with California’s organic waste and short‑lived climate pollutant targets. The commission also must allocate proportional biomethane procurement shares to core transport agents consistent with an existing administrative decision, while allowing agreement structures where gas corporations procure on behalf of core transport agents with costs borne by those agents.Finally, SB 377 layers in compliance expectations tied to federal incentives: a project that claims displacement as an environmental benefit must satisfy prevailing wage and apprenticeship criteria specified in the federal Inflation Reduction Act language referenced by the bill.
The measure also contains findings about the Income Tax Component of Contributions and Advances (ITCCA) and its effect on project economics, which is the statutory rationale for allowing utility rate recovery of interconnection investments.
The Five Things You Need to Know
SB 377 changes the statute so biomethane delivered through a common carrier pipeline needs to satisfy either the 'injection‑location/physical flow' test OR an 'environmental benefits' test, not both.
The bill adds 'displacement of conventional natural gas that results in a reduction in greenhouse gas emissions' to the list of allowable environmental benefits and ties that finding to prevailing wage and apprenticeship requirements under IRC Sections 48(a)(10) and 48(a)(11) as enacted by the Inflation Reduction Act.
On or before June 1, 2026 the CPUC must allow recovery in rates of utility investments that facilitate interconnection between biomethane generators (including dairy cluster gathering lines) and the gas transmission/distribution network.
SB 377 requires the CPUC to allocate each core transport agent a proportional share of biomethane procurement targets consistent with commission Decision 22‑02‑025, but it allows gas corporations to enter agreements to procure on behalf of core transport agents with costs charged to those agents.
The Legislature’s findings assert that rate‑basing interconnections reduces a 24% ITCCA tax factor applied to private renewable natural gas projects, which the bill uses to justify shifting interconnection costs into rate base to reduce procurement prices for utilities and ratepayers.
Section-by-Section Breakdown
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Legislative findings justifying rate‑basing and market impacts
This prefatory section lays out the Legislature’s rationale: climate impacts necessitate more biomethane; cost and timeline barriers to interconnection slow deployment; and the ITCCA tax treatment makes utility investments comparatively cheaper. The findings function as policy direction to the CPUC and signal legislative intent to prioritize lowered procurement price and accelerated interconnection through rate recovery.
CPUC biomethane procurement targets and revised eligibility tests
Section 651 retains the CPUC’s duty to consider biomethane procurement targets but changes the eligibility mechanics for biomethane delivered via common carrier pipelines: meeting either the injection/flow test or the environmental‑benefit test suffices. The environmental‑benefit list is expanded to include displacement of conventional natural gas with an explicit instruction that projects claiming that benefit meet federal prevailing wage/apprenticeship standards. Practically, this widens the pool of biomethane sources projects can use to qualify for procurement programs while adding a labor‑compliance condition on a subset of projects.
Allocation mechanics and procurement agreements for core transport agents
The bill authorizes core transport agents to contract with gas corporations to procure their allocated share of biomethane, provided the core transport agents pay the costs and the CPUC allocates environmental attributes transparently. It also directs the CPUC to initially set proportional shares consistent with Decision 22‑02‑025, preserving administrative continuity while allowing additional targets in the future.
Mandate to allow rate recovery for interconnection infrastructure
Section 784.2 moves the CPUC from 'considering' recovery to being required to allow recovery in rates of utility investments that facilitate interconnections (including gathering lines for dairy clusters). The statute sets a firm deadline—on or before June 1, 2026—for the CPUC to allow such recovery, creating a clear timeline for changes in utility accounting and possible tariff filings.
State reimbursement and criminal code linkage
The bill contains a standard clause that no state reimbursement is required under Article XIII B because any local costs would be linked to changes in penal definitions or enforcement. Practically, this notes the Legislature’s view that the bill creates no reimbursable local mandate under the specified constitutional provision, while earlier language in the digest flags that violations of the Public Utilities Act remain criminalized.
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Explore Energy in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- In‑state biomethane producers and dairy cluster developers — they gain lower barriers to entry because eligibility widens for common‑carrier delivered gas and interconnection costs can be lowered if utilities rate‑base investments.
- Gas corporations (utilities) — they receive statutory authority to recover interconnection investments in rates, making it easier to sponsor or finance interconnection work and to manage procurement on behalf of core transport agents.
- Core transport agents and large shippers — they get formal allocation of proportional biomethane targets and a mechanism to have utilities procure on their behalf, preserving market access while shifting procurement administration.
- Ratepayers seeking lower procurement prices — if the Legislature’s premise holds, rate‑basing removes private tax burdens and could reduce the per‑MMBtu price of biomethane passed through in procurement programs.
Who Bears the Cost
- Ratepayers collectively — allowing rate recovery means utility capital and associated costs are amortized through rates, which shifts payment responsibilities to the broader customer base even as procurement price dynamics change.
- Private developers and investors — they may face reduced incentives to finance or build interconnections if utilities step in and recover costs through rates, potentially compressing private returns.
- CPUC and program administrators — the commission must establish verification protocols, allocate targets consistent with existing decisions, and adjudicate contracts and attribute allocation, increasing administrative workload.
- Project owners who claim displacement benefits — they must meet prevailing wage and apprenticeship requirements, adding labor compliance and documentation burdens that can raise project costs or introduce timing risks.
Key Issues
The Core Tension
The central tension is between accelerating biomethane deployment by lowering commercial barriers and using utility balance sheets to finance interconnections, versus protecting ratepayers and preserving a competitive, private‑investment role in building interconnection infrastructure; the bill resolves this by favoring faster deployment via rate recovery but leaves open whether ratepayer savings and environmental benefits will reliably follow.
SB 377 trades off faster and potentially cheaper interconnection against governance, verification, and market‑structure risks. Allowing utilities to rate‑base interconnection costs reduces certain private tax burdens and can shorten project timelines, but it also shifts risk and payment to ratepayers and creates an incentive for utilities to build infrastructure that might have been privately provided.
The bill’s loosening of common‑carrier delivery requirements (either/or test) increases the pool of eligible gas but places a heavier verification burden on the CPUC to ensure environmental claims are real, additional, and tied to California benefits rather than accounting maneuvers or double counting of attributes.
The added prevailing‑wage/apprenticeship tie to displacement benefits imports federal labor standards into state eligibility decisions, which will require careful design of compliance and documentation rules. That linkage could materially raise project costs and delay eligibility for projects that otherwise clear technical hurdles.
Administrative questions remain: how the CPUC will verify physical flow versus claimed environmental benefits, how it will prevent attribute double‑counting across markets, how it will price and allocate costs when utilities procure on behalf of core transport agents, and how transfer of costs to ratepayers will be demonstrated to produce net consumer savings.
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