Electrification in California, driven by the shift to electric vehicles and electric heating, could put downward pressure on electricity rates, even as utilities invest billions of dollars to upgrade the distribution grid, according to a new study from the California Public Utilities Commission’s Public Advocates Office.
This complicates the common assumption that electrification always makes electricity more expensive. While grid upgrades are significant, the study says increased electricity use from electrification can help spread fixed system costs across more sales, easing pressure on per-kilowatt-hour rates over time.
Why Rates Are in the Spotlight
Rates are a growing concern in California, where they’ve risen faster than inflation in recent years. Utility investments in wildfire mitigation, reliability, and infrastructure modernization are often cited as reasons for higher bills, and electrification is added to that list.
Electric vehicles and heat pumps increase demand on local distribution systems, which are already strained in some areas. So, electrification is often framed as another cost on top of an already expensive grid. The DGEM 2025 study challenges that framing by looking at how demand growth and infrastructure costs interact at the distribution level.
What the Study Covers
The Distribution Grid Electrification Model 2025, or DGEM 2025, was developed by the CPUC’s Public Advocates Office to estimate the distribution system upgrades needed to support widespread electrification through 2040.
The model focuses on distribution infrastructure, not generation or transmission. It examines how increased electricity demand from electric vehicles and building electrification affects grid investment needs and retail electricity rates under different adoption and charging scenarios.
It’s not meant to predict exact outcomes but to show how different electrification paths impact costs and rates over time.
The Cost of Upgrading the Distribution Grid
The study estimates California’s investor-owned utilities will need to invest tens of billions of dollars in distribution upgrades to accommodate electrification. Under a central scenario, cumulative distribution system costs reach around $25 billion by 2040.
That includes upgrades to transformers, substations, and local circuits to handle higher peak loads. While the total is big, the study notes that those costs are spread over decades and across a growing customer base.
Importantly, the analysis isolates distribution-level spending, which is often less visible than generation or transmission projects but directly affects retail rates.
How Electrification Can Ease Rate Pressure
The study’s main point is that electrification increases electricity sales faster than it increases distribution system costs. Because many grid costs are fixed, more total electricity consumption allows those costs to be spread across more kilowatt-hours.
In practical terms, that means while total utility spending goes up, the average cost per unit of electricity can grow more slowly or even decline compared to a scenario with lower electricity demand. The Public Advocates Office calls this downward pressure on rates rather than guaranteed rate reductions.
The study does not say electrification will automatically lower bills, but that it can reduce upward rate pressure compared to a future where electrification doesn’t happen.
EV Charging Behavior
Electric vehicles are the biggest driver of new distribution system demand in the model. How and when EVs are charged has a big impact on infrastructure costs.
Scenarios with unmanaged, peak-hour charging require many more grid upgrades than scenarios where charging is shifted to off-peak hours. The study finds managed charging could reduce distribution upgrade costs by several billion dollars through 2040.
Lower infrastructure costs mean lower revenue requirements for utilities and more downward pressure on rates. The implication is that rate outcomes are not just determined by electrification itself but by policy and consumer behavior around charging.
Building Electrification Has a Smaller Impact
Compared to transportation electrification, building electrification has a smaller role in driving distribution system costs. The study finds that electric heat pumps and other building technologies add load more gradually and are less likely to drive localized peak demand.
So building electrification contributes less to near-term distribution upgrades and has a smaller impact on rate outcomes. This runs counter to concerns that residential electrification alone could overwhelm local grids.
Important Notes on Rates and Bills
The study is careful to distinguish between electricity rates and customer bills. Downward pressure on rates doesn’t mean households will pay less overall, especially as electricity consumption increases.
Actual outcomes depend on how utilities design rates, how fast electrification happens, and how well charging and demand are managed. The authors also note the model is directional, not a forecast, meant to inform planning, not predict exact rate trajectories.
Why the Findings Matter Beyond California
California is often a test case for electrification policy in the US. Many states face similar questions about how to modernize aging distribution systems while keeping rates affordable. The DGEM 2025 study shows that electrification outcomes are not set in stone. Infrastructure costs and rate impacts are determined by planning, demand management, and the pace of adoption. For policymakers and utilities outside California, the findings mean managing load growth, not treating electrification as a cost-only problem.
Electric vehicles and electric heating will require a big investment in California’s distribution grid. But the DGEM 2025 study says that investment doesn’t automatically mean higher electricity rates.
By increasing electricity sales and spreading fixed costs more widely, electrification can ease rate pressure, especially with managed EV charging. The study reframes electrification not just as a climate strategy but as a factor that can impact affordability depending on how it’s done.