California’s choice: Cleaner air for schools or money for utilities

Should California spend nearly $200 million helping public schools install healthier and more efficient heating, ventilation, air-conditioning, and plumbing systems? Or should it send the money back to the state’s biggest utilities so their customers can pay roughly a dollar less on their monthly bills over the course of a single year?

That’s the choice that California lawmakers must make in the coming months.

The funds at stake are part of the California Schools Healthy Air, Plumbing, and Efficiency program, or CalSHAPE, which funds schools’ HVAC and plumbing repairs and upgrades. The state required its three big utilities — Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric — to fill the initiative’s coffers with about $1 billion in fees collected from customers between 2020 and 2023.

Although much of that total has already been doled out, $194 million in CalSHAPE funds has been frozen since 2024 as state leaders debate ways to curb skyrocketing energy bills. Because current law sunsets CalSHAPE at the start of 2027, the leftover money will revert to utilities by year’s end without legislative action.

Clean energy and community advocates are pressing lawmakers to prevent that from happening.

They want leaders to leverage a sprawling budget-negotiating document, known as a budget trailer bill, to extend the looming deadline and to direct the California Energy Commission, which administers CalSHAPE, to disburse the money to schools — many of which have already identified projects they want to pursue. That includes replacing old AC equipment to keep students comfortable as climate change fuels extreme heat, improving air-filtration systems, and swapping fossil-fueled heaters for all-electric heat pumps that can both warm and cool buildings.

“The $200 million or so that’s sitting unused would help about 120,000 students in California electrify their schools, which would reduce their air pollution and give them access to air conditioning,” said Leah Stokes, an associate professor of environmental politics at the University of California, Santa Barbara. That work, she added, is ​“not optional — it’s to protect kids from extreme weather events, from climate change, from fires, from heat waves.”

Nine members of the state Assembly have signed a letter asking lawmakers who chair key budget committees to extend the CalSHAPE funds. Unless legislation is introduced to alter the current state of affairs, the final decision on whether the $194 million will remain available for schools or be returned to the utilities on Dec. 1 will be made in budget negotiations between lawmakers and Democratic Gov. Gavin Newsom. While a final budget package must be settled by July 1, budget trailer bills that modify state law to implement a broader budget agreement have until Aug. 31, the end of this year’s legislative session, to be completed.

A long-running battle over utility rate relief

CalSHAPE was created by a law passed in 2020 that aimed to make schools — especially those in underserved areas and ​“fenceline” communities near polluting facilities — more energy efficient, healthy, and resilient. It has since given out nearly $800 million to more than 1,000 projects, according to a 2025 report from the California Energy Commission.

But the agency abruptly closed further grant applications in mid-2024.

It said it closed the program to ensure that schools had enough time to fully spend their awards before the program’s sunset. But according to a March analysis from a state Senate budget subcommittee, the funding was frozen ​“in part because legislation and other departmental reports focusing on energy affordability proposed to revert CalSHAPE funds to ratepayers.”

That statement refers to Assembly Bill 3121, introduced in mid-2024 by Assemblymember Cottie Petrie-Norris (D), who chairs the chamber’s Utilities and Energy Committee, in consultation with the Newsom administration. The bill proposed clawing back CalSHAPE funding, along with grants for solar on low-income multifamily buildings and batteries for medically vulnerable households, in an effort to curb the state’s fast-rising electricity rates.

Critics of that plan pointed out that pushing that money back to utilities was likely to yield only $30 to $50 in one-time rebates for customers — an amount they said was too little to validate axing the programs. Those arguments won the day, with AB 3121 failing to advance.

Yet the CalSHAPE funding has remained frozen, and Newsom has continued trying to return the funds to utilities. That’s left schools stuck in limbo. Of the nearly 5,000 schools that received grants to conduct initial assessments — nearly half of which are in underserved communities — only 172 have secured follow-on funding to complete recommended HVAC work, according to the pro-CalSHAPE coalition.

“We’ve been working for two years to try to get this funding revived,” said Keith Butler, deputy superintendent of Torrance Unified School District, in Southern California. His district used $1.6 million in first-phase CalSHAPE funding to deploy carbon dioxide–detecting thermostats and to hire an engineering firm to identify about 300 buildings, serving about 6,000 students, that need to replace decades-old air-conditioning units, he said.

“We were ready to push the button on round 2,” he said — a $6 million investment in replacing those AC units with modern equipment — ​“and then the plug got pulled.”

The California Energy Commission told Canary Media in an email that it is working with schools to process the nearly $800 million in previously allocated funds, but that ​“unallocated funding is anticipated to be returned to ratepayers.” The agency declined to comment on pending legislative discussions. Petrie-Norris’ office did not respond to multiple requests for comment.

Returning the unspent $194 million wouldn’t make much of a dent in utility rates. According to the March Senate budget subcommittee analysis, redirecting the funds back to customers ​“would result in savings of $2 per month for one year for San Diego Gas & Electric ratepayers, $1.25 per month for one year for SoCal Edison ratepayers, and $0.20 per month for one year for Pacific Gas & Electric ratepayers.”

Utilities aren’t obligated to use any unspent money to reduce rates under the law that authorized CalSHAPE, Stokes added. ​“My fear is that utilities will just do their creative accounting and shuffle things around and take that as profit,” she said.

How efficiency benefits schools — and everyone else

California isn’t the only state looking to curb energy-efficiency spending to offer short-term utility bill relief. Democratic lawmakers in Maryland, Massachusetts, and Rhode Island, for example, have recently proposed cutting back on energy-efficiency programs to reduce fees on utility customers’ bills. Experts warn that such rollbacks are shortsighted, since lowering energy use through efficiency helps customers save money on their bills and drives down utility costs in the long run.

Efficiency upgrades can also help states meet their climate goals. The California Energy Commission forecasts that the projects funded by CalSHAPE so far will reduce greenhouse gas emissions by 3,300 metric tons, equivalent to taking 770 gasoline-fueled cars off the road for a year.

For example, the Santa Paula Unified School District, in Ventura County, is using $3.9 million in CalSHAPE funds to replace fossil gas–fueled condensers and furnaces at an elementary school with all-electric heat pumps and air-conditioning systems, said Douglas Henning, the district’s facilities and construction manager. ​“Everything we’re replacing, gas is going away,” he said.

These retrofits have significant health and wellness impacts too, Stokes noted. Students often struggle to concentrate in classrooms that are too hot or cold, and older HVAC systems may not properly filter air pollutants, such as vehicle exhaust or wildfire smoke. Richard Bruns, a scientist at Johns Hopkins University, found that the long-term benefits of school HVAC upgrades — which come in the form of improved health and educational outcomes — outweigh the costs by a factor of 30.

HVAC retrofits can also reduce the burden that schools put on the power grid. Some California school districts are piloting advanced AC control systems to shift when they draw electricity to avoid increasing peak loads on grids during heat waves.

Reducing that strain could lower costs for everyone by reducing the amount of money that utilities have to spend to upgrade their power grids. ​“Ratepayers will benefit from lower peak demand and lower environmental drag from using less electricity,” the Torrance district’s Butler said.

In an interesting twist, the ongoing dispute over CalSHAPE funding intersects with another controversial energy issue before the California legislature: what to do with the state’s biggest virtual power plant program.

Lawmakers are now haggling over whether to extend funding for that Demand Side Grid Support program or whether to close it down and redirect the funds to utility-managed VPP programs, which have been far less effective at delivering grid relief at an equivalent cost. The Newsom administration has proposed shifting roughly $70 million in interest generated by the CalSHAPE funds to the utility-run programs.

Stokes is among the advocates pushing to redirect that $70 million to the Demand Side Grid Support program, even as she works to retain the $194 million for school retrofits.

In both cases, Stokes said, the choices are to spend money as lawmakers originally intended or to give it back to the state’s politically powerful utilities. ​“The idea that we would rob from schoolkids to hand another blank check to utilities is to me unacceptable,” she said.