August 18, 2020
The blackouts that hit California over the past few days exposed the fragility of one of the most-expensive and least-reliable electric grids in North America. They also show that California’s grid can’t handle the load it has now, much less accommodate the enormous amount of new demand that would have to be met if the state attempts to “electrify everything.”
The push to electrify everything would prohibit the use of natural gas in buildings, electrify transportation, and require the grid to run solely on renewables (and maybe, a dash of nuclear). But attempting to electrify the entire California economy will further increase the cost of energy at the very same time that the state’s electricity rates are soaring. That will result in yet-higher energy costs for low- and middle-income Californians.
Over the last year or so, the Sierra Club, along with the Rocky Mountain Institute and other groups, have been pushing local governments to prohibit natural gas use and force consumers to rely solely on electricity. In July 2019, Berkeley became the first city in the United States to pass a ban on natural gas hookups in new buildings. Since then, about 31 other local governments in California have passed restrictions or bans on the use of natural gas. Last month, the Sierra Club gleefully announced that the city of Piedmont had committed “to going gas-free.”
These restrictions are being labeled as an essential part of California’s efforts to slash its greenhouse gas emissions. But in practice, they are regressive energy taxes that will hurt low- and middle-income consumers and in doing so, exacerbate California’s poverty problem.
California may be known for Silicon Valley and the beauty of its mountains and beaches, but it also has the highest poverty rate of any state in America. When accounting for the cost of living, 18.1% of the state’s residents are living in poverty. For perspective, that means that roughly 7 million Californians — a population about the size of Arizona’s — are living in poverty.
As I show in a recent report for the Foundation for Research on Equal Opportunity, Californians are also paying some of America’s highest energy prices. For instance, the average cost of residential electricity in California last year was 19.2 cents per kilowatt-hour, which is 47% higher than the national average of about 13 cents per kilowatt-hour.
Restrictions on natural gas are popular in the Bay Area and Silicon Valley. Municipalities in Silicon Valley that have passed restrictions include Cupertino, the home of Apple; Mountain View (Alphabet); and Menlo Park (Facebook). Those restrictions may be politically popular, but the regressive effects of the electrify everything push cannot be ignored. Banning the direct use of natural gas for cooking, home heating, water heaters, and clothes dryers, will force Californians to instead use electricity which, on an energy-equivalent basis, costs four times as much as natural gas.
In addition to the high electricity prices, California’s low-income ratepayers could be on the hook for costs related to shuttering the natural gas grid. An April report by the California Energy Commission called “The Challenge of Retail Gas in California’s Low-Carbon Future,” found that banning natural gas in homes and businesses will result in “large reductions in gas demand” that could result in “unsustainable increases in gas rates and customer energy bills.” That, in turn, would have the biggest impact on “customers who are least able to switch away from gas, including renters and low-income residents.”
The bans and restrictions on natural gas are being implemented at the same time California’s electricity rates are soaring. Last year, the California Public Advocates Office published a study on electricity rate trends. It found that due to “energy efficiency and distributed generation, [electricity] sales have been stagnant or decreasing statewide for the past several years…with lower sales, the same revenue requirement is collected over fewer kilowatt-hours, resulting in higher per kilowatt-hour rates.” In other words, as wealthier ratepayers add solar panels to their roofs and use more efficient appliances, the utilities are selling less energy. However, the utilities must still cover all of their ongoing costs, which must be allocated on fewer kilowatt-hours. That means they have to charge more for each kilowatt-hour since they are selling fewer of them.
The same report found that between 2009 and 2019, baseline rates—that is, the minimum charge assessed to each customer for basic electricity service—“increased at an alarming rate.” Over that decade, San Diego Gas & Electric’s baseline rate jumped by 106%, or more than five times as fast as the Consumer Price Index. PG&E’s baseline rate jumped by 85%, and Southern California Edison’s rate increased by 48%.
Those electric rates are certain to continue rising. In 2018, California lawmakers imposed a mandate that requires the state’s electric utilities to procure at least 60% of their electricity from renewables by 2030, and to be producing 100% “zero-carbon” electricity by 2045. Achieving those targets will require the utilities to spend tens of billions of dollars on new high-voltage transmission lines. The state’s utilities must also billions more to upgrade their distribution system. Two years ago, the state was hit by a series of deadly wildfires, some of which were ignited by power lines.
In addition to upgrading the grid to meet the renewable mandates, California utilities must be ready to deliver lots more electricity to meet new demand due to the bans on natural gas. They must also generate more juice to meet new demand that will be coming from the transportation sector. In June, the California Air Resources Board adopted a rule that requires commercial trucks sold in the state be electric starting in 2024 and for the commercial fleet to be all-EV by 2045.
Will the state’s utilities be able to supply all of that new electricity? Only time will tell. But it is clear that the state’s utilities are already stressed.
In October 2019, Pacific Gas & Electric shut off power to some 800,000 customers in 32 counties. Those blackouts were dubbed “public-safety power shutoff events” designed to avoid a repeat of the deadly wildfires. The blackouts lasted eventually affected nearly three million people and PG&E warned that it could continue imposing blackouts for another 10 years. As part of its effort to avert more blackouts this year, the utility is planning to deploy up to 450 megawatts of diesel-fired mobile generators.
Years of misguided policies have left Californians plugged into a tattered electric grid that can’t handle a heatwave. Californians now rely on an electricity network that looks and acts more like a grid you’d find in Beirut or Africa than ones in Europe or the United States.
In short, the blackouts that hit California a few days ago appear to be only a taste of the pain to come. And the state’s consumers are going to be paying even higher prices for that pain.
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