May 5, 2022
Last week, Californians got a rare bit of good news on the energy front: Gov. Gavin Newsom said he would work to prevent the closure of the Diablo Canyon Power Plant, the state’s last nuclear power plant. Yet regardless of what happens with Diablo Canyon, electricity prices in California are going even higher, despite being already among the highest in the country.
Last year, according to the Energy Information Administration, residential power prices in California jumped by nearly 12 percent, to an average of 22.85 cents per kilowatt-hour. California residential users now pay about 66 percent more for electricity than homeowners in the rest of the U.S., who pay an average of 13.72 cents per kilowatt-hour.
Then, in January, electricity rates for customers of Pacific Gas & Electric, the biggest utility in the state, went up by 8 percent, and in March, PG&E customers were hit by another 8.9 percent rate hike.
The ongoing price hikes are terrible news for low- and middle-income consumers in California, which has the highest poverty rate in the country. At a time of skyrocketing inflation and gasoline prices, many just can’t afford to pay; last month, several news outlets reported that more than a quarter of residential customers in San Diego County are behind on their utility payments.
There’s a lesson here for the rest of the United States, not just about how not to run an electric grid, but about who bears the cost of some of the most extreme measures to combat climate change.
Promoters of renewable energy never tire of claiming that weather-dependent renewables are cheaper than conventional forms of producing electricity. But the ongoing price increases prove those claims are hogwash. The hard truth is that California’s soaring electricity prices show what happens when decarbonization efforts are pushed too far too fast.
California’s decarbonization policies include a requirement for 100 percent zero-carbon electricity and an economy-wide goal of carbon neutrality by 2045. But the pursuit of those goals has come with a big price tag—and one not borne equally by rich and poor. Since 2008, according to the EIA, the all-sector cost of electricity in the Golden State has grown five times faster than rates in the rest of the continental U.S. Those increases hurt lower income Californians much more than the rich, who can afford to cover their massive roofs with solar panels.
But there’s more pain on the way. In February, the California Public Utilities Commission unanimously approved a scheme that aims to add more than 25 gigawatts of renewables and 15 gigawatts of batteries to the state’s electric grid by 2032 at an estimated cost of $49.3 billion. Also in February, the California Independent System Operator released a draft plan to upgrade the state’s transmission grid at a cost of some $30.5 billion.
The combined cost of those two schemes is about $80 billion. Dividing that sum among 39 million residents works out to about $2,050 for every Californian. But with inflation rampaging throughout the economy, the final price tag will almost certainly be more than $80 billion. Prices for everything from zinc and lithium to nickel, steel, and aluminum are soaring. And of course, big public works projects often blow past initial estimates; California’s infamous high-speed rail project was expected to cost $42 billion when it was launched in 2008. The latest cost estimate is $105 billion.
Meanwhile, the state’s decarbonization policies include a ban on the sale of cars powered by internal combustion engines that begins in 2035 and a push to prohibit the direct use of natural gas in homes and businesses. This push for the electrification of transportation will require the installation of about 1.2 million new EV charging stations by 2030, according to the California Energy Commission. The cost of those stations will, of course, be borne by ratepayers. Furthermore, running all cars and trucks in the state on electricity will increase electricity demand by 25 percent, in a state that is already experiencing regular blackouts.
The Sierra Club, which is getting tens of millions of dollars from billionaire Michael Bloomberg, has pushed hard for bans on natural gas. Some 54 local governments in California have implemented restrictions on the use of the fuel and climate activists are pushing for a statewide ban. But those bans will also increase electricity demand and result in even-higher energy costs for consumers. Why? On an energy-equivalent basis, electricity costs more than three times as much as natural gas.
The punchline here is obvious: California policymakers need a big dose of energy realism. It’s time for them to admit the obvious: Expensive energy is the enemy of the poor.
Last week, Newsom said that reliable electricity is “profoundly important.” That’s certainly true. But when it comes to electricity, reliability and affordability go hand in hand.
California should not be attempting to solve the climate change challenge on the backs of the poor.
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