FREOPP.org
July 8, 2020
Executive Summary
California 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. A growing element of this problem is the cost of electricity; rising electricity prices disproportionately impact lower- and middle-income families who lack the disposable income to absorb the extra costs.
When accounting for the cost of living, California is the state with the highest poverty rate in America. Some 7 million Californians are now living in poverty: a number greater than the population of Arizona. Raising the cost of energy will place significant economic pressure on those 7 million Californians. (Source: U.S. Census Bureau; Graphic: FREOPP)
The average California home uses about half as much energy as an average American household. Despite this, the average California household pays about $1,700 per year for electricity, one of the highest rates in the nation. And yet, California’s already-high electricity prices are headed even higher. California utilities are facing tens of billions of dollars in costs related to renewable-energy mandates, transmission-system upgrades, and the deadly wildfires that hit the state two years ago. Some of those fires were ignited by power lines.
Restrictions on natural gas use will result in even-larger energy bills for California residents and further exacerbate the state’s poverty problem. Since 2019, 31 local governments in California have enacted regulations that limit or prohibit natural gas consumption in buildings. The policies were adopted in the name of climate change and decarbonization. Proponents of the restrictions claim that prohibiting the use of natural gas will help in the effort to achieve net-zero carbon emissions and that slashing building-level greenhouse emissions is essential in meeting that goal. (California has a statewide goal of net zero emissions by 2045.)
While the number of bans is still relatively small, they are a harbinger of further efforts to restrict, or prohibit, the use of natural gas in California and other states. Proponents of the bans want California regulators to impose a statewide building code that would require all new buildings in the state to be all-electric. In November 2019, Brookline, Massachusetts voted to prohibit natural gas use in new buildings. Other cities in Massachusetts, Washington, Maryland, and Michigan are considering similar restrictions.
But banning the use of natural gas imposes a regressive energy tax on low- and middle-income consumers. Prohibiting the direct consumption of natural gas in furnaces, stoves, clothes dryers, and water heaters forces consumers to buy electricity, which in California is four times as expensive as natural gas on an energy-equivalent basis.
Other issues must also be considered, including:
- Wealthy communities creating barriers to entry. The governments in California that have passed bans or restrictions on natural gas use represent communities that are far wealthier than the U.S. average and the California average. The median household incomes in the places that have banned or restricted natural gas use are 80% higher than the national average and 46% higher than the California median.
- Bans and restrictions are being implemented at the same time natural gas prices are plummeting. In late June, the benchmark price of natural gas fell to $1.50 per million Btu, the lowest level since 1999.
- Adding more load to an unstable electric grid. The natural gas bans and restrictions are being imposed at the same time that the California electric grid is in such poor condition that it is suffering from repeated blackouts. In May 2020, Pacific Gas & Electric proposed to use up to 450 megawatts of diesel-fired mobile generation units to help ensure that customers have power during fire-prevention blackouts, which are likely to occur this summer and fall.
A brief history of natural gas
For more than two centuries, urban dwellers have been relying on pipelines to deliver gas to their homes and businesses. The earliest gas grids were developed in Britain in the late 1700s. They used “town gas” that was produced by heating coal to high temperatures. The gas was then captured, stored, and delivered through often-leaky pipelines to customers who used it to fuel street lights and indoor lights. By 1822, London was leading the world with four companies operating a total of 200 miles of pipelines. Over the next few decades, municipal gas systems became common in Britain, France, and Germany.
In 1816, Baltimore, Maryland became the first city in the U.S. to use town gas to light its streets.During most of the 19th century, town gas was used almost exclusively for lighting. In the late 1800s, after Robert Bunsen invented what is now known as the Bunsen burner, gas also began to be used for heating and industrial uses.
The discovery of large natural gas deposits in the U.S. and Europe eventually made town gas obsolete. The first significant high-pressure gas pipeline in the U.S. was built in 1891 by Indiana Gas and Oil. The company built a 120-mile-long pipeline to transport natural gas from Indiana to Chicago. By 1925, there were only a handful of natural gas pipelines in the entire country, and many of them were plagued by leaks and inefficient operations. Breakthroughs in metallurgy and industrial equipment later allowed gas pipelines to begin carrying natural gas at higher pressures and thus, in greater quantities. Greater quantities meant lower prices, and lower prices meant increased sales. Improvements in welding technology like the use of oxyacetylene and electric welding allowed pipeline builders to string together long pieces of high-strength steel pipe. Better compression technologies from internal combustion engines allowed gas to be shipped at pressures of 1,000 pounds per square inch or more.
Today, the U.S. is the world’s biggest producer and consumer of natural gas. The U.S. also has the world’s biggest natural gas network, with more than 2.5 million miles of pipeline.
Since 2005, domestic natural gas production has doubled. Plentiful natural gas has helped the U.S. reduce the amount of coal consumed in power generation, which in turn has helped the U.S. slash its carbon dioxide emissions. This abundance of gas has also saved U.S. consumers hundreds of billions of dollars. The U.S. is now producing so much natural gas that it is influencing the global market for liquified natural gas (LNG) and is sending cargoes of LNG to countries in Europe, South America, and Asia. Furthermore, prices for natural gas in the U.S., as well as global prices for LNG, are at, or near, record lows.
Despite this new abundance of natural gas, the fuel is facing restrictions. Over the past three years, New York has repeatedly stopped the expansion of natural gas pipelines, which has forced gas utilities in the region in and around New York City to impose a moratorium on signing new customers.
In 2015, New York Gov. Andrew Cuomo pledged to cut New York’s carbon-dioxide emissions by 80% by 2050. Two years later, in 2017, the New York Department of Environmental Conservation began blocking the construction of gas pipelines in the state. In 2018, the agency denied a water-quality permit, which prevented the construction of the Northeast Supply Enhancement Project, a 24-mile gas pipeline designed to deliver about 400 million cubic feet of gas per day eastward from coastal New Jersey through Raritan Bay and Lower New York Bay to the western end of Long Island. On May 20, 2020, the agency again denied the water-quality permit, a move that may have sealed the project’s fate.
The state of Massachusetts also plans to slash its natural gas use. On June 4, Massachusetts Attorney General Maura Healey asked her state’s Department of Public Utilities to open an investigation into “the future of the natural gas industry as Massachusetts transitions away from fossil fuels and toward a clean renewable energy future by 2050.” Among other instructions, Healey’s petition also asks the Department of Public Utilities to consider the steps needed to “ensure that low-income customers are not left behind during the transition and that their rates remain affordable” as less gas is sold and thus the gas utilities’ revenue requirements “are spread over a shrinking customer base.”
To be clear, all types of energy infrastructure — gas pipelines, oil pipelines (including the Keystone XL), high-voltage transmission lines, wind projects, and solar projects — face a thicket of government regulations at the federal and state level as well as public opposition. But bans on the use of natural gas are new and growing as more states draft greenhouse-gas reduction plans that envision only a minor role for natural gas in the future.
A closer look at California’s energy policies
In mid-2019, Berkeley became the first city in the U.S. to ban natural gas connections for all new residential buildings and most non-residential buildings. Since then, some 30 other local governments in California have enacted measures that either ban or restrict the use of natural gas. San Jose requires that all new, low-rise residential buildings and municipal buildings be all-electric. Menlo Park’s ordinance requires electric space heating and electric water heating but allows the use of gas for fireplaces and cooking. According to the Building Decarbonization Coalition, about half of the California governments that have imposed restrictions on natural gas are also including electric-vehicle infrastructure to their list of regulations.
While the total number of local governments that have banned or restricted the use of natural gas remains relatively small, the fact that this is happening at all requires attention, because California has long been a trendsetter. The local bans on natural gas use are likely a harbinger of future policy moves by California and other states that have pledged drastic action on climate change. To achieve its climate goals, California will have to slash its use of hydrocarbons by 80% or more. That will require shuttering and dismantling nearly all of the state’s natural gas infrastructure, a move that will cost billions of dollars — and the majority of those costs will have to be borne by ratepayers.
Furthermore, achieving that 80% reduction will eventually require retrofitting nearly all of the homes and commercial buildings that now consume natural gas so that they only consume electricity. The increase in electricity use will require upgrading the electric grid with new generators, wires, poles, and transformers, all of which will have to be paid for by consumers.
In addition to California, several other states have pledged to slash their greenhouse gas emissions by 80% or more over the next three decades, including New York and Massachusetts. Meeting those targets will almost certainly require statewide prohibitions on residential and commercial use of natural gas. If those bans occur, low- and middle-income consumers will end up paying a significant portion of the cost of retiring their gas infrastructures.
California has the largest population and biggest economy in the United States. That gives it influence on climate and energy policies that affect consumers in other states. For instance, major automakers build their vehicles to meet California’s regulatory standards even though the state’s standards are sometimes stricter than federal regulations.
California uses enormous quantities of energy. It has more electricity customers (about 15.9 million) than any other state. Roughly 10% of all electricity customers in the U.S. are in California. In 2019, the state’s utilities sold $42.3 billion worth of electricity to their customers. California also consumes more than 2 trillion cubic feet of natural gas per year, making it second only to Texas in overall natural gas use. In addition, nearly 80% of all the homes in California are connected to the natural gas grid.
But some environmental activists seek to reduce that number. More than 9% of Californians are now living in places that have “already adopted gas-free buildings commitments or electrification building codes,” according to Matt Gough of the Sierra Club.
Natural gas restrictions are expanding in California. Over 9 percent of Californians live in localities that restrict or ban the use of natural gas. San Jose and San Francisco are the largest such localities. (Source: M. Gough / Sierra Club)
In November 2019, the California Restaurant Association sued the city of Berkeley over the natural gas ban, claiming that the measure violates state and federal law, including the Energy Policy and Conservation Act of 1975, which prohibits the implementation of regulations that favor one type of fuel over another. Developers in Sonoma County have also sued to stop the bans. While the outcome of the litigation has yet to be determined, California regulators have okayed the restrictions.
In December 2019, the California Energy Commission approved the local restrictions on natural gas, saying that they are part of a “new wave of local standards with a focus on decarbonization” that is “unprecedented in the state’s history, highlighting the ability and willingness of Californians to innovate and tackle global problems at a local level.”
It is worth noting that the California governments that have passed bans or restrictions on natural gas use are far wealthier than the U.S. and California averages. While a handful of cities, including San Luis Obispo, Richmond, and Santa Cruz have median household incomes that are lower than the California average, the overwhelming majority of the governments that have imposed restrictions on gas are far wealthier than the average. Median household incomes in the jurisdictions that have banned or restricted gas use are about 78% higher than the national average and 45% higher than the California median.
In mid-June, Burlingame, a city in San Mateo County, became the 31st city in California to limit the use of natural gas. The city, which has a median household income of $122,999, approved a measure that requires all large new apartment and commercial buildings to be powered solely by electricity.
Many of the cities that have restricted the use of gas are in the heart of Silicon Valley and are homes to some of the world’s biggest technology companies. Cities that have restricted the use of gas include:
- Cupertino, home of Apple.
- Mountain View, home of Alphabet.
- Menlo Park, home of Facebook.
- San Francisco, home of Visa.
- Los Gatos, home of Netflix.
Also on the list: Los Altos Hills, known as the wealthiest town in America, where the median household income is $244,000 per year.
Wealthy localities have erected barriers to entry. The California governments that are restricting or prohibiting the use of natural gas are far wealthier than the state and national averages. Many of them are also in the heart of Silicon Valley and are homes to some of the world’s biggest technology companies, including Apple, Facebook, and Alphabet. (Sources: U.S. Census Bureau, Sierra Club, Silicon Valley Business Journal, San Mateo Daily Journal; Graphic: FREOPP)
Other municipalities outside of California are considering bans or restrictions on gas. Last year, Brookline, Massachusetts voted to prohibit natural gas pipes in new buildings. Three other cities in Massachusetts — Cambridge, Concord, and Newton — have also considered bans. Several other cities, including Seattle and Bellingham in Washington, Takoma Park in Maryland, and Ann Arbor in Michigan are also reportedly considering restrictions on the use of natural gas.
Is natural gas the new coal?
More than 60% of U.S. homes use natural gas or other fossil fuels for heating. According to the Energy Information Administration, in 2015 only about 25% of all the homes in the U.S. were all-electric. The largest number of all-electric homes (about 19.7 million) were located in the South. The fewest were in the Northeast (about 1.6 million.)
The Sierra Club has led the effort to impose bans on natural gas and require new buildings to rely solely on electricity. A recent article in the club’s flagship magazine, Sierra, declared, “In California, Gas Is the New Coal.” The article said that “Cities and counties in California serve as guiding lights as the state navigates a transition from gas to clean-energy buildings,” and that local leadership is essential not just for local climate action, “but also to convince the California Energy Commission to require or at least support all-electric new construction in the statewide building code.” One of the group’s campaigners has stated, “There’s no pathway to stabilizing the climate without phasing gas out of our homes and buildings. This is a must-do for the climate and a livable planet.”
The Sierra Club also claims that all-electric homes are needed because the use of gas is a health hazard. It claims that “gas stoves are also linked to respiratory illnesses, and children who live in homes with gas stoves are 42% more likely to have asthma.” The source for that claim is a Rocky Mountain Institute paper, which said that “children in a home with a gas stove have a 24–42% increased risk of having asthma.” But this paper does not mention the issue of proper ventilation, which is a key omission.
Indeed, ventilation appears to be a critical factor. A 2014 study done by researchers at Oregon State University found that the risk of indoor air pollution from gas stoves was largely avoided if the homes had proper ventilation. It found that “researchers can’t say that gas stove use without ventilation causes respiratory issues.” It also said that “in homes where the gas kitchen stove was used for heating, children were 44% less likely to have asthma and 43% less likely to have bronchitis if ventilation was used.” (Emphasis added.)
An op-ed published in the New York Times on May 1, 2019, argued in favor of bans on natural gas use, claiming that “scientists link gas stoves to asthma attacks and hospitalizations.” But the 2008 study cited by the Times was done largely on inner-city homes that did not have proper ventilation for their stoves. It also noted that “almost 14% of the homes in this study used gas stoves for heat.” It continued, “Because the use of a stove as a source of heat is seen almost exclusively in the context of profound poverty, this study also highlights the complex interaction of poverty with environmental exposures in an inner-city minority population.”
That study used a small sample of inner-city homes located in poverty-stricken neighborhoods and thus did not include a large enough sample of residential users to claim a link between gas appliances and respiratory problems. Further, the data in the study was skewed by the number of homes that use stoves for heating, which is not a common practice in most homes.
If natural gas appliances are a health threat, why, after decades of use and exposure, haven’t U.S. regulators stepped in? The U.S. Consumer Product Safety Commission and the U.S. Environmental Protection Agency have not issued any reports labeling gas appliances as a cause of asthma or health problems.
In short, the claims that natural gas appliances pose a major human health risk appear to be rather flimsy. While the health risks appear low, the economic costs appear to be high.
Replacing gas with electricity: At what cost? Who pays?
In April 2020, the California Energy Commission released a report on retail natural gas sales in the state. “The Challenge of Retail Gas in California’s Low-Carbon Future” evaluates different scenarios that aim to slash California’s greenhouse gas emissions by 80% by 2050. The report claims that full electrification of buildings would be cheaper than relying on hydrogen or renewable natural gas (RNG). But hydrogen has never been used in substantial quantities in the retail market. And U.S. supplies of RNG (which can be produced from landfills, sewage treatment plants, or animal manure) are tiny when compared to the availability of natural gas. For instance, in 2020, RNG production is expected to total about 50 trillion Btu. That is roughly equal to 1/100 of the quantity of gas needed to supply the U.S. residential sector, which now consumes about 5 trillion cubic feet of gas (roughly 5 quadrillion Btu) per year. Domestic residential natural gas consumption has remained virtually flat since the early 1970s.
The CEC report states that the possibility of large reductions in natural gas use “creates a new planning imperative for the state.” It further notes that without a gas transition strategy, “unsustainable increases in gas rates and customer energy bills could be seen after 2030, negatively affecting customers who are least able to switch away from gas, including renters and low-income residents.” If the state’s gas consumption declines but the cost of operating and maintaining the gas grid does not decline proportionately, “then large financial obligations will be left to be paid by a smaller number of customers.”
The result of that problem, the report concludes, will be “rapidly increasing gas customer bills and rates. These rates and bills are unlikely to be consistent with an economically sustainable gas system. Particularly concerning is the prospect that low- and moderate-income Californians or renters, who may be unable to electrify due to upfront costs or lack of home ownership, could bear the impact of these cost increases.” (Emphasis added.)
Another analysis of California’s gas grid done by Gridworks, an Oakland-based non-profit group that works to educate and “empower stakeholders working to decarbonize electric grids,” came to a similar conclusion. In a report that appears to have been published in 2019, Gridworks estimated that rapid reductions in natural gas consumption in California could cause rates to double or triple. It concluded that slashing natural gas use in the state, “if left entirely to unmanaged market forces, could prove to be highly inequitable or customers, especially those in low-income and disadvantaged communities.” The report also noted that while California cannot meet its emissions-reduction goals without “a significant reduction” in the use of natural gas, “such a reduction will, without forceful action, almost assuredly drive up gas rates to unsustainable levels over time.”
To pay for the premature retirement of the state’s gas infrastructure, California residents could be hit with additional fees and costs. The April 2020 report by the California Energy Commission discusses the possibility of imposing an “exit fee” on consumers who are moving into all-electric buildings. It states that a fee of “$5-per-month would be collected for 15 months on exiting customers’ electric bills.” It added that “non-ratepayer funds,” which likely refers to state tax dollars, “are used to cover a share of the gas system revenue requirement. The amount of additional funds rises to $2 billion per year in 2050.”
While those future costs are yet to be determined, it’s apparent that prohibiting the use of natural gas will force homeowners and renters to increase their use of electricity.
Data published by the Energy Information Administration shows that electricity in California is far more expensive, on an energy-equivalent basis, than natural gas.
Residential electricity is far costlier than natural gas. Proponents of all-electric buildings claim that natural gas can be replaced by electricity. But when measured on an energy-equivalent basis, residential electricity in California costs four times as much as natural gas. (Sources: R. Bryce / FREOPP, Energy Information Administration; Graphic: FREOPP)
In 2019, the average cost of residential electricity in California was 19.2 cents per kilowatt-hour. That was the highest price in the continental U.S. outside of the Northeast. There are 3,412 Btu in each kilowatt-hour of electricity. Therefore, assuming a 100% efficient use of electricity, California residents are paying about $56 per million Btu (MMBtu) for the electricity they consume.
In 2019, the average residential price of natural gas in California was $13.32 per MMBtu. Assuming that fuel is consumed in an appliance or heater that is 95% efficient, the cost of natural gas to residential consumers is about $14 per MMBtu. Thus, by banning gas-fired appliances, California politicians are forcing homeowners and renters to pay four times as much for their energy as they would if they were consuming natural gas directly. Those higher energy costs could amount to hundreds of dollars per year for each household.
The bans and restrictions on natural gas are being implemented at the same time that the price of the fuel has collapsed. In late June, natural gas prices fell below $1.50 per million Btu for the first time since 1999. The combination of surging domestic natural gas production and a collapse in energy demand due to the pandemic has resulted in a surplus of the fuel and forecasters are predicting prices could fall further if demand stays weak.
Perhaps even more important than the absolute level of the current electricity pricing is the fact that California’s electricity prices have soared over the past decade. Indeed, Californians’ electricity bills have been rising far faster than the U.S. average, and those prices are almost certain to continue climbing.
Renewable-energy policies are a key driver of the higher costs. In 2008, then-Governor Arnold Schwarzenegger signed an executive order that required the state’s utilities to obtain a third of the electricity they sell from renewables by 2020. In 2015, Gov. Jerry Brown signed a law that boosted the mandate to 50% by 2030. In 2018, California lawmakers imposed yet another 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.
The imposition of these mandates coincided with a dramatic increase in electricity prices. Between 2011 and 2019, the average price of electricity in California (for all users, including industrial, commercial, and residential) jumped by 30%, or more than six times the rate of increase seen in the rest of the U.S. over that time frame.
California’s electricity rates are rapidly rising. Over the past decade, California’s electricity rates increased at a rate that was six times as fast as the rate seen in the rest of the U.S. over that time frame. (Source: M. Nelson & M. Shellenberger / Environmental Progress, Energy Information Administration; Graphic: FREOPP)
Imposing large amounts of renewable energy onto an electricity grid distorts prices because it favors wind and solar producers at the expense of traditional generators that rely on coal, natural gas, or nuclear energy.
Over the past few years, California’s electric utilities have retired coal and nuclear power plants. The state’s last commercial nuclear plant, Diablo Canyon, will be shuttered in 2025. But because the electric grid still needs traditional generators to supply electricity when the sun isn’t shining and the wind isn’t blowing, the state’s electric utilities must continue operating (and paying for) traditional generation units. The result is that the utilities pass the cost of maintaining the traditional generation capacity on to ratepayers.
Furthermore, consumers will have to pay for billions of dollars’ worth of new transmission lines needed to carry wind and solar electricity from remote regions into cities. To cite one example, California electricity users will have to pay for the $2 billion Tehachapi Renewable Transmission Project, which carries electricity from renewable generators in Kern County south to San Bernadino County.
That transmission project is only one of several that will be needed as California pursues ever-greater amounts of renewable electricity. A 2016 report by the Edison Electric Institute, a utility trade group, estimated that for California to achieve 50% renewables by 2030, it would need some $5.8 billion in new transmission projects. (Many of those transmission projects will face delays due to the lack of skilled work crews and opposition from landowners and environmental groups. Construction on the Tehachapi transmission project took more than eight years to complete.)
As natural gas use is phased out, local distribution networks throughout the state would have to be upgraded to handle increases in electricity use. The cost of all of that infrastructure will eventually fall on ratepayers.
California’s high electricity prices are being imposed on millions of consumers who are living in poverty. California has the highest poverty rate of any state in America; according to U.S. Census Bureau data, when accounting for the cost of living, 18.1% of all Californians are living in poverty. Therefore, roughly 7.1 million Californians — a population as large as that of Arizona — are now living in poverty. (Washington, D.C., has a supplemental poverty rate of 18.4%, but it is not a state.)
While the state’s electric rates are high today, California’s electric utilities are facing a panoply of problems that will require billions of dollars of investment. Those costs mean that California’s poverty-stricken residents will be paying even-higher prices for electricity in the years ahead.
In April 2019, the California Public Advocates Office published a study on rate trends in the state, which 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 more well-to-do 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 report found that between 2009 and 2019, baseline rates — that is, the minimum charge assessed to each customer for basic electricity service — “have increased at an alarming rate.” The agency explains that the baseline service is intended to “supply a significant portion” of customers’ energy needs and is billed at the lowest rate “to ensure affordability for essential usage.” That price tier matters because the Public Advocates Office reports that between a quarter and a third of residential customers “never exceed their baseline usage.”
The Office goes on to explain that those baseline rates have “increased at an alarming rate;” San Diego Gas & Electric’s baseline rate had jumped by 106%, or more than five times as fast as the consumer price index. PG&E’s baseline rate had jumped by 85%, and Southern California Edison’s rate had increased by 48%.
In California, baseline electricity rates have skyrocketed. Baseline rates — the minimum billing amount for customers — have soared over the past decade at California’s biggest electricity providers. San Diego Gas & Electric (SDG&E) reported the biggest increase, followed by Pacific Gas & Electric (PG&E) and Southern California Edison (SCE). For instance, while SDG&E’s baseline rate more than doubled between 2009 and 2019, the Consumer Price Index (CPI) rose by just 19 percent. (Source: E. Echols et al., California Public Advocates Office)
The Public Advocates Office’s report underscored the historical cost increases imposed on ratepayers. But more electricity price hikes are looming, particularly for customers within PG&E’s service territory. Out of the 31 governments that have restricted or banned natural gas use, 29, including the city of Burlingame, are in PG&E’s service territory.
PG&E filed for Chapter 11 bankruptcy last year; in May 2020, California regulators approved the company’s $58 billion reorganization plan. But the beleaguered utility is facing a myriad of financial problems. It has agreed to settle claims totaling more than $25 billion related to the 2018 wildfires that killed 85 people. It also agreed to pay a $1.9 billion fine imposed by the state. The utility filed an application for rate increases to cover the cost of new electric transmission infrastructure, decommissioning the Diablo Canyon nuclear plant, and other internal costs. If approved, the utility’s customers could see their bills jump by 17% between 2020 and 2023. Those cost increases do not include billions of dollars in deferred maintenance that the utility will have to undertake over the next few years.
The latest data from the Energy Information Administration shows that California’s electricity rates are soaring. In April 2020, the average price of electricity in California — across all sectors — jumped by 7.7% over April 2019 numbers. Residential electricity costs jumped even more. In April 2020, residential consumers in California were paying 20.47 cents per kilowatt-hour, an increase of 13.4% over April 2019 prices. Over that same one-year period, the average price of residential electricity in the United States fell slightly from 13.29 cents per kilowatt-hour to 13.28 cents per kilowatt-hour.
Preventing blackouts with diesel generators
Restricting the use of natural gas will inevitably mean more electricity demand on one of America’s least-reliable electric grids. Since the wildfires that occurred in 2017 and 2018, PG&E has been shutting off electricity to hundreds of thousands of its customers due to concerns about (and potential liability from) more equipment-caused wildfires. In October 2019, it shut off power to some 800,000 customers in 32 counties. The blackouts, known as “public-safety power shutoff events” eventually affected nearly three million people. PG&E has 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. In a proposed decision on the matter, an administrative law judge at the California Public Utility Commission noted the potential health risks posed by the use of the diesel generators and the pollutants they will emit. Diesel generators are among the most expensive and polluting forms of electricity generation. They also emit significantly more greenhouse gases than comparable generators fueled by natural gas. But the utility insists it has no alternative to the diesel generators. Thus, at the same time that California wants to reduce its greenhouse gas emissions, it must rely on diesel generators that emit far more carbon dioxide than comparable ones fired by natural gas.
Renewable energy can’t replace natural gas any time soon
While banning natural gas will result in higher energy costs for consumers, it is not certain that these bans will result in significant near-term reductions in overall gas consumption. Nor is it clear that these bans, even if adopted nationwide, will have a significant effect on global climate change.
Prohibiting the direct use of natural gas in residential and commercial businesses may reduce consumption at those locations, but it doesn’t necessarily mean a reduction in the total amount of gas that will be consumed. The California electric grid (like the U.S. electric grid) is heavily dependent on generators that burn natural gas. Roughly a third of the electricity used in California is produced by burning gas, which means that even if consumers switch from gas appliances to electric ones, they may still be requiring gas to be burned at the power plant to produce the needed electricity.
Between 2010 and 2018, the amount of renewable electricity consumed in the state more than doubled, and solar energy use grew more than 30-fold. But the state continues to rely heavily on gas-fired power. In 2018, about 35% of the electricity consumed in California was generated from natural gas. (Solar and wind energy provided about 23%.) Replacing the natural gas now being consumed in homes and businesses will require more electricity production, and California cannot guarantee that the incremental electricity generation will come from renewables. Instead, the needed supplies of electricity may be produced by burning natural gas in a power plant, which is less efficient than consumers directly using the gas. During the process of burning gas to generate electricity, more than half of the heat energy in the fuel is lost. Thus, rather than reducing overall gas demand, by eliminating the direct use of gas by consumers, California may be forcing the region’s utilities to rely even more heavily on natural gas.
Further, even if California were to completely ban the use of residential natural gas, it will have little or no measurable impact on global climate change. Proponents of banning natural gas consumption in homes claim that the bans are an “important component of addressing global climate change today and [are] critical to a cleaner energy future tomorrow.”
But as an overall source of greenhouse gas emissions, the direct use of natural gas in homes and buildings is relatively small, accounting for roughly 8.5% of total U.S. carbon-dioxide emissions. U.S. emissions, in turn, account for about 15% of global emissions. Thus, even if the U.S. adopted an economy-wide ban on natural gas in homes and buildings, it would only cut global emissions by roughly 1%, a reduction that would have virtually no effect on global climate. While it is true that every reduction in emissions may help reduce the risk of catastrophic climate change, it’s not clear that banning the direct use of natural gas will result in greater use of renewable energy. California’s climate goals would be better served by keeping the Diablo Canyon nuclear power plant in operation and by encouraging the deployment of next-generation nuclear reactors.
Despite these facts, in late June, PG&E made a surprise announcement that it would support bans on new natural gas connections in the state. It informed the California Energy Commission that it wants to avoid “investments in new gas assets that might later prove underutilized” if the state is successful in implementing its long-term decarbonization agenda. The utility told the Commission that it would support state and local-government policies that “promote all-electric new construction when it is feasible and cost-effective.” The utility added that it favors decarbonizing the “gas system with renewable natural gas and hydrogen.”
To reduce poverty, increase the supply of low-carbon energy
California has long been in the vanguard of culture and politics in the U.S.; the state is now leading in the number of communities that have banned or restricted the use of natural gas. But these bans reduce energy optionality and will force consumers to buy electricity, which is four times more expensive on an energy-equivalent basis than natural gas. Those increased energy prices will hurt low- and middle-income consumers far more than wealthy ones. Furthermore, there’s little doubt that electricity rates in California will surge in the next few years due to the state’s renewable energy mandates, as well as the cost of upgrading the electric grid after the wildfires of 2017 and 2018. The restrictions on natural gas will put even more demand on one of America’s most expensive and least-reliable electric grids, which may have to rely on diesel generators this summer and fall to avoid prolonged blackouts.
California has chosen to take the lead on climate change efforts. Restrictions and bans on natural gas are being labeled as essential elements of that climate policy. But those bans are, in fact, regressive taxes that will have an almost undetectable impact on global climate. If California wants to avoid increasing the number of its people living in poverty, it must strive to keep energy affordable. Furthermore, if the state’s policymakers want to slash greenhouse gas emissions, they must find ways to reduce greenhouse-gas emissions by increasing the supply of reliable, low-carbon electricity, such as that generated by nuclear power, instead of by increasing energy costs for California’s most economically vulnerable residents.
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