End of Legislative Session Brings Brief Respite from Higher Energy Prices

Legislation that would have required all electric power sold in the state to be generated by renewable sources by 2045 was held up in the final days of the recently-completed legislative session. But it will come back. Should the idea ever become law, we’ll remember these as the easy days when our power bills were cheap.

Most of our electricity is powered by fossil fuels, with 60 percent generated by natural gas plants. These are the cheapest and most reliable power sources we have. Even so, electricity is already outrageously expensive in California. The California Business Roundtable says residential electricity rates are nearly 45 percent higher than the national average while residential power bills have increased almost 19 percent since 2010. The U.S. Energy Information Administration’s latest data show that California electricity rates are 67 percent higher than Nevada’s, 77 percent higher than Oregon’s and 53 percent higher than Arizona’s.

The California Business Roundtable notes that, “for the 12 months ended June 2017, California’s higher electricity prices translated into residential ratepayers paying $4.9 billion more than the average ratepayer elsewhere in the U.S. using the same amount of energy.”

Don’t think that business is getting a break at residential customers’ expense. Commercial electricity prices are more than 53 percent higher than the national average and industrial electricity prices are close to 88 percent higher. As with residential rates, California’s commercial and industrial electricity prices are often more than twice as high as its neighboring states.

High electricity costs have created pockets of energy poverty across the state. This is one reason why, under the Census Bureau’s Supplemental Poverty Measure, California has the highest poverty rate in the country at 20.4 percent. This hasn’t happened because of “market failure” or greed. It’s a product of terribly flawed public policy.
California electricity prices are high, as the American Energy Alliance explains, because “retail electricity rates tend to reflect the policy choices made by the states in the past, and California has made expensive choices.”

Senate Bill 100 would be another expensive policy choice. It would have required 100 percent of the state’s electrical power to be provided by renewable sources by Dec. 31, 2045. Introduced by Democratic Senate President Pro Tem Kevin de Leon, the bill couldn’t survive the political tangles in Sacramento. Assembly Utilities and Commerce Committee Chairman Chris Holden, D-Pasadena, told the Los Angeles Times that “there (was) not a lot of time for the engagement we need to make it work.” A similar or identical bill next year that would virtually outlaw fossil fuel use for electricity generation will almost certainly come back next year.

Ken Caldeira, a Stanford researcher at the Carnegie Institution for Science, told KQED radio that reaching an 80 percent renewables goal is within reach, and 100 percent is technically possible. But, Caldeira, who favors cutting the greenhouse gas emitted by fossil fuels, acknowledges that “it would just be very expensive.”

California imports a little more than a quarter of its electricity from other states, according to Energy Information Administration data. So there’s also a question of how policymakers will scale that hurdle. Sacramento can’t demand that other states pass renewables-only laws for its convenience. California will have to replace part of that not-insignificant portion with renewable sources in-state while restricting imports to only renewable-generated electricity. First, though, it must reverse the trend of its rising reliance in imported power, which has been growing since 2007.

To accomplish that goal, Gov. Brown proposed legislation transforming California’s state-controlled power grid to a regional grid with other states, but that legislation stalled this year too, primarily over concerns about union jobs.

While it’s impossible to predict renewables costs three decades into the future, as the pace of technological innovation is unknown, history shows that government has a dismal record when it issues industrial directives that can’t be met. Think of President Carter wasting $88 billion — nearly $300 billion in today’s dollars — of taxpayers’ money on the failed synfuels program. Likewise, Californians will be stuck with higher electricity bills if Sacramento conducts a Carter-esque all-renewables experiment.

“When you combine the cost of policies of the past with the aggressive goals for the future, you get retail electricity prices that, yes, continue to be pretty darn high,” said the Energy Institute at the Haas School of Business at the University of California, Berkeley.

There’s little reason to expect that energy costs will be anything but “darn high” as long as lawmakers continue their war on fossil fuels.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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