Electric Companies Still Have California Over a Barrel

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If you’re looking for a clear and concise explanation of California’s energy policies, you may have a difficult time finding one. The Perea bill (AB 327) was signed into law last October, which created a surcharge of two to three dollars on electric bills and has the potential to rise to $10 in the future. That’s simple enough. But the why of it is more confusing.

Photo by Tim Forkes
Photo by Tim Forkes

The decision to add this surcharge as well as amend electricity rates was crackling in the California legislature for much of 2013. Electric companies, consumer groups, solar companies, environmentalists and farmers all had their turn with the initiative, and in the end, no matter how much we end up paying, somehow this is meant to be the future’s fault. The year 2020, to be exact.

By that time, California’s Renewable Portfolio Standard (RPS) mandates that 33 percent of the state’s energy must be provided by renewable energy sources. Each of the United States has its own RPS, with California’s “one of the most ambitious” in the country. It is a laudable goal, but the standard is the scapegoat for the “two-digit percentage hike for ratepayers in the Southern California Edison territory,” though California’s industrial sector rates were already higher (by 48.3 percent) than the rest of the country before AB 327. In fact, across all sectors, Californians paid on average 31.8 percent more for electricity than their fellow Americans. But why?

Unfortunately, according to Patrick Mealoy of the Navigant Consulting Group, “There is not a single, credible source of analysis and data that can inform companies and policymakers regarding the cumulative costs of California’s recent energy-related policies.” This was decided after Navigant had parsed through California’s RPS, carbon cap and trade auction, and low carbon fuel standard — in other words, its prime energy policy drivers. Let’s break that down some more.

The RPS we’ve covered, so we’ll get into cap and trade. This is the environmental policy that enforces emissions limits on polluters. When companies’ emissions go over the limit, they must buy permits from the California Air Resources Board. The Independent System Operator, which manages California’s electricity distribution, reports that the cost of these permits in the second quarter of 2013 led to additional fees of $6 per megawatt hour to those making forward purchases in the wholesale electricity market. This drives up the bill.

Photo via Wikipedia
Photo via Wikipedia

Cap and trade, according to ISO, is also to blame for the increase in the cost of natural gas. Meanwhile, California’s ongoing drought has reduced hydroelectric generation by 25 percent, which also drives up the cost of energy.

So the picture that we’ve painted depicts higher energy prices due to environmental kowtowing. But according to Laura Wisland, Senior Energy Analyst for the Union of Concerned Scientists, California’s inflated rates are primarily caused by the state’s infrastructure, which has failed to keep up with the its growing population. We need look no further for proof of this than the Perea bill itself, which is the first major change to electricity charges since the 2001 energy crisis.

Furthermore, the average price of the RPS contracts approved by the Public Utilities Commission in 2012 was roughly 20 percent less than the year before. Renewable energy accounted for only 11.3 percent of total utility costs. The Division of Ratepayer Advocates estimated that the cost of meeting the RPS by 2020 would “account for 5 to 9 percent of the increase in customer bills between now and 2020, amounting on average to an extra $5-$10 per month.”

When considering renewable energy sources, Wisland makes the comparison to computers and television. As the industry expands and its technology improves, its prices will decrease. While this paints a rosier picture of California’s clean energy prospects, it does little to reconcile the exorbitant price hikes homeowners are currently experiencing.

For Pacific Gas & Electric customers, the average electric bill (approximately 500 kilowatt-hours consumed per month) is expected to be $77.79. Those who consume 700 kilowatt-hours in a month will pay $143.05.

Former California Governor Gray Davis (Photo via Wikipedia)
Former California Governor Gray Davis
(Photo via Wikipedia)

Californians have known something rotten was in their state’s energy policy since the rolling blackouts of 2001. Following the industry’s deregulation signed into law by Governor Pete Wilson, northern and southern California were thrown into an energy seesaw between the ISO and the private companies who sold power at auction. It took the downfall of a major energy corporation (Enron) and the recall of the highest member of state government (Gray Davis) before the dust had settled, and in the meantime hundreds of thousands were stranded without power. Governor Davis had to do a lot of things he’d never wanted to do, such as shutting off water to pay for power, signing unfavorable long-term energy contracts and putting the state into debt to bail out its failing utilities.

That was over ten years ago and still Californians are struggling to understand the prices on their utility bills and who is to blame for them. Now, when solar is making significant inroads into American homes, traditional fossil fuel providers are telling us who the real culprit is. But their consumer base is significantly more jaded than they were in 2001. No matter which side has our back, energy still has Californians over a barrel.