For-profit California electric utilities charge high prices and take minimal climate action. Three state-regulated for-profits, PG&E, SCE, and SDG&E, charge two to three times more for the electricity they deliver than their large city-regulated counterparts charge. The giant for-profits aim for carbon neutrality in 2040 or 2045. Large locally-regulated electric utilities, SMUD and LADWP, aim for carbon neutrality by 2030 or 2035.
PG&E and SDG&E are in a close race to charge the highest electricity prices in the US. Perhaps the most unfortunate consequence is that climate action opponents across the US can point to high electricity prices in California as evidence that California's perceived climate leadership is unaffordable.
Table 1 shows the difference between prices charged by the five electric utilities mentioned above. Has the price gap between locally- and state-regulated always been so large? No. Table 1 shows that, over the past decade, locally-regulated electricity rates have increased by an average of 2 to 4 percent per year while state-regulated rates have increased by 7 to 9 percent per year. Also concerning is that state-regulated rates are forecast to increase at the current annual rate through the remainder of the decade. So, the locally-regulated vs. state-regulated affordability gap may become a cost chasm.
Figure 1. Large California Electric Utility Price Comparison. Credit: Bill Powers
Wait, you say. Locally-regulated and state-regulated electric utilities have the exact same business model and they deliver the exact same product. Why would product cost differ so much? And why would municipal utility climate action goals be ambitious and near term focused while for-profit utility goals are too far out to take seriously?
One reason may be that state energy policy and related program implementation can be very costly. Naturally, California's political leaders would prefer costs to show up on voters' electricity bills, not on state tax bills. But California’s energy regulatory food chain does not regulate itself. The number and scope of proposed new California energy laws expands every year. Legislators can make their proposed bills more palatable by stipulating that ratepayers pick up the tab.
It is no surprise that corporations authorized to invest billions of dollars ratepayer funds annually are our legislators' eager partners. PG&E, SCE and SDG&E lobbyists routinely help put the finishing touches on legislation that affects their companies’ bottom lines. Every dollar of debt these utilities incur is matched by a dollar of shareholder investment and results in an annual stock dividend. Locally-regulated utilities have no such incentive to spend more money than necessary.
Other reasons are more subtle but equally potent. For example, wildfires in western states are already a costly problem that becomes more worrisome every year as forests dry out faster and more completely than they used to. California's policy response has been to require that electric utilities replace their overhead wires with underground wires. For example, last month, the California Public Utilities Commission approved a three year $18 Billion PG&E expenditure to implement a 1600 page plan (about $10 million dollars per page by my calculation).
Under-grounding is both beneficial and affordable in high population density areas – cities and suburbs. But under-grounding in vast low population density, high fire risk areas shown on the map in Figure 2, is funded almost completely by city/suburb energy users served by state for-profit utilities. To be fair, this means municipal utilities serving high population density areas can more easily afford under-grounding throughout their distribution systems, where each mile of underground wire benefits more ratepayers and has lesser impact on their rates.
Figure 1. California Fire Threat Map. Credit: CPUC
Municipal utilities supply only 20 percent of California's electricity. Numerous California cities and counties have embraced Community Choice Energy and now have some influence on electricity sourcing, but only a couple dozen California cities have “municipal” utilities that integrate electricity transport, distribution and sourcing.
Power San Diego is a proposed ballot initiative that would create a new municipal utility to serve the City of San Diego (but not the remainder of San Diego County). Initiative leaders propose a strategy that any California electric utility could use to begin reducing costs and minimize future price increases. They propose to rely on clean local energy resources and pay a fair price for electricity generated on residential and commercial roofs. Power San Diego leaders note that there is enough useable roof and parking area space in San Diego to achieve full carbon neutrality. If the Power San Diego ballot initiative qualifies and voters choose to move forward, a shift to an affordable, resilient and low carbon electricity business model can begin.
To defeat the Power San Diego initiative, SD&E will employ time tested tactics in the for-profit utility playbook. By a ratio of six to one, voters have rejected most such initiatives across the US in recent decades. But unlike previous initiatives, Power San Diego accounts for the opportunities inherent in the on-going energy transition. It's not just about local control. It's about fundamental, feasible, and beneficial change. Expansion of local solar electricity production will keep prices down for all San Diego electricity customers by avoiding the need for big ticket regional infrastructure investments.
The Power San Diego business model will require real time battery energy storage management at community, neighborhood and building levels. San Diego's future distribution grid will rely on community microgrids and prosumer nanogrids networked together, adjusting local supply to match local demand in real time at every level, saving electricity transmission and distribution costs and insulating communities and neighborhoods from the consequences of regional grid disruptions.
Power San Diego will benefit all electricity customer classes equally. For-profit utilities are “prone to bemoan” a purported "cost shift" from low income to higher income electricity users. Truth be told, the alleged shift is pure political fiction. There is no cost shift between electricity users, just a big overcharge levied on both solar customers and their neighbors by state regulators.
If Power San Diego is approved by San Diego voters, state regulators can watch and learn as their local counterparts sort out the best ways to integrate and operate a wide area, low carbon local electricity distribution systems. Then, perhaps for-profit electricity costs can be reined in, and the rest of California can decarbonize as fast as its major cities.
For a more complete discussion of the Power San Diego ballot initiative and related renewable integration concerns, click here.
Gerald Braun - gbraun@iresn.org