Why is electricity so expensive in California?

California has one of the highest electricity rates in the country. What could be the reason?

Aside from its diverse landscape, California is also known for its steep electricity rates. In fact, a recent report has shown that consumers pay around 80% more per kilowatt-hour than the national average.

California ranks fourth on the list of states with the most expensive electricity rates, next to Hawaii, Rhode Island, and Alaska, according to a Choose Energy report.

The price of electricity is so high that even with discount programs such as the California Alternate Energy Rates for Energy (CARE), low-income residents still pay more than the average American.

(Note: Consumers enrolled in the CARE receive 30-35% discount on their electricity bill, and 20% discount on their natural gas consumption.)

But what makes electricity disproportionately expensive in California?

 

The Culprit: The Size and Topography

One of the factors that drive the electricity rates in California is its size and geography, which inflates the fixed operating costs such as generation, maintenance, distribution, wildfire mitigation, and public programs like CARE.

The aforementioned costs account for 66-77% of the residents’ electricity bills.

The wildfire-prone topography also contributes to the staggering cost of electricity in California. In July 2019, Governor Gavin Newsom even signed into law a provision that allows utility companies to pass on the $10.5 billion penalties to their customers to cover wildfire damages.

Between 2017 and 2018, there had been a series of destructive wildfires that forced Pacific Gas & Electric (PG&E) to file for bankruptcy protection in January 2019. The utility firm was held financially responsible for some of the deadliest wildfires that were caused by its faulty equipment.

 

The Great Paradox

Despite the exorbitant price of electricity, California produces at least 20% more energy than it consumes due to the number of power plants that exceed the demand. In an attempt to reduce the oversupply, some of them operate at half or quarter capacity. In contrast, others were even forced to shut down their operation about 20 years earlier than scheduled.

Even with oversupply, the average cost of residential electricity in the state is 22.26 cents per kilowatt-hour, the fourth highest in the country.

For years, consumer groups have criticized the construction of new power plants and blamed it as one of the factors driving up the electricity rates. However, California Public Utilities Commission president Michael Picker said “overbuilding” makes sense to anticipate the retirement of old power plants and the “unexpected” events that can affect the transmission lines, such as heatwaves and wildfires.

Picker has also argued that the excess capacity is needed to meet the new environmental standards that require power plants to produce at least 50% clean energy by 2030.

 

Alternative Clean Energy: Go Solar

In today’s world, consumers have more options when it comes to their energy suppliers, as opposed to just relying on the utility firms to supply their power needs. Solar power, wind, and hydropower systems have now made it possible to live off-grid.

Most experts agree that the solar panel system is the most cost-effective alternative power source in hot-sunny regions like California. According to some studies, consumers can recoup its upfront cost within three years of use.

Solar energy is a clean and reliable energy source thanks to recent design improvements that allow the panel to last 20-25 years with no or very minimal changes in its energy production. Furthermore, they come with tax rebates and other incentives that make them even more affordable.