Blog Post < Previous | Next >
Guy
California electricity rates are exorbitant
California electricity rates are the most expensive on the Mainland (yellow in table below). They are far higher than for the US as a whole (green).
Source: U.S. Energy Information Administration (EIA)
The table below compares California vs US electricity rates.
Source: U.S. Energy Information Administration (EIA)
As shown on the table above, California rates are far higher than the US. Over the past year they have grown far faster than the US.
The graph below looks at residential rates history from 2001 to 2023.
Source: U.S. Energy Information Administration (EIA)
Similar graph for commercial rates.
Source: U.S. Energy Information Administration (EIA)
Same graph for industrial rates.
Source: U.S. Energy Information Administration (EIA)
If we focus on the period from 2019 to 2023, we can see that California rates are growing exponentially faster than US rates.
Source: U.S. Energy Information Administration (EIA)
Regarding the growth rate over the 2001 to 2019 period, California rates have grown at roughly the same speed as the US one. But, over the 2019 to 2023, they have grown far faster.
Source: U.S. Energy Information Administration (EIA)
When you visualize the above data, it makes for an arresting picture.
Source: U.S. Energy Information Administration (EIA)
A recent report from the CPUC suggests that the increase in California electricity rates over the past few years is due to costs related to wildfire risk mitigation. I am not sure that this climate risk alone justifies California rates having grown so much faster. California is not that much more vulnerable than the US as a whole to Climate Change.
Wildfire risk
If we focus on wildfire risk, it is widespread all over the Northwest, West Coast, Rocky Mountains Area, and Florida.
Source: FEMA
Hurricane risk
Hurricanes are known to impart frequent and huge damages to infrastructure, including electric utility grids. They are most prevalent on the East Coast, the South, and Gulf of Mexico. California is totally spared from such a risk.
Source: FEMA
When combining both wildfire and hurricane risks, California's environmental risks and related costs to a electric utility may not be much above the US average. By, comparison Florida appears to be hammered by both risks (wildfire, hurricane). And, their respective rates are far lower than California as shown in the tables below.
California vs Florida
Source: U.S. Energy Information Administration (EIA)
Not only California rates are around 2 x greater than Florida's, but over the past year California rates have increased rapidly; meanwhile, Florida rates have decreased rapidly.
Source: U.S. Energy Information Administration (EIA)
Why are California costs so much higher than Florida's?
Doing a Perplexity search, I got that the main causes were the following:
- Stricter environmental and energy policies
- Higher compliance costs associated with renewable energy standards
- More expensive fuel mix and generation costs
- Higher transmission and distribution costs due to geography and safety regulations
- Peak demand management costs
- Funding for consumer programs and subsidies
Many of the above mentioned items are related to California's reliance on renewables.
California does rely on renewables (42.5% of fuel mix) to a far greater extent than Florida (6.6%) as shown on the table below.
Source: Chooseenergy.com
But, renewables are deemed to be now the lowest-cost fuels for electricity generation as shown on the graph below.
However, as mentioned California's electricity rates are around twice as high as Florida's, despite California having supposedly a much cheaper fuel mix. I ran into this conundrum over a year ago, when I observed that nationwide, the utilities relying more on renewables had higher electricity rates.
Although the Perplexity search explicitly did not think that California's wildfire risk mitigation costs played a material factor compared to their other mentioned causes, I think for PG&E in particular it did. PG&E is insisting on burying the majority of their at-risk lines instead of protecting them (covered connection) as other utilities have done. The covered connection strategy is far cheaper than burying lines. Thus, even though California may not be exposed to greater environmental risk than Florida, in some cases, it uses far more expensive risk mitigation strategies.
Demographics are another hurdle for California utilities
If the population of a utility territory is growing, it allows a utility to amortize its huge capital costs over a rising customer base. However, California's population is anticipated to barely grow over the next several decades.
Source: UN World Population Project, California Department of Finance Demographics Research Unit (DRU)
The above graph on the left-hand side shows that the California population has grown a lot slower than for the US as a whole since 2005.
The graph on the right-hand side shows that going forward, California's population will continue growing a lot slower than the US.
The California projection was generated by the DRU. The latter has a long history of overestimating California's population growth by using unrealistic immigration assumptions. When I correct for such unrealistic assumptions, I observe that California's population growth will likely be even flatter than the DRU projection (I call my projection 'Model' shown as the black line).
With flat population growth, the huge capital costs of California electric utilities will put ongoing upward pressure on electricity rates. These are already exorbitant now.
Such high electricity rates may stimulate a continuing exodus of employers leaving the State. This may have long-term fiscal repercussion as California is still struggling with a Budget Deficit of over $70 billion.
THE END
Gaetan Lion is an independent researcher with expertise in economics, econometrics, investments, risk management, statistics, and quantitative analysis. His areas of interest include demographics, economics, investments, Climate Change, health care, sports, and politics.