A cautionary report this week warned that California’s renewable energy ambitions could raise ratepayer’s utility bills, despite marketplace evidence of plunging solar and wind costs and rising coal and natural gas prices.
Rewiring California: Integrating Agendas for Energy Reform from the Little Hoover Institute, an independent 50-year-old California oversight agency, argued the state may be moving too fast toward meeting its Renewable Portfolio Standard (RPS) requirement to get 33 percent of its power from renewable sources by 2020.
“The Commission has been told by numerous people,” the report noted, “that California regulators and stakeholders are buried under a proliferation of new policies. The result may be greater costs and competing policies that ultimately may thwart the state’s efforts to achieve its environmental policy goals.”
Californians “already pay almost a third more for their electricity than the national average,” it stated, and in the rush to meet the 2020 mandate, the California Public Utility Commission (CPUC) signed more than 200 power purchase agreements (PPAs) for over 18.5 gigawatts of investor-owned utility (IOU) renewable capacity. “As a result, their customers may not benefit from lower costs as renewable energy technology matures and prices potentially decline.”
Worse still, the report cautioned, the rush to the RPS could result in “consumer anger that may erupt if a ‘rate impact bomb’ explodes in 2015 or 2016 and consumers begin paying for the electricity generated by the new renewable plants now under development.”
There could, indeed, be a "rate impact bomb" in the coming decade, according the CPUC’s Division of Ratepayer Advocates (DRA), but it will have little to do with renewables.
“The report properly suggests that the state needs to do what it can to control utility rates,” the DRA said in response to the report, because “rates may increase as much as 30 percent in the next eight years.”
Such an increase would be the result of “a number of factors,” the DRA said. “Replacing aging infrastructure and improving gas systems will likely be major cost drivers,” it noted.
But “the renewable premium,” DRA asserted, “should be in the range of 5 percent to 7 percent of total rate increases in the same period.”
The renewable premium is the difference between the cost of procuring renewables to meet the RPS and the cost of procuring non-RPS, mostly conventional natural gas, resources to meet electricity demand.
DRA used the 2010 long-term procurement planning (LTPP) model created by nonpartisan research firm E3, which provides technical analysis to the CPUC and other electricity market players, to calculate the long-term rate increase impact and the RPS premium. It used proprietary Pacific Gas and Electric usage information to model utility bill impacts.
“The 30 percent increase in system rates over the next eight years were caused by increases in costs in most IOU system components, including distribution, transmission, and generation,” DRA explained. “Both transmission and generation (both RPS and non-RPS) have relatively larger increases than other system components.”