Transcription
Electricity rates in California are double the national average, and they might be rising from here. Our guest today is Jim Boyd, who's the former California Energy Commissioner and former CARP director. He's here to tell us why their electricity rates in California are rising and what's coming next.
"There's past practices that have built an expensive base that just has continued itself to get larger and larger. The long-term contracts were expensive and they added a new level to the base of California rates and regulations. So that adds to this this stacking up over time of decisions that are made."
I'm Si Kurami. Welcome to California Insider.
Jim, it's great to have you on. Welcome.
Thank you very much. It's it's a pleasure to be here and a pleasure to meet you. We want to talk to you about the California and utility and energy. You're an expert in this space. You have spent a lot of time in the state. You have a lot of experience with what's happening. The rates are a lot higher than the rest of the nation. It's almost double. Why is that?
The last time I looked, it was about 96% higher than the rest of the nation. And that's an average across the whole state. PG&E is 104% higher than it used to be 10 years ago. There are a lot of current analyses of what's wrong with California. I'll start with them, but I think there's past practices that have built a base on an expensive base that just has continued itself to get larger and larger.
Currently, the number one thing on most people's analyses that I tend to um agree with is the wildfire situation. Utilities are damaged by wildfires. Their their um infrastructure gets burned and it's expensive to replace and they have to replace it. Infrastructure costs go into the rate for electricity and and the rate payers pay for it. Utilities have been found to have started way too many wildfires through their equipment being too close to trees and something happens and a fire starts. Their wires are maybe a little old and they are easily knocked down or they break and they start a fire. Their transmission system as well as their uh distribution systems are aged. I won't say they haven't kept up with them, but one wonders a little bit. But they start fires, they have to pay replacing their own, and then they pay monstrous liability costs because they're found guilty of starting the fires. In all of this, then I think they've all come to realize our infrastructure is old. And so they are replacing infrastructure like crazy. That costs money. All infrastructure costs are passed on to rate payers. That's one thing the private utilities get permission to do. A fact is a fact. Probably there's some profit built in there every time the rates go up too. But that is number one perhaps.
Secondly might be the cost of some of the decisions that California has made in the past few years have added have in in the climate area perhaps they've added additional costs. It's a price people thought they were willing to pay as they have for instance in in the air quality battle of the air resources board for decades that was nonpartisan. The citizens even wanted clean air in California. California did pushed the envelope very hard, but they never did anything that that wasn't a proven technology. Not a sound of academically good technology less post for it. So those costs are kind of significant.
In finishing the list recently again the volatility in natural gas has become very significant. I've seen it get very significant in years past. That's adding a a cost to to the price of electricity. Uh because we have a lot of gas fired power plants. I think those kinds of things are the current things that are piled on to what was already known as kind of expensive electricity in California.
In the late 1990s, the Public Utilities Commission felt there was a problem with the market system in California and they went to work on uh a new approach. U they came up with plans for a different kind of a market operation in California. Now, I wasn't an energy commissioner. I wasn't involved in it. I was watching it from the grandstands of sitting over at the Air Resources Board, uh which I did. and and u you know energy when you're in the air resources build business. I saw the PUC and the energy commission going at each other. The PUC was pushing this idea. The energy commissioner analyzed it commissioners or the energy commission didn't think it was viable. Uh the PUC won. The administration adopted that approach. the legislature got it and they took it over and uh they ended up with a piece of legislation. When I was chief of staff of the resources agency and the energy adviser to the secretary of resources, I was asked to look at the thing. I read the law three or four times and said, "I don't see how this can work." What the legislature had done is crudely taken the a a design for a horse and turned it into a two hump camel. I mean, they had made an impossible thing but nobody saw it initially. I think the energy commission did but a few of us actually warned the governor's office something's wrong here and we even went to work on maybe there's something can be done about it. those kinds of people in the private sector that always find ways to beat the system as you probably remember from those years.
So this was the Enron days, right?
This was the Enron days. The guys who allegedly figured out how to beat it on the back of napkins as they flew home early in the whole seeming collapse of the system. And the system did collapse eventually. and California took great strides and did a lot of work to try to save the ranch. I mean, to me, it got down to saving the ranch. I was unfortunate to be in the room when the governor's chief of staff said Wall Street has just called the governor and said they're going to advance money to the utilities for two more days and that's it. And it's kind of like, my god, the lights are going to go out. So, I had worked along with the Department of Water Resources. They knew about power. They were energy deficient for the project, but they knew a tiny little bit. And suddenly they were told, "You got to save it, you know." And so
the Department of Water to save the
Department of Water Resources bought and sold the electricity for the for the state during that period of time, working with the utilities, but financed it. Earlier when the when it looked like the wheels were coming off and electricity got a little short, somebody asked the Department of Water Resources that can you buy a little more electricity than you need and then sell it back on a daily basis through the market to those that are really on the fringe of having a serious problem. Anyway, that kept the the ranch from burning down, let's say, i.e. the state going into a major disaster. However, eventually what had to be done, which was forbidden in the laws, long-term contracts, the long-term contracts, which were done when the price was still high, the state offered less than the market was, but not that much less. DWR to me were heroes in this whole process, but those contracts were expensive and they added a new level to the base of California rates and regulations because they were long-term. they had to be paid. But truly that that was the mortgage that saved the ranch as far as I'm personally concerned. So that adds to this this stacking up over time of decisions that are made.
Within the last 10 years, the energy commission made a decision after the airboard said made its decision 90° left turns. All transportation is going to be fueled by electricity. The energy commission said all electricity is going to be furnished by renewables and basically solar and wind. Then to me they brushed off the other renewables that were being worked on. One of which is biomass to electricity using wood waste particularly forest waste but egg waste in California. That kind of wood waste is huge because California's monstrous um producer of agriculture, nuts, orchards, nut trees, orchards, etc., etc. They have to burn that every year. That contributes to air pollution. If the forest type people burn the huge piles of slash that pile up in the forest, that is serious air quality. So, you can burn that. You can burn it in controlled process and you can make heat and generate electricity. That was the only um renewable source of electricity that worked the first time Governor Brown in his very first term in office way back in the 70s was interested in renewables. They want to do wind, they wanted to do solar, they wanted to do other renewables. The only one that worked at that point in time worth a darn was a biomass to electricity. In the 80s we had 60 some odd of those plants. Today we got 20 23 because there's no policy embracing it. But anyway, um, they they passed up opportunities to do things that might have helped.
So you mentioned it worked, the biomass, how did it work? Was it financially viable or did it generate a lot of electricity?
It generated electricity. It solved other problems that weren't really really accounted financially in the equation. For instance, get biomass out of the forest, you finally begin to um adhere to the trying to get healthy forests in California, which leads to the very thick forests that we do have and leads to easy fires rather than making it difficult to start a fire. There's a monstrous societal cost associated with that. And because of the millions we pay to fight fires, the millions we pay for the damage done afterwards. I thought after three or four of those big fires in years past, we'd really get on to that. But there are there are oppos there's opposition to that. There's policy oppositions within government. Then the environmental community never liked the idea. They were fearful. Um, you know, you're going to injure the habitat. And I would come back with you're going to burn the forest and and burn down the habitat that you're trying to protect and kill the animals you're trying to protect. So those are societal costs that that we've never figured out a way to pay for.
Can you tell us how it works? The biomass
There is natural biomass both in the forest and what I described to you every year in California in the egg industry that is taken out of the forest out of the fields and taken by truck normally to a plant that's been built to burn the wood waste control the air pollutants there from generate heat generate steam. turn a generator and that can be base load power that can be 7 by 24 if you want it that way. Uh renewables [snorts] and my original concern about the renewables solar and wind they're intermittent.
You have to have the sunshine or the wind.
Yes. and when they're not going to be there and sometimes you you know you predict night and day but you don't predict clouds and storms and this that and the other when it comes to solar and the wind can vary that wind doesn't blow every day etc. So you have to have following power. You have to have another power source which in many cases turned out to be a gas fired combustion turbines um a jet engine in effect a a turbine engine to quickly natural gas fired to come on and off um to to fill those voids. So there's a cost associated with that.
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From where you sit, from with all your experience, do you think the utility rates they're going to go up or do you think they're stabilizing at where they are or could they come down?
I don't think they're stabilizing except for the fact that there there has been one legislative action suggesting the design of the rate system changed some. The trouble with it is it's academically looks real pretty to transfer costs from the electricity consumption tunch and move it to the fixed cost because there are some things that don't have to vary. Some infrastructure is just there and maybe could be a base rate could be established.
Do you think it's gone too far? I went back to the leaders of both those agencies who I knew well, the airborne in particular, and said, why are you eliminating some of the stepping stones to the future we're all seeking in the plans that both agencies had created um prior to the last two 10 years, I'd say, but probably spent 10 years each on coming. There are all kinds of other alternative transportation fuels that could have been used in the interim and improved air quality and climate to some degree. The same is true when you talk about energy. Um, there's other things in energy. There's we had a real program going on a renewable uh eliminating the methane uh emitted in massive concentrations of cattle. A lot of methane there. There a lot of talk about that. And uh we got the farmers and we got financial uh assistance in trapping that methane and eventually getting it into the natural gas pipelines of California where it worked. We went from one farmer doing just for himself or one pipeline to groups of farmers creating a central point and saying it all the pipeline. a bad financial situation in California in about 2008 kind of hit that kind of hard, but there's never been any policy support for it since except in maybe the last year or so. It's caught on in the nation and other places in the world. Um, and so it has a chance to come back. So you're looking for what's going to happen that might come back. a lot of talk about nuclear, the small nuclear is um getting attractive to a lot of people and you'll find agencies, new agencies, one of which I'm doing proono work for called the New California Coalition Energy, water, home, the home crisis, and perhaps one other goal, and they're fairly new and just getting kind of started, but they seem to have the horsepower or and the smarts of maybe doing things about things and and I'm part of the energy working group which is working on things for the future and and a lot of the members are talking up small nuclear quite a bit. I believe in the ever accelerating pace of technology but you got to wait till the time is really right and you don't alienate the industry. You mentioned the grid and so there's the movement towards um electric cars and then we also have the movement with data centers and the need for power. The data centers that were beginning to be built anyway now suddenly pushed by AI. You're right. And AI is pushing so hard that it may breathe life back into small nuclear if they can really prove um its safety and into other renewables such as biomass because suddenly companies are wanting to self-power themselves almost or or get these data centers. They are huge consumers of electricity. AI is moving so fast and it's totally dependent on power centers for for the data centers for to feed the AI effort. Um, that could be a turning point, but you kind of have to wait to see you're really on the threshold before you decide that's going to save us. And one thing about nuclear, the one thing that bothered me, two things bothered me in my term of that was the nuclear waste fishing technology. Great. We've been using it in first with the bombs and then with electricity and we still got plants going. Um, all the power plants in the United States have dry storage on the sites of the plants because the United States government never facilitated the construction of a viable nuclear waste facility. There is a waste facility that was was directed to be in Nevada at the on the grounds of the nuclear test facility. That was a political decision, not a scientific decision. The science studied by a whole panel of people for many years was the safest place to put that kind of high level nuclear waste is deep deep in grenitic foundations. Guess where they all are in the United States on the east coast. Guess how much congressional and senatorial horsepower those few states have because
nobody wants them.
They didn't want them. And somebody said, "Put it out in Nevada where that nuclear test stuff is. I've been inside the um Yaka Mountain plant. California sued even before I came into the nuclear business um over the threat of groundwater that slopes into basin does definitely slope into California and that made them nervous. They argued that that has been proven as a safe site. I've been in it drips drips like crazy. Leaks going to put stainless steel shields over the casks. I question. Now, I'm not the expert that the Nuclear Energy Commission was and who who was there showing it to me and telling me it's safe, but um it's never been built. That's too bad because in Europe like Finland, they ran such a program that the people wanted it in their backyard because they saw the economic benefits of having the employment in their area um lifetime because they're going to watch that stuff for 100,000 years. They didn't say not in my backyard, but that's because the government ran a real cool program of proving it before getting people excited. Anyway, we don't have that solved. So, you go to fusion and thought fusion was just around the corner also as everybody has felt and we don't have it yet. I've seen the Livermore facility before it worked. I mean, as it was being built, fantastic idea. I'm cognizant of the one in Europe. Each of them have proven in in milliseconds or maybe a few seconds that they can do it and maybe someday they'll come up with and that's just like having a sun in your own backyard so to speak that it gives you perpetual heat and no significant waste. See, there's hope, but
the technologies are out there
that they're coming and what have you, but don't I mean, some people are beginning to say, "Well, we'll just, you know, small nuclear is going to going to do it."
Yeah.
Okay. It's kind of prove it to me, but I don't disbelieve in it. But it's nuclear is dangerous stuff to play with. So
you mentioned at the time um we kind of prioritized um climate initiatives over cost of living but you said it wasn't that much and then when the fires hit or is it a lot the policy part?
Well, when you say all your electricity is going to be by renewables, which turned out to be intermittent, I think that was very premature in that maybe not premature for them alone, but then come out with a package that has them their intermittent power that comes in with other more economical ways to back them up and they just keep building that over time. I don't think we did that. Just like with saying all electric transportation, boy, I like that idea. Um, but I I think it was too soon. The grid has always been under trial. I mean, it's been taxed very hard consistently as our economy grew, as um life grew um with five televisions in every house and etc, etc. And the grid has gotten old. And so everything's happening at once. I mean, as we discussed earlier, it's not just rebuild the grid because a fire takes it down or really get in deep trouble because you your grid started the fire, etc. It's because it's strained and it's getting older. And that's a a infrastructure improvement which goes into the cost of electricity that the citizens bear from the from their utilities. And PG&E has been hit harder because they're more deeply in forests and and that's why their their transmission their their cost electricity in the last 10 years has gone in excess of 100%. Edison's about in excess of 80% and San Diego's in just in excess of 70%. Well, some of that correlates with geography.
Do you have any recommendations for the policy makers that are there right now with all the experience that you have in this space?
I retired. [laughter] Yeah. But I can't let go of this. I will admit. So, I'm working with the New California Coalition because I've exhausted myself talking to the few policy makers who haven't retired themselves by now in my lifetime. But in this past year, I have been fortunate to just happen to find myself in meetings even out of the country that that have had California legislators in it. Some of them the new C crop as well. some of them extremely recently. Uh, and I get the sense they're getting the picture. Maybe I've contributed a little bit just by talking about the past and opportunities lost or the things that were done. Now, veterans even are saying of either party, both parties saying we're we're beginning to get it.
You actually are still volunteering. You said you still you've retired
On my mother's side. I'm I'm probably a fifth generation Californian. I like California. I went to UC Berkeley. See, I was born before World War II started. So, I've lived through a lot. And yeah, you can get real dedicated to California. I'm very close to my favorite place in the universe, Lake Tahoe. I just happen to be on the Nevada side now. Maybe we're helping the Nevada governor not make some of the mistakes that have happened in California. But the thing about California, it really well the human race sometimes doesn't address issues until emergency has occurred, but then they come back and and do it big time. I don't know what the emergency has to be in California. I thought after the first three or four fires, see the first consulting work I ever did after I retired was for biomass energy. There were a couple counties in Northern California that had done a lot of work on their own. It was very impressive uh research this that and the other. They got they got it but they weren't they weren't getting any policy repo support um and even felt that the little bit of aid they get from from the state um might be threatened because they're they're pushing this real hard because they're worried about their forest. Northern California is really heavy in forest. I went to battle on it and I just got I mean I won't tell the stories but I I cannot believe the it's kind of like out of sight out of mind all of a sudden after putting a good good part of your life into doing this kind of stuff. So yeah, I'm I'm desperately trying to live into the next generation where I will see it turn around and I think it can, but it's going to take some real stuff, which is why I am giving my time to the New California Coalition. They have biomass energy as one of their priorities. They see it as something that's that's left behind. They're talking about nuclear, but they haven't, you know, they haven't embraced it. It's just another energy source we want to look at. But so there are things going on, but it's going to take a while.
Jim Boyd, former California Energy Commissioner. It was great to have you on California Insider.
My pleasure. Thank you for listening. Let us know your thoughts on electricity rates in California and are we using all the potential tools that we have for power generation. You can always email us at siamakalinsider.com or comment. We read all of your emails and comments. I'm Sam Kurami. This is California Insider. We'll see you next time.