California faces a conundrum. We want to radically reduce greenhouse gas emissions (GHG), principally by replacing fossil fuels used in transportation and buildings with electricity generated by renewable energy. Yet, the state’s electricity prices are among the country’s highest and still rising.
Pacific Gas and Electric (PG&E) customers pay roughly 80 percent more per kilowatt-hour (kWh) than the national average, Southern California Edison (SCE) charges 45 percent more, while San Diego Gas and Electric’s clients shell-out double the coast-to-coast norm. Even low-income Californians whose rates are subsidized pay more than the typical American.
To achieve its laudable GHG reduction goals and convince the large numbers of people necessary to make a difference to switch, electricity needs to be cost competitive with – if not cheaper than – diesel, gasoline and natural gas.
Electricity rates are high in part because they reflect years of previously made expensive decisions, related to wildfire costs, infrastructure investment, and other elements. But new demand created by future conversion from fossil fuels wasn’t considered in past electricity resource and grid planning and should not have to carry the burden of these historical choices. None of the load added to decarbonize the grid should incur legacy costs for past generation investments nor for previous distribution expenditures.
One way to untangle this knot is to offer customers who trade their natural gas-, fossil methane-, or propane-powered water heating and space heating, ventilation and air conditioning (HVAC) or other appliances for electric models a discounted rate on the incremental electricity they consume. The rate could also be offered to Californians who retire their gasoline- or diesel-powered automobiles in favor of an electric vehicle (EV).
California has periodically adopted electricity rate discounts to incentivize beneficial choices. Economic development rates (EDR), available in all investor-owned utility territories, offer a reduction to enterprises that’re considering leaving, moving to, or expanding in the state. PG&E’s and SCE’s standard EDR discount is 12 percent and can go as high as 30 percent in designated “enhanced zones;” jurisdictions with unemployment rates that are 125 percent of the state average in the previous year.
A previously offered rate discount, available from 2006 to 2014, was created to improve air quality in the Central Valley. PG&E’s agricultural internal combustion engine tariff gave discounts to retire diesel generators and replace them with electric units, with associated rate escalation limited to 1.5 percent annually for 10 years to match expected diesel fuel price increases. The program prompted retirement of 2,000 diesel engines, with commensurate improvements in regional air quality and GHG emissions.
A decarbonization tariff could be structured in a similar fashion as these discounted rates. For example, SCE charges a fully loaded average rate of 9.03 cents per kWh, 12.58 cents for residential customers. A rate that reflected only the incremental cost of providing electricity to customers who switched from fossil fuel power to electricity would drop to 7.02 cents per kWh, 22 percent less. The residential rate would be 8.41 cents or 33 percent lower. Customers on the discounted rate would pay their fair share for electricity, while reducing GHG emissions.
Incremental loads eligible for the discounted decarbonization rate would be determined based on expected energy use for the installed application that displaces fossil fuels. For appliances and HVAC, electricity use could be calculated by relying on the California Energy Commission’s Title 24 building efficiency and Title 20 appliance standard assumptions. For EVs, the credit could be linked with average annual vehicle miles traveled as identified by the California Air Resources Board.
A decarbonization incentive rate would help achieve California’s GHG emission reduction goals while contributing revenues to a beleaguered electricity system. It would spur building investments, with associated employment and economic benefits.
Development of this article was supported by the Local Government Sustainable Energy Coalition.