Fueled by a dated system that does not always respond to market incentives or pressure, costs and surpluses of energy have both grown in California, raising pointed questions about what residents should expect from rates and regulations alike.

“California has a big — and growing — glut of power,” as the Los Angeles Times announced in a detailed report. “The state’s power plants are on track to be able to produce at least 21 percent more electricity than it needs by 2020, based on official estimates. And that doesn’t even count the soaring production of electricity by rooftop solar panels that has added to the surplus.”

“To cover the expense of new plants whose power isn’t needed […] Californians are paying a higher premium to switch on lights or turn on electric stoves. In recent years, the gap between what Californians pay versus the rest of the country has nearly doubled to about 50 percent.”

Growing outrage

The disparity has drawn steady fire from free market analysts. “In an open marketplace, gluts of products or services lead firms to slash their prices dramatically. If, say, car manufacturers produce too many vehicles, they will provide rebates or be stuck with lots full of unsold inventory,” Reason recently observed. “With California’s regulated utility system, by contrast, gluts in electricity actually raise prices for consumers because of the way utilities are paid for their investments. They need only get the approval from the Public Utilities Commission to build new plants and pass on costs to ratepayers.”

The gap between power and cost has grown to nationwide highs. November 2016 data from the U.S. Energy Information Administration, “showed California households paying 17.97 cents per kilowatt hour for electricity, or 40.9 percent more than the national average of 12.75 cents,” CNBC reported. “New England states also have high electricity costs. But out West, only Alaska and Hawaii have higher average electricity costs.”

Although controversy has swirled around the prospect of regulators approving new plants amid an energy glut, “experts say growing interest in energy storage — including battery energy storage technology — could have an additional impact on the electricity market in the nation’s most populous state,” CNBC continued. Michael Ferguson, U.S. energy infrastructure group director at S&P Global Ratings, told the network that new battery technology would help by storing surplus energy without having to produce more of it. 

Big plans

In fact, Edison and Tesla recently cut the ribbon on just such a storage system, moving from concept to execution in what utilities officials characterized as unprecedented time. “The facility at the utility’s Mira Loma substation in Ontario contains nearly 400 Tesla PowerPack units on a 1.5-acre site, which can store enough energy to power 2,500 homes for a day or 15,000 homes for four hours,” the Los Angeles Times reported. “The utility will use the collection of lithium-ion batteries, which look like big white refrigerators, to gather electricity at night and other off-peak hours so that the electrons can be injected back into the grid when power use jumps.

“Tesla and Edison sealed the deal on the project in September as part of a state-mandated effort to compensate for the hobbled Aliso Canyon natural gas storage facility. They fired up the batteries in December.”

Unless the utilities rejigger rates and storage, they could find pressure mounting to scale back their plans for a big outlay for electric transportation investment. “Southern California Edison would spend $19.45 million on six ‘priority review’ pilots and $553.8 million on a five-year charging infrastructure buildout,” according to the plan, UtilityDive noted. “San Diego Gas and Electric wants $18.19 million for six priority review pilots and $225.9 million for residential charging. And Pacific Gas and Electric has proposed $20 million for priority reviews and $233.2 million for two five-year charger buildouts. In all, it comes to $1.07 billion for a wide-ranging list of programs from heavy-duty transport electrification to incentives for Uber and Lyft drivers.”

On Monday

The premise of Michigan v. EPA was whether the agency could refuse to consider costs to business in its decision to regulate, based on the appropriateness and necessity after studying public health hazards as a result of power-plant emissions.

According to the EPA website, the Mercury and Air Toxics Standards – “the first ever national limits on mercury and other toxic emissions from power plants” – would have required power plants to use “widely available, proven pollution control technologies to protect families from pollutants.” The EPA estimated MATS would prevent up to 14 premature deaths in California, “while creating up to $120 million in health benefits in 2016.”

Roughly 70 percent of California’s total electricity production comes from power plants located within the state, as well as outside the state but owned by California utilities. Most of our electricity is generated by natural gas and hydroelectric power stations, both of which produce negligible amounts of mercury compounds.

As written in the majority opinion delivered by Justice Antonin Scalia, the actual quantifiable benefits of the new mercury standards, as initially estimated by the EPA, would only be $4 to $6 million per year throughout the U.S. Compared to the $9.6 billion per year costs that power plants would be forced to carry under the EPA’s regulations, the benefits of imposing such standards were questionable, and petitioners, including 32 states, brought the case to the court. “It is not rational, never mind ‘appropriate,’” Scalia wrote, “to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.”

“When agencies come up with these costly and fickle regulations, they need to consider who will inevitably pay the bill,” Karen Harned said in a prepared statement; she’s the executive director at the Small Business Legal Center for the National Federation of Independent Business. “The EPA does not have the authority to implement hugely expensive new rules without performing the mandatory economic analyses.”

House Majority Leader Kevin McCarthy, R-Calif., also criticized the EPA’s actions in a press release:

“The mere fact that the EPA wished to ignore the costs of its rules demonstrates how little the agency is concerned about the effects it has on the American people. From its ozone to greenhouse gas to navigable waters rules, the EPA continues to burden the public with more and more costs even as so many are still struggling to get by and improve their lives in this economy.”

The EPA later argued that the range Scalia cited was a low-ball estimate strictly for the mercury-related benefits, not the other ancillary benefits that would have come from reductions in other pollutants, such as particulate matter.

Despite these accusations that the EPA did not consider costs at all during the process of creating the regulation, Justice Kagan argues otherwise in her dissent.

Kagan wrote that the EPA did, in fact, take “costs into account at multiple stages and through multiple means as it set emissions limits for power plants.” Though the EPA declined to analyze costs at the onset of the regulatory process, since the agency “could not have measured costs at the process’s initial stage with any accuracy,” the EPA eventually conducted a cost-benefit study which found quantifiable benefits exceeding the costs up to nine times over – “as much as $80 billion each year.”

The Michigan ruling might also have greater implications on the Obama administration’s overall environmental agenda, which would have included the EPA’s first-ever regulations on greenhouse gases emitted by power plants – expected to roll out later this summer. Politico notes, “Monday’s decision indicates a court skeptical of EPA’s aggressive regulatory agenda, throwing into question how the court will react to the virtually unprecedented climate plan.”