Friday, November 24, 2017

Electricity Costs in California

A report earlier this year in the Los Angeles Times provided details of how Californians are paying billions of dollars every year for electricity they don’t need. The genesis of the problem is that at the beginning of this century the state faced a severe electricity shortage. This resulted in the opening of many new power plants. Some of them used the latest green technologies to reduce the amount of water and fuel required to generate power. While this was a good initiative, it may have pushed up the cost of setting up these plants.



The Over Supply Problem

A power plant set up in 2001 had an expected 30 to 40 year life span. It closed down in 2016. The reason was that the state power regulators approved the construction of another plant just 40 miles away in 2010. The $300 million plant is now idle. The same story has been repeated in other power plants. The reason for older, but still viable plants to close was that the state changed from one with a shortage of power to one with an excess. Having excess power may sound like a good thing – there will be a buffer to cover shortages due to natural causes and plant shutdowns. On the surface, it would also appear that having an excess of supply over demand would mean that the cost of electricity would be driven down by market forces. This is not the case. The cost of the plants that have been shut down still has to be recovered. And many of the newer ones are operating far below capacity, which makes the power they produce uneconomical. The only way to recover the capital cost of the closed plants and the uneconomical generation of others is to make consumers pay more. Things are only going to get worse as official estimates say that the state will have an excess generation capacity of 21% by the year 2020.

A Staggering Cost

In simple terms, the cost of turning on a light or operating an electric appliance has increased. In recent years, according to the LA Times, the gap between what Californians pay as against what the rest of the country pays has doubled to approximately 50%.  Today California uses 2.6% less electricity than it did in 2008. But customers in the state are now paying nearly $7 billion more than they did then. And state regulators have approved higher rates for the future in an effort to try and recover the cost of setting up and running the new plants.

Save By Reducing Power Consumption

With the cost of utilities expected to keep increasing, homeowners need to find a way to reduce their power consumption. Installing solar panels in a home is a major project that involves modifications to the home and a capital cost that makes recovering the expense a long term proposition. An immediate alternative that is economical and requires no major installation effort is to use daylighting systems.  These collect daylight from the roof of a house and carry it to even the most interior parts of the home, which may remain dark even during the day. This reduces the need to use electric lights in daytime hours and this can have a significant impact on a home’s utility bills. With electricity prices expected to keep going up, the earlier these systems are installed, the greater the savings for consumers. To be sure of deriving the maximum benefits from a daylighting system, it is important to use only that which is manufactured by a reputed company and where there is a dealer in the area to provide installation services and support.

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