Kyle Roadman, EPUD General Manager
Hello Emerald Customer-Owners,
Happy 2025! This year EPUD staff is focused on a new set of initiatives, helping to build a more resilient and efficient utility. I look forward to providing a status update on these soon. For now though, I have another post on the state of our Northwest power supply system. This edition: what we can learn from California and why we may be heading in a similar direction.
UPDATE: A recent analysis from EPRI shows the situation described below is even worse than I make it out to be. In fact, the State of Oregon had the notorious distinction of taking first place nationwide for residential rate increases in 2024. And our increases were nearly double that of the next closest state!
Click here to see the full analysis, as well as my response.
Part 4: Lessons from California
We can look at our neighbors to the south for a preview of how an unbalanced power supply system might play out. California policymakers have emphasized a move to renewable energy above all else for the better part of two decades. The result has been a dramatic impact to both system reliability and energy affordability.
Reliability “Events” (i.e. Rolling Blackouts)
Putting aside the energy crisis of the early 2000s and more recent wildfire incidents, California residents have become accustomed to reliability events (ie. the risk of blackouts) during times of high electricity demand. These have been slickly re-branded as “flex alerts” but the nature is the same: a desperate plea to use less electricity to avoid blackouts.
Back in 2022, California ratepayers had the pleasure of seeing their phones blow up with just such a flex alert:
And sometimes these “flex alerts” just aren’t good enough. We need only go back to 2020 to see how bad this can get. As one non-partisan news source put it:
Further, a press release from the California business community said at the time:
The likelihood of blackouts has become high enough that California’s grid operator even has a “fact sheet” explaining rotating power outages to customers:
Although the Northwest has largely avoided forced “blackouts” in recent years, our system has come precariously close to the edge. The extreme Northwest cold spell in January 2024 left the region with little margin for error. Were it not for large amounts of power imports from the desert southwest and the heroic performance of the Federal hydroelectric system, the results could have been catastrophic.
Enter (Hugely Expensive) Battery Storage
To deal with summer reliability issues, California has recently added massive amounts of battery storage capacity. And to be fair, this brute force approach does appear to have made a difference over the past two summers. It remains to be seen, however, just how effective it will be in the most extreme weather events. And – left unsaid in all the recent press releases – the full cost of this effort is yet to be fully felt by ratepayers.
Reliability issues aside, the push for renewable energy in California has had a real and lasting effect on customer rates. Academic papers can be (and have been) written on the subject, with key takeaways including:
- Renewable energy costs started out high but have decreased substantially over time.
- However, these costs typically do not include associated backup/standby power (called capacity).
- With this backup capacity added in, the costs are significantly higher than legacy resources.
This paper from MIT summarizes the lifecycle of renewable energy costs in California:
The economics behind renewables operating in electricity markets follow three distinct phases. At first, renewables expect high margins from high market prices, followed by a decrease in power prices from their penetration. In the final phase, their intermittent nature creates a need for new capacity.
Over time, California ratepayers have thus been subject to two distinct premiums: the initial high cost of renewables (before market penetration and economies of scale) and the (somewhat hidden) capacity cost of providing backup power. This latter cost is only beginning to show up in the massive buildout of battery storage.
The Impact on Electric Rates
A state-by-state rate comparison is helpful to understand just how significant this impact can be:
Source: U.S. Energy Information Administration (EIA)
https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_6_a
Note: this report changes monthly. Archived historical data is here:
https://www.eia.gov/electricity/data/state/
While power supply is far from the only issue that California policymakers and utilities have mismanaged (see: wildfire policy and market deregulation), it plays a major role in the rate picture shown above.
Given the natural resources of every state along the west coast, there is no inherent reason California ratepayers should be paying more than twice what those in Oregon and Washington pay. This is, rather, the result of deliberate policy decisions, including the move away from legacy thermal resources and toward intermittent renewable resources without regard for externalities.
Again, this is not to say that environmental responsibility isn’t a key pillar of a balanced system. However, pursuing this area while disregarding the two other pillars (reliability and affordability) has a meaningful and harmful impact on citizens. The rate differences above translate into hundreds of dollars per month for people and families.
Warning Signs for the Northwest
Unfortunately, there are signals Oregon is heading down a similar path on the affordability front. In recent years, our state has been near the top of the list for year-over-year electricity rate increases. As shown in the table below, in August 2024 we trailed only the State of Illinois for this infamous distinction:
Source: U.S. Energy Information Administration (EIA)
https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_5_6_a
Note: this report changes monthly. Archived historical data is here:
https://www.eia.gov/electricity/data/state/
And rather than a monthly blip, this chart represents a structural change in Oregon’s affordability as compared to the rest of the country. As recently as 2015, our state had the 9th lowest residential electricity rates in the nation:
Source: U.S. Energy Information Administration (EIA)
https://www.eia.gov/electricity/data/state/
As shown above, today we sit at 27th. And it seems to get worse each month. If our goal is to eclipse California at 49th, we’re well on our way. Given that Oregon is also already in the top 10 of states with the highest cost of living, this should be a major concern.
None of this comes as a surprise to Oregon utility customers, who have been subjected to one double digit rate increase after another in recent years. Most of these increases are from the Investor-Owned Utilities (IOUs) subject to the clean energy mandates described earlier. To pick just a few recent headlines:
Any hope for ratepayer relief in IOU land seems like wishful thinking at this point given how far utilities still must go to meet clean energy mandates. This is clear in the prediction below from one industry expert when he refers to Puget Sound Energy (PSE) and Portland General Electric (PGE):
While this prediction may sound extreme, it’s based on nothing more than existing clean energy mandates and the cost of commercially available renewable resources in today’s market. Clearly, should this scenario play out, we really will be pushing California for the highest rates in the nation.
And while it’s tempting to look over the fence at the investor-owned utilities, those of us in public power land are not immune from these impacts. The region is increasingly interconnected through the wholesale markets and as the cost of power increases it will eventually put cost pressure on all utilities—whether public or private.
In the next (and likely final) post: the future policy decisions that will decide whether the Northwest can once again return to a balanced power supply system.
Please stay safe,
