Should Colorado adopt California’s energy policies?
A case against natural gas bans
Natural gas, once seen as a bridge fuel to a new energy future, is now the target of attacks by anti-industrial activists.
Armed with significant financial assets, environmental groups have spent the past year targeting the natural gas industry and its consumers through local bans on new natural gas hookups. Most of the local bans are located in California and the Northeast, but proposals to restrict new natural gas hookups continue to spring up across the country, including in Colorado.
The fact is these bans are a bad deal for consumers. Natural gas is currently used by both residential and commercial building owners for a variety of purposes, with water heating, space heating, and cooking making up the primary preferred applications.
The popularity of natural gas is due to its price and the comparative savings consumers are afforded by using natural gas when compared to electricity.
As Jonathan Lesser explained in a 2019 Wall Street Journal article:
“Consider California, the state at the forefront of natural-gas-hookup bans. Last year, the average price of natural gas in California was about $12.30 per million British thermal units (a measure of the heat content of the fuel), according to the U.S. Energy Information Administration. For a homeowner with a new, 95% efficiency natural gas furnace or water heater, that translates into a cost of just under $13 per million BTUs.
Compare that with the cost of electricity, which averaged 18.84 cents a kilowatt-hour in California in 2018, about 50% higher than the national average. That works out to $55 per million BTUs, more than four times the cost of natural gas. Even heat pumps for space and water heating can’t bridge that gap.”
By adopting these local bans, Colorado would be moving in a similar direction to California where policymakers have been doing everything in their power to undermine access to affordable and reliable energy. If Colorado chooses to go down that same path, Colorado’s energy consumers should expect the same problems that currently plague California.
Today, California’s residential electricity prices are the fifth highest in the country. Last year, the average cost of residential electricity in California was 23.4 cents per kilowatt-hour, compared to the national average residential electricity price of 14 cents. On December 3, the California Public Utilities Commission approved an 8.1 percent electricity rate increase for PG&E, which will cost the average residential customer in that service territory an additional $13.44 per month.
It’s also clear that bans on natural gas are exacerbating California’s poverty problem. As others have noted, many cities adopting these bans are some of the wealthiest parts of America. In California in particular, the municipalities that are restricting the use of natural gas are far wealthier than the state or national averages, meaning that by raising energy prices these localities are erecting further barriers to entry. These higher energy bills are of particular concern because they have more of an impact on low-income households.
California’s bans on natural gas are occurring while California’s electricity prices are increasing, and that the state’s electricity grid has been shown to be unreliable. State residents’ electricity demand has been affected by rolling blackouts during heat waves and power cutoffs to prevent fires caused by old equipment. In fact, blackouts are so common that thousands of Californians have bought small generators powered by fossil fuels to ensure reliable power.
In states like California where the confluence of renewable energy mandates and aggressive zero emissions targets have contributed to rendering the electric grid unreliable, bans on new natural gas hookups push more demand onto the grid, further taxing the system. The quest to electrify everything creates relative reliability risks on the electric grid, making conservation orders and failures of the grid an even more harmful event than it otherwise would be.
California’s approach to energy policy should be a warning to Colorado’s energy consumers. Policies that restrict the use of natural gas will raise energy prices and concentrate risks on the grid. Outside of the impacts on energy consumers, the long-run effects of California’s energy policies are beginning to show themselves as companies are currently fleeing the state due in part to expensive and unreliable energy.
One final point that should be made about these natural gas bans is that they undermine consumer preferences. Natural gas has certain properties that consumers prefer based on usability. The most prominent example is the gas range stove, which both commercial and home chefs tend to prefer for preparing and serving food. By eliminating new natural gas hookups, new restaurants will not have the option to use the types of stoves chefs tend to prefer. This is why the California Restaurant Association is pushing back on these bans.
Natural gas bans undermine energy consumers who simply desire access to affordable and reliable energy. In order to promote competition and to preserve consumer sovereignty in energy markets, states like Colorado should continue to push back on these local bans on new natural gas hookups.
Alex Stevens is a policy analyst at the Institute for Energy Research and the host of the Plugged In Podcast. He is a frequent commentator on the relationship between business and government in the energy industry as well as the effects of regulation and subsidies on energy markets.