California Governor Newsom Calls Back State Legislators For Special Session To Address Gas Prices
Alana Semuels
Thu, December 22, 2022
The Phillips 66 Los Angeles Refinery Wilmington Plant on November 28, 2022.
Credit - Mario Tama / Getty Images
It’s been 140 years since Thomas Edison flipped the switch that powered the world’s first electrical grid, lighting a handful of homes in lower Manhattan. Edison would likely be impressed by the things electricity powers in American homes today—superfast computers, modems that connect those computers to the Internet, and even smart refrigerators that can recognize the food they store.
He might not be as impressed by the way we get that electricity. In fact, America’s energy system would not seem particularly modern to anyone who lived 100 years ago. The house I currently rent in New York’s Hudson Valley, for example, is heated by oil that comes up the Hudson River in a barge—basically, the same energy system that would have heated my house a century ago. In theory, this should at least be cheap. After all, the U.S. is in the middle of a decades-long energy boom, passing Russia in 2011 to become the world’s largest producer of natural gas and overtaking Saudi Arabia in 2018 as the world’s largest petroleum producer. But because of outdated laws restricting the movement of fossil fuels within the U.S., combined with global market forces, my heating oil is expensive.
And despite the recent passage of a $374 billion law, the Inflation Reduction Act, that will incentivize more green—and more affordable—sources of power, many of the projects that might transition my energy sources to hydro power or solar are being held up by lawsuits and red tape.
Which is why I should probably not have been surprised to get an electric bill for $710 shortly after moving into this house. It isn’t just me: the cost of energy for the average American was up 13% in November from the previous year, according to the government’s inflation data. And the U.S. Energy Information Administration says that most U.S. households will spend more on energy this winter because of predicted higher energy prices and colder temperatures compared to recent years. I recently set out to figure out how this all came to be. It starts in your backyard.
NIMBYism makes it harder to move energy around the U.S.
The wires that bring electricity to my house link to the grid, which is powered by renewable energy like hydro and wind power—and by generators that burn natural gas. Although in the U.S. solar and wind sources are often the cheapest providers on the marketplace, people still need power when the wind isn’t blowing or the sun isn’t shining. And as states like New York have phased out coal and nuclear energy, their marketplaces have become even more dependent on natural gas plants to provide that non-intermittent electricity. Natural gas now comprises 60% of the generating capacity in New York state, meaning the maximum electrical output that can be created, up from less than 50% in 2000. The amount of power that can be generated by wind and other renewables is just 6%.
Even in the age of renewable energy, in other words, the price of electricity is closely tied to the price of natural gas.
Our continued reliance on natural gas is largely due to the “shale revolution,” in which companies used horizontal drilling and hydraulic fracturing (“fracking”) to increase natural gas production. It made the stuff cheap and plentiful, and allowed the U.S. to cut its use of coal. Today, about 38% of the country’s electricity is generated by plants that burn natural gas, up from 30% a decade ago. This system is cleaner than coal, but is worse for climate than renewables like solar or wind.
The link between natural gas and electricity prices didn’t become a problem for most consumers until recently. Until about 2016, the U.S. didn’t send its natural gas overseas, and so prices were largely driven by how much was being produced and used here. But then, around 2016, as it became easier to convert natural gas into liquified natural gas (LNG), companies started investing in LNG terminals, and exports grew. Because companies, not the U.S. government, produce natural gas (and oil) in the U.S., they send natural gas to whoever pays the most for it. The price of natural gas in the U.S. is now largely determined by global supply and demand.
To be sure, there’s still so much natural gas available in regions like West Virginia that in theory, energy prices should stay low for all Americans. But the U.S. has a Not In My Back Yard (NIMBY) problem with energy infrastructure.
Natural gas pipelines are largely underground, yet the process of adding new pipelines to existing infrastructure has been fraught with legal battles. Opponents try to block pipelines because they argue that they damage local habitats, threaten endangered species, and incentivize more hydraulic fracturing. In July 2020, after six years of litigation, backers withdrew from funding the Atlantic Coast Pipeline, which would have delivered more gas from the Marcellus Shale in the Appalachian to customers in the South. The Mountain Valley Pipeline, which would bring natural gas out of West Virginia and was supposed to be completed in 2018, has been stalled by lawsuits that have stymied the permitting process.
“The biggest issue is getting things permitted,” says Marianne Kah, an adjunct senior research scholar at the Columbia University Center on Global Energy Policy. “A heck of a lot more gas could come out of both the Permian and the Marcellus, if you could permit pipelines.”
It’s not just natural gas pipelines. NIMBYism is costing energy users across the spectrum. Paul Curran, whose firm BQ Energy builds solar projects on brownfields—land that was previously developed but is no longer in use—says that even getting a solar plant built on land that used to be a garbage dump takes time. “People are nervous about change, and the closer your project to where people live, the more it requires a little bit more hand-holding and explaining,” he says.
It’s been 140 years since Thomas Edison flipped the switch that powered the world’s first electrical grid, lighting a handful of homes in lower Manhattan. Edison would likely be impressed by the things electricity powers in American homes today—superfast computers, modems that connect those computers to the Internet, and even smart refrigerators that can recognize the food they store.
He might not be as impressed by the way we get that electricity. In fact, America’s energy system would not seem particularly modern to anyone who lived 100 years ago. The house I currently rent in New York’s Hudson Valley, for example, is heated by oil that comes up the Hudson River in a barge—basically, the same energy system that would have heated my house a century ago. In theory, this should at least be cheap. After all, the U.S. is in the middle of a decades-long energy boom, passing Russia in 2011 to become the world’s largest producer of natural gas and overtaking Saudi Arabia in 2018 as the world’s largest petroleum producer. But because of outdated laws restricting the movement of fossil fuels within the U.S., combined with global market forces, my heating oil is expensive.
And despite the recent passage of a $374 billion law, the Inflation Reduction Act, that will incentivize more green—and more affordable—sources of power, many of the projects that might transition my energy sources to hydro power or solar are being held up by lawsuits and red tape.
Which is why I should probably not have been surprised to get an electric bill for $710 shortly after moving into this house. It isn’t just me: the cost of energy for the average American was up 13% in November from the previous year, according to the government’s inflation data. And the U.S. Energy Information Administration says that most U.S. households will spend more on energy this winter because of predicted higher energy prices and colder temperatures compared to recent years. I recently set out to figure out how this all came to be. It starts in your backyard.
NIMBYism makes it harder to move energy around the U.S.
The wires that bring electricity to my house link to the grid, which is powered by renewable energy like hydro and wind power—and by generators that burn natural gas. Although in the U.S. solar and wind sources are often the cheapest providers on the marketplace, people still need power when the wind isn’t blowing or the sun isn’t shining. And as states like New York have phased out coal and nuclear energy, their marketplaces have become even more dependent on natural gas plants to provide that non-intermittent electricity. Natural gas now comprises 60% of the generating capacity in New York state, meaning the maximum electrical output that can be created, up from less than 50% in 2000. The amount of power that can be generated by wind and other renewables is just 6%.
Even in the age of renewable energy, in other words, the price of electricity is closely tied to the price of natural gas.
Our continued reliance on natural gas is largely due to the “shale revolution,” in which companies used horizontal drilling and hydraulic fracturing (“fracking”) to increase natural gas production. It made the stuff cheap and plentiful, and allowed the U.S. to cut its use of coal. Today, about 38% of the country’s electricity is generated by plants that burn natural gas, up from 30% a decade ago. This system is cleaner than coal, but is worse for climate than renewables like solar or wind.
The link between natural gas and electricity prices didn’t become a problem for most consumers until recently. Until about 2016, the U.S. didn’t send its natural gas overseas, and so prices were largely driven by how much was being produced and used here. But then, around 2016, as it became easier to convert natural gas into liquified natural gas (LNG), companies started investing in LNG terminals, and exports grew. Because companies, not the U.S. government, produce natural gas (and oil) in the U.S., they send natural gas to whoever pays the most for it. The price of natural gas in the U.S. is now largely determined by global supply and demand.
To be sure, there’s still so much natural gas available in regions like West Virginia that in theory, energy prices should stay low for all Americans. But the U.S. has a Not In My Back Yard (NIMBY) problem with energy infrastructure.
Natural gas pipelines are largely underground, yet the process of adding new pipelines to existing infrastructure has been fraught with legal battles. Opponents try to block pipelines because they argue that they damage local habitats, threaten endangered species, and incentivize more hydraulic fracturing. In July 2020, after six years of litigation, backers withdrew from funding the Atlantic Coast Pipeline, which would have delivered more gas from the Marcellus Shale in the Appalachian to customers in the South. The Mountain Valley Pipeline, which would bring natural gas out of West Virginia and was supposed to be completed in 2018, has been stalled by lawsuits that have stymied the permitting process.
“The biggest issue is getting things permitted,” says Marianne Kah, an adjunct senior research scholar at the Columbia University Center on Global Energy Policy. “A heck of a lot more gas could come out of both the Permian and the Marcellus, if you could permit pipelines.”
It’s not just natural gas pipelines. NIMBYism is costing energy users across the spectrum. Paul Curran, whose firm BQ Energy builds solar projects on brownfields—land that was previously developed but is no longer in use—says that even getting a solar plant built on land that used to be a garbage dump takes time. “People are nervous about change, and the closer your project to where people live, the more it requires a little bit more hand-holding and explaining,” he says.
People protest against the Enbridge Energy Line 3 oil pipeline project outside the Governor's Mansion in St Paul, Minnesota.
Stephen Maturen—Getty Images
Many other projects have failed after years of litigation. After 16 years and $100 million in sunk costs, the backer of a proposed offshore wind farm near Cape Cod pulled the plug after years of litigation and opposition from wealthy property owners who did not want to look out their windows and see wind turbines. In 2021, Maine residents voted down a transmission line for hydroelectricity that would have connected Quebec and Massachusetts in a project known as the New England Clean Energy Corridor, because they felt it would cause environmental damage in Maine while primarily benefiting Massachusetts.
This is directly affecting my electricity bill. Over the last few months, I’ve been charged rates as low as 8 cents and as high as 16 cents per kilowatt hour. Those large swings are directly related to the volatile price of natural gas and to the difficulties of connecting more renewables to the grid, says Joe Jenkins, a spokesman for Central Hudson, my utility. In New York, 92% of the energy produced upstate comes from renewable sources while 89% of the energy produced downstate, in the dense New York City region, is generated by fossil fuels. Linking those two regions is going to require more transmission lines, which, of course, are being slowed by NIMBYism.
Many other projects have failed after years of litigation. After 16 years and $100 million in sunk costs, the backer of a proposed offshore wind farm near Cape Cod pulled the plug after years of litigation and opposition from wealthy property owners who did not want to look out their windows and see wind turbines. In 2021, Maine residents voted down a transmission line for hydroelectricity that would have connected Quebec and Massachusetts in a project known as the New England Clean Energy Corridor, because they felt it would cause environmental damage in Maine while primarily benefiting Massachusetts.
This is directly affecting my electricity bill. Over the last few months, I’ve been charged rates as low as 8 cents and as high as 16 cents per kilowatt hour. Those large swings are directly related to the volatile price of natural gas and to the difficulties of connecting more renewables to the grid, says Joe Jenkins, a spokesman for Central Hudson, my utility. In New York, 92% of the energy produced upstate comes from renewable sources while 89% of the energy produced downstate, in the dense New York City region, is generated by fossil fuels. Linking those two regions is going to require more transmission lines, which, of course, are being slowed by NIMBYism.
The transition to renewable energy isn’t going as quickly as planned
Even when renewable projects get the green light, connecting them to the grid is a challenge because it means relying on many more sources of power than the grid was designed for. If the grid used to be a one-way road that went between a few big power plants, it’s going to have to turn into a six-lane superhighway that criss-crosses smaller renewable projects and brings electricity in many directions.
“We’re going from this vertically integrated, large, central group of machines that powered the system for 100 years to trying to remake it inside of 20 years with a vastly different technology that’s intermittent and runs at the whim of Mother Nature,” says Kevin Lanahan, a spokesman for the New York Independent System Operator, the nonprofit that took over operating the state’s energy grid when New York deregulated its electric utilities in 1999. Engineers have to make sure transmission lines can handle the power that’s coming online, upgrade the system, and ensure reliability, Lanahan says, which can take years.
That’s causing a sort of traffic jam: The PJM, the nation’s largest independent energy operator, which covers 13 states including Pennsylvania and Ohio, became so overwhelmed with requests from renewable projects that wanted to be connected that, earlier this year, it put a two-year pause on reviewing new proposals.
Meanwhile, individuals have been doing what they can to save money through renewable investment on a smaller scale. I like the idea of slapping some solar panels on my roof and reducing my energy costs without having to rely on the grid at all. And the government certainly would like it if I did that—the Inflation Reduction Act extends a tax credit that allows anyone living in the U.S. to deduct 30% of the cost of installed solar from their federal income taxes.
That’s nice for homeowners who can pay the tens of thousands of dollars it costs to install solar panels, but it doesn’t help me, a renter. My neighbor installed solar panels on his home this summer; he told me that he’ll essentially have paid off the cost of the panels in seven years, and after that, will be getting electricity for free. With state incentives, rebates, and other credits, the cost of the 20 solar panels and installation on his roof was around $22,000. He receives credits for power the panels generate, which discounts the price of the power he consumes. Throughout the summer, he says, he’ll produce more than he uses, collecting credits he can use in the winter. “We effectively have a power plant on our roof,” he says.
But my neighbor owns the house. As a renter, this isn’t an option for me. There’s no incentive for me to pay to put solar panels on my roof or install heat pumps if those benefits eventually accrue to the landlord. Instead, I am dealing with leaky windows, an outdated heating system, and rising bills, along with the rest of the 35% of Americans who rent their homes.
If anything, I am paying my neighbor for his solar panels, says Christopher Knittel, a professor of energy economics at MIT’s Sloan School of Management. Customers are charged for the power they use and also pay a separate fee that goes to maintaining and upgrading the electrical grid. Both of those charges are based on how much power they use, so households that can reduce their rates by generating their own electricity pay a lower share of those maintenance fees, which means people like me have to pay more. (New York is in the process of changing this.)
A century-old law hasn’t helped
In 1920, in the wake of World War I, Congress passed the Jones Act, to ensure that the U.S. would have an adequate supply of merchant marines for national emergencies. That bill essentially says that if you bring something from one U.S. port to another by ship, the vessel has to be built in the U.S., owned by a U.S. company, and staffed by U.S. crew. The law was passed amid concerns that the U.S. would not have enough vessels, infrastructure, and labor to supply the armed forces during future wars, and it has helped maintain a domestic shipbuilding industry and maritime workforce.
A century later, this law has made moving natural gas and oil from one U.S. region to another inefficient and costly. Though the Gulf Coast produces a huge amount of natural gas and oil, it is cheaper for regions like the Northeast to import theirs from overseas. So as the Gulf Coast is sending natural gas to Europe, the Northeast is importing natural gas from Qatar, which drives up costs and also creates unnecessary emissions.
Economists have been trying to get rid of the Jones Act for decades, with no success. The shipbuilding industry argues that it’s essential for keeping American jobs. Politicians on both sides of the aisle say it keeps America from being too dependent on other countries’ supply chains.
In the meanwhile, it’s contributing to high heating prices for many Americans. My home uses heating oil for heat. My supplier, McMillen Oil, likely fills its tanks from barges that travel up and down the Hudson River, says Taylor Hudson, the founder of Synergy Commodity, a consulting firm that works with energy resellers in the Northeast. A lot of the oil on those barges comes from outside the U.S.—refineries near me wouldn’t import crude oil from Texas or the Gulf Coast because of the Jones Act.
And the price of crude oil, like the price of natural gas, is closely tied to global supply and demand. Since people started traveling and factories started running after an initial pandemic shut down, the price of oil has been climbing. But U.S. oil companies are hesitant to explore new sources of the fuel because the transition to renewables could make that a losing investment. People who pay for heating oil—and for diesel, which is basically the same thing—are subject to the whims of the global market. For instance, the price of crude oil became even more expensive since Russia invaded Ukraine. It will likely rise even further on Feb. 5 when the E.U.’s ban on Russian oil imports goes into effect.
What’s more, crude oil needs to be processed into fuel in a refinery, and at least five U.S. plants have closed permanently in the last two years. There are just seven refineries in the Northeast today, down from 27 in 1982, and some antitrust groups argue that has driven up prices.
Win-lose either way
Home energy prices may become even more volatile as we push further to transition to net-zero emissions. Consider California, arguably the U.S. leader in this shift. Between 2002 and 2016, California reduced coal- and oil-fired power plants by 88%—and electricity prices rose to be 50% higher than the U.S. average.
That might be since, as more solar and wind power plants come online and drive renewable energy costs down, they force more expensive natural-gas plants to close. Which can become a problem on days when the sun isn’t shining or the wind isn’t blowing—and consumers are forced to pay a hefty price for the remaining backup fossil-fuel power. Were the California approach to be applied nationally, some researchers have predicted huge swings between days when electricity is basically free, and those when the cost is exorbitant. In the future, in other words, my energy bill might go down significantly. But it may also go up, up, and up.
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