I participated in a brainstorming session with Paul Phillips of the CPUC staff in April 2019. We agreed that the biggest barrier to electrification was high electric rates. But rates could not be lowered without bankrupting the utilities.
I continued to think about the seemingly intractable problem and finally published my thoughts in 2024. I suggested a two-part rate, with the first based on average costs applying to existing uses and the second based on marginal costs applying to new electrification uses. It elicited many objections. I address them in the attached paper, which has just appeared in the March Issue of the Oxford Energy Forum published by Oxford Institute for Energy Studies.
Here are the ten objections:
First, climate change is a hoax, and there is no reason to focus on pricing strategies that might decelerate it.
Second, climate change is a problem but the best way to solve it is to impose a carbon tax.
Third, the simplest way towards electrification is to ban the burning of natural gas in homes and businesses for space and water heating and for cooking and drying clothes.
Fourth, electrification will move system load curves so that they reach a peak in the winter, as opposed to the summer, creating winter peaks in areas where the system load curve peaked in the summer, since heat pumps will replace space heaters that run off natural gas or oil.
Fifth, there should be local-specific variation in marginal cost pricing to account for variations in distribution costs across locations. Marginal cost pricing should vary by time of use and perhaps on an hourly or sub-hourly basis.
Sixth, new electrification technologies, by imposing additional load on distribution circuits, may require the installation of new distribution capacity. Marginal cost pricing should include not only energy costs but also capacity costs. Thus, capacity costs should be included in marginal cost-based rates. They could be rolled into energy charges, on a time-of-use basis, or collected as a demand charge.
Seventh, marginal cost pricing targeted at key electrification technologies cannot be implemented without knowing end-use specific load shapes.
Eighth, technology-specific pricing is discriminatory and violates long-standing regulatory practices.
Ninth, a much simpler approach to electrification is to raise fixed charges.
Tenth, marginal cost pricing directed at electrification will trigger a death spiral.
I was honored when Professor Littlechild, whose contributions to energy economics are going to be honored in a forthcoming issue of the Energy Journal, wrote back to me: "Your paper is particularly good at identifying the issues and questions and expounding and discussing them in an understandable way. A model of clarity! I hope it generates a positive response."