The Burlingame Voice

Natural Gas vs. Electric: Pay Up

It's never too late to repeal the B'game ban on natural gas in new construction--unless a contractor has already started the build.  We hashed over the issue in February here.  Whether such a ban does any actual climate good and what it might cost (in a cost/benefit sense) is important.  This week the Wall Street Journal carried two letters to the editor that bear on the question:

Regarding Allysia Finley’s op-ed “Now We’re Cooking With Gas. But Tomorrow?” (Dec. 17): Forbidding natural-gas connections in new buildings ensures that more, not less, natural gas will be consumed to meet the new demand for electricity. Similarly, government mandates for electric vehicles, space heating and cooking will increase the total amount of natural gas burned.

Natural gas consumed as a fuel to heat or cook is more than 90% efficient, while electricity produced from natural gas is at best 60% efficient. This means that boiling a pot of water on an electric stove uses 150% as much natural gas as a gas stove. This is before any consideration is given to the inefficiencies of induction heating or losses in transmission.  On the other hand, if all U.S. homes were required to burn natural gas for space heating and cooking, the total amount of natural gas consumed nationwide would probably decline, with the added benefit of increasing the proportion of U.S. energy sourced from renewables. Unintended consequences can be a cruel mistress.

Richard Varner, Wichita, KS

California’s efforts to curb natural-gas use can be devastating to low-income households. The top rate for electricity is more than 40 cents per kilowatt hour, which equates to nearly $12 per therm of heat. Natural gas, by contrast, costs about $2.50 a therm. This means that it costs more than four times as much to cook your dinner, dry your clothes or heat your bath water with electricity than with gas. You can get a somewhat better deal using a heat pump (at a cost of several thousand dollars) to heat your house; the electricity for this costs only twice as much as the gas for a furnace. Many people involved with California real estate are aware of this. Unfortunately, few of them are in government.

Robert A. Saunders, Rohnert Park, Calif.

On the earlier thread a commenter made a good point that I had not considered.  The B'game ban is a "reach code" that supposedly only affects new construction.  But over the long-haul, with about 150 other California towns doing similar things, how long before qualified technicians, replacement parts and replacement units become harder to find and most costly?  Not long, I bet.

Blackouts, Brownouts and Greenouts

Who doesn't love a new buzzword?  This week's newest is "greenout".  A greenout occurs when green energy drops off so quickly, typically at sunset, that regular, reliable energy cannot ramp-up to fill the void and our back-up strategy of buying regular power from other states fails.  Here are clips from two different WSJ articles this week.

When rolling blackouts darkened parts of California this month, Frank Wolak, an economics professor and energy-markets expert at Stanford University, had a painful sense of déjà vu.  As Californians again experience rolling blackouts, and millions more are threatened with losing power, a warning that continues through Monday, Mr. Wolak said it was clear that “California policy makers completely forgot the lessons from the crisis…in their rush to go green.”

Once again, a big part of the problem is that California regulators have left the state dangerously exposed to buying large amounts of imported electricity on the spot market during peak periods on days when there is extreme energy demand—what Mr. Wolak likened to going to the airport on Thanksgiving and expecting to fly standby.

Good one.  Very apt analogy.  Here are some of the actual numbers to support it.

During peak daylight hours, California produces a surplus of solar energy, and power generators may be ordered or paid to cut back their production so the grid isn’t overloaded. On Friday and Saturday Caiso reported about 1,000 mega-watt hours (MWh) were curtailed—enough to power 30,000 homes. This year 1.3 million MWh of power have been curtailed.  State water regulations are also forcing the shutdown of “peaker” plants along the coast that can quickly ramp up generation when the sun goes down. This is why the Public Utilities Commission last year warned the state could face an energy shortage as early as 2021 on hot summer evenings. That day has arrived a year early.

When they can get it, Californians already pay twice as much for electricity as Washingtonians and a third more than Nevadans. Because the spot price for power in the summer can surge more than 30-fold from noon to dusk, utilities are building expensive batteries to store solar energy that can be released in the evening. They say that will save money, but that’s also what they said about Jerry Brown’s failed bullet train.

On many days, California’s grid operator now has to find 10,000 to 15,000 megawatts of replacement power—sometimes 25% to 50% of what it needs to keep the lights on—during a three-hour period as solar, and to a lesser degree, wind power, falls off.

So there you have it.  It's enough to make you question if you should leave the Peninsula Clean Energy program--you probably got the glossy postcard in the mail today--and force "them" to keep more natural gas plants, build new nukes and value reliability as a service attribute.  It sure makes banning natural gas in new construction seem counterproductive.  And buy a good uninterruptible power supply (UPS) if you are working at home and want to keep working.

Bay Area Exodus? How Big? How Long?

A lot of the fire, heat and policy-making on the Peninsula lately has  been driven by the belief that we will be adding more of...well, everything.  Except perhaps affordable, local entertainment.  Rent control.  Affordable housing.  Mass transit.  High density.  Subsidized X, Y, Z and back to A.  ADU's.  UBI.  Free lunch.  What if it's all just BeeEss?

You can find polls and surveys to support or contradict any position you choose.  But you can't deny the fact of open market pricing.  Not the engineered, subsidized, hidden-cost stuff like renewable energy.  I'm talking the "walk into a place of business and get a price quote" response.

Here's the "walk-in" price that caught my eye this week.  A friend of a friend is moving to Portland.  I know, I know--really? Now?  He's got remote work status until..... who knows when.  She can transplant her practice anywhere.  All that aside, the cost to rent a truck to move your stuff yourself to Portland today is $2,500.  The price to rent the same truck in Portland to drive to the Bay Area is.......wait for it, $300.  If I gave you my special 20 minute How-to-Negotiate class, I'll bet you could get them to pay you $300 to bring the truck back for them.  It would cover gas, lunch and the Golden Gate bridge toll.

Will the exodus continue?  Yes.  Will it last more than a couple years?  Maybe.  Will it reverse within the next five?  Doubtful.  I'm glad I'm not all-in on a high-density, all-electric$$, bird cage with a minuscule courtyard, 6' x 6' elevators and no balcony that I will need to sell for $650,000 to break even.  The old saying "don't fight the Fed" only applies if you have to get in the ring.

Municipal Charity is Limited

The City-funded support for local businesses, residents and charities is coming into focus as the DJ reports today

The Burlingame City Council agreed to build a $500,000 grant program for local businesses, while setting aside $250,000 to purchase gift cards for struggling families and donating another $250,000 to service providers.  The program is to be administered by the San Mateo County Economic Development Association, or SAMCEDA, which is also operating a similar program through the county.

Noting the city’s contribution capacity is limited, Councilman Michael Brownrigg said the Burlingame Back in Business program would likely serve about 50 companies fitting a limited criteria with grants capped at about $10,000.

Officials also agreed to purchase about 1,000 gift cards from Visa or Mastercard worth $250 which would be distributed to families in Burlingame, with hopes the cards would be redeemed at local businesses.  Councilmembers had first discussed attempting to restrict spending to a specific zip code, but ultimately determined allowing flexibility for families who need assistance would be more valuable.  Those eligible for the program will be contacted by the city’s utility provider, which maintains a list of those who qualify for financial aid.

We are in the fourth quarter of the city's fiscal year which ends on June 30th.  Using last year's financial report as a rosy baseline,  page 34 shows the $84.5M of revenue had major components of property taxes (25.7%), sales and use taxes (21.1%) and the biggie that is also the most at risk, hotel tax (34.8%).  When Michael Brownrigg says that the city's contribution capacity is "limited", he ain't kidding.  We could easily see the hotel tax get cut in half for the year--which would be a $15M hit to the budget.

Even at the end of June when the next report arrives, we won't really see the complete picture since the pain arrived at the end of the third quarter.  Another DJ piece on the San Mateo budget shortfall lays out the timing issue

“There’s a challenge we have on sales tax in that the data we get is essentially six months in arrears. The most recent sales tax data we have is for the third quarter of 2019,” said Finance Director Richard Lee. “We won’t see the true impact of COVID-19 for another six months. … It’s a similar concept for [hotel] tax.”

San Mateo's predicting a $7M "structural imbalance" next year which seems small to me.  It's total projected budget is $251M but only 14.3% in sales and hotel tax, so we shall see.

Electric Parking: Low Usage at Lot Y Spaces

Some of the comments on the original post about taking 10 regular parking spaces in Lot Y just south of B'way and creating 8 electric vehicle-only charging spaces noted low occupancy (often no occupancy) of these new spaces.  I've noticed the occasional EV getting juice there, but not too often--and only once have I seen three EVs at the same time.  That motivated me to get the early usage figures from the City and the vendor, EVgo, so we can establish some sort of baseline.  I fully understand that some innovations take time to get to widespread use--the question is how long, if ever?  So here are the January 2020 figures (i.e. 31 days):

312 Charging Sessions

5.2 Megawatt Hours of charging delivered

Equates to ~1,350 miles of electric driving

Doing the math:  10 charges per day for 8 spaces is our baseline…1.25 charges per space per day.  Again, these things can take time, but I sure hope things improve otherwise we should turn at least a couple spots into EV-optional access until usage ramps up.

Banning Natural Gas in B'game

With several study sessions under their belts, the City Council is moving towards a ban on natural gas for new developments in town.  We first heard this out of Berkeley and discussed it last July here.  As the idea moves closer to home (the Daily Journal wrote it up here), I have some thoughts that I have just shared with the council via email.  Here is my letter

Dear Councilmembers,

I am intrigued by the discussions regarding banning natural gas hook-ups in future Burlingame developments including commercial, multi-family and single-family residences.  It strikes me that perhaps the councilmembers who support such a ban should lead the way in this change.  I suggest that each councilmember take the initiative to change out the gas appliances in their own homes first.  The community should be provided insights into both the capital and operating costs of this change.

It would be enlightening to understand the relative costs of electric furnaces, water heaters and high-end electric stoves and fireplaces that meld with typical Burlingame design aesthetics.  Similarly, if any councilmember has a pool or outdoor hot tub, it would be good to understand the options available to heat these amenities.  I can foresee some potential changes and additions to our existing building codes that might be revealed by councilmembers’ changeover projects.  Understanding these changes first would save residents and developers time and money as well as bringing our building inspectors up to speed.  The need for 220V power in many more home locations as well as the need for battery back-up and potentially back-up generators (with appropriate fuels if available) should be examined and shared with the community.  In my nearly 30 years living in Burlingame, I cannot recall a single natural gas outage, but electrical outages are frequent and not likely to improve in the mid-term future.

Lastly, we should all be provided with actual operating cost comparisons for the newly refurbished homes.  If these changeovers could be finished by next winter, a six-month cost comparison for the colder months of October to March would be ideal for assessing the true impact on Burlingame residents.

I look forward to the Council’s leadership on this important issue.

Sincerely,

Joe Baylock

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I'll let you know what I receive in the way of responses. 

  

PG&E: The Revolving Door & Climbing Rates

One of the biggest stories of the last 5+ years has been the power outages, blackouts, wildfires, and the San Bruno gas explosion that have plagued Northern California and PG&E.  Here in B'game, we have had outage issues over the years that lead to the founding of Burlingamers Unwilling to Live with Blackouts (BULB) that appeared to get PG&E to do some equipment upgrades that improved uptime.  We have been lucky in not having any wildfires, but anything can happen--there is plenty of fuel in Mills Canyon and throughout our City of Trees and in our up-the-hill neighbor H'borough.  Keep your fingers crossed.

The Wall Street Journal published a three and a half full page investigative piece on PG&E on December 28th.  If you have access and missed it, go back and read it.  Otherwise I will be taking a few excerpts from it to illustrate not only the PG&E failings, but those of the CPUC and Gov. Brown and Newsom.  There is plenty of blame to go around.  This first installment starts with the revolving door at the top.  It's never easy to turnaround a huge operation like PG&E and heavily regulated utilities are even harder than a regular large company.  It takes strong leadership, methodological and patient strategy and execution and good relations with the regulator and investors.  Stability helps too and we have not had that in the CEO's office.

The Journal article starts with Peter Darbee taking over from 35-year veteran Gordon Smith in 2005.  Known as the "Green CEO" who arrived with a plan for "business transformation" using Accenture as a major consultant and a mission to move towards more green power, Darbee fell far short on the earnings front and resigned in the wake of the San Bruno explosion.  There was an interim CEO, Lee Cox, until Tony Earley was hired from DTE Energy in Detoit on a "back to basics" theme.  Infrastructure investment went up

PG&E traditionally had spent $5 to maintain its far bigger electrical transmission and distribution system for every dollar it spent maintaining its gas network each year. The furor over the San Bruno explosion skewed spending toward gas.

In 2011, the company spent $237.8 million to maintain its gas network, more than twice the amount in 2010, according to federal filings. That spending kept rising, hitting $658.3 million in 2016, when it topped the spending on electric upkeep by $60 million.

Then came the power failure at Candlestick during Monday Night Football.  Earnings suffered for a number of reasons and Early was gone in 2011 and

In his final year, PG&E’s average cost of electricity for residential customers had risen an inflation-adjusted 10% to 20 cents per kilowatt hour, among the most expensive of any large utility in the country.  Mr. Earley, who had touted his practical-minded, back-to-basics approach, returned to Detroit, never having tamed PG&E.

“We are coming back to Michigan when this adventure is over,” he had promised the Detroit Economic Club two years earlier. “One of the reasons is someone once summed up San Francisco absolutely perfectly. They described the city as 49 square miles surrounded by reality.”

The next CEO, Geisha Williams, had been the PR face of PG&E during the San Bruno aftermath and was elevated to CEO with an emphasis on "affordability" of rates.  Then the major fires started and continued

While its service area burned, PG&E’s residential electricity rates averaged 21 cents a kilowatt hour in 2017, rising to 22 cents the next year. Only New York’s Consolidated Edison and San Diego Gas & Electric charged more among the nation’s largest utilities.

She lasted 14 months, followed by another interim CEO, John Simon, until another industry vet, Bill Johnson, was brought in from Tennessee Valley Authority (TVA) in April of last year.  In addition to all of the operational issues, Johnson has competing bankruptcy plans to shepherd, an ever climbing green energy mandate to satisfy and hundreds of wildfire and blackout-related claims to work through.  That is a lot of change - people and strategy - at the top for any organization to digest while keeping the lights on.

Friends With Benefits: New CalPERS Guy Gets Tough

We haven't addressed much in our "Friends With Benefits" category since this post in August of 2017 that noted an 11.2% return that year and a 68% funded ratio for benefits.  During the council rotation Monday night, Mike Brownrigg commented that some of the unheralded accomplishments of the council this year was additional funding for pension benefits.  Compared to many cities we are in good shape--emphasis on compared to many other California cities.  This matters because the added funds come out of the funds available for everything else in town.  Last week, the WSJ had a piece on the new investment head at CalPERS that was revealing and encouraging

It didn’t take Yu Ben Meng long to find problems at the nation’s largest pension fund.  Six months after starting as investment chief of the California Public Employees’ Retirement System, he told board members at a Santa Rosa, Calif., gathering in July that some older investments might be valued too richly, said people familiar with the matter. By fall, the fund had shaved the value of a real-estate investment trust and was looking more closely at a five-plus-year-old bet on a solar developer, other people said.

Now as his first year comes to a close, Calpers has cut ties with a longstanding manager on a hometown project, jettisoned under-performing stock pickers, and slowed work on a multi-billion-dollar private-equity experiment.  Calpers’ has struggled to consistently meet its 7% yearly target at a time of high retirement costs and ultra-low interest rates. The pension fund has on hand only about 70% of the assets it will need to fund future retirement checks.  He told board members in January that the world today has many bigger, more nimble asset managers not based in Sacramento.

The fund also jettisoned four of five firms in a program that sought to attract women and minority managers that his predecessor helped grow.  Cuts to such a program “could be a hot potato and have political ramifications,“ said Co-Chairman Howard Marks of Oaktree Capital Management. ”But if your job is to achieve investment performance, you can’t be confused about what’s No. 1.”

Staffers are looking more closely at a developer of solar energy assets that some staffers at the fund believe is worth half or less of what it is valued at, a person familiar with the matter said.

So he won't overtake Judge George Miriam as person-of-the-year, but I'm thinking he makes an excellent runner-up.  Now if Yu can just keep the Legislature and Newsom from burning through the $21.5 billion budget surplus on pet projects and be as disciplined as B'game has been, we might get somewhere.

Death...Oops... Trains and Taxes

Since affordability is such a hot topic these days we should examine each and every effort to degrade our affordability.  Gas taxes.  Highway 101 fees.  Natural gas bans in new buildings--or at least so far only new buildings--so we can spend oodles on electricity.  School bonds and parcel taxes.  More bonds for affordable housing.  A sliver for the Rec Center.  I'll bet some of the regular Voice commenters can remember some that I am missing.  So here are the latest two-- a slice for the train and a big bite on commercial property which is to say a big bite on brick and mortar retail.  Amazon must be thrilled.

Slicing Up the PG&E Pie

The city of San Francisco is ready to offer PG&E $2.5 billion to buy the utility's lines within the city.  Let's just leave aside the question of whether a city that can't keep its streets clean, stop 30,000 car burglaries per year, build a subway line or Van Ness Avenue remotely on time, or run a bus system properly should be in the electricity business.  Those are great questions, but here we ask "What about Burlingame?"  The Wall Street Journal posits a bad answer to that question:

The removal of San Francisco from PG&E’s 70,000-square-mile service territory would likely affect rates and service for those in rural and suburban areas outside of the city by reducing the number of customers paying for the operation and maintenance of the grid.

Michael Wara, head of the climate- and energy-policy program at Stanford University’s Woods Institute, said it is incumbent upon California to examine how San Francisco’s takeover bid would affect those customers.  “In order for this to happen, the state of California would have to be amenable,” he said. “There is reason to suspect it might have some negative consequences for the people left behind.”

We've already got cost and reliability issues with the electricity we are getting and the wildfire liability that PG&E faces certainly isn't going to make the cost issues any better.  Let's just hope our neighbor to the north doesn't stick it to us even more by taking a bigger slice of the pie.