How California energy policy is holding back a climate game changer

Electric heat pumps are the new green substitute for furnaces that run on oil or natural gas — and they’re quintessentially Californian in their sexy high-tech allure.

There’s even a new song about them: Will Hammond Jr.’s bawdy anthem, “I’m Your Heat Pump,” featuring such enticing lyrics as: “When you want it hot/ I’m hot for you.”

The California Heat Pump Partnership — a public-private alliance that includes the California Energy Commission, heat pump manufacturers and Pacific Gas & Electric Co. — is beating the drum about thousands of dollars in federal, state and county rebates and tax credits still available while publicizing the benefits of heat pumps, which are up to four times more efficient than a gas furnace.

So, with all that efficiency, you’ll also pay less for energy, right?

Alas, guess again.

While many homeowners — more than 60%, according to a U.S. Department of Energy report — could indeed save money on their monthly bills by replacing a fossil fuel furnace with a heat pump, millions would pay more. If you’re using propane or oil to heat your home, you’ll prosper. If you’re using natural gas, like most Californians, maybe not so much.

This is the dirty little secret that threatens to derail the electrification of buildings that are responsible for more than a third of the state’s greenhouse gases. Californians pay more for electricity than residents of any state other than Hawaii. We also pay about four times more for electricity than for natural gas, a higher ratio than in all but four other states. In a place where 1 in 5 ratepayers already can’t pay their power bills, only the very wealthy and/or heavily subsidized can afford to kick their fossil fuel addiction.

To understand why, you’ll need to learn some vexing facts about power — mainly political power — and how we pay for it.

Start with the fact that electricity per se is cheap. But most ratepayers also foot the bill for extras, mainly costs to build and maintain the poles and wires that deliver energy to your home or business. In Northern California, PG&E also charges for wildfire-prevention measures and state-mandated support for low-income customers.

What isn’t spelled out on anyone’s bill is how California’s large investor-owned utilities — PG&E, Southern California Edison and San Diego Gas & Electric — profit from those extra charges. In return for monopoly control, they are regulated by the California Public Utilities Commission, supposedly to ensure they don’t exploit their customers. And yet they do.

Here’s how:

For a contrast that may outrage you, check out Santa Clara, where energy rates are 59% lower than those charged by PG&E. That’s because the city’s lucky residents are served by Silicon Valley Power, a municipally owned utility with no obligations to shareholders.

Thankfully, some state legislators appear to be heeding Gov. Newsom’s demand last year that they address the state’s skyrocketing electricity rates. One effort (SB254), championed by state Sen. Josh Becker, D-Menlo Park, would get ratepayers off the hook for paying for wildfire safety and require utilities to use public financing — instead of leaning on customers  — to pay for the first $15 billion for capital-investment projects. Becker says this could save customers $8.8 billion over the next 10 years. Five other bills push for greater transparency and accountability — including banning utilities from charging customers for public relations campaigns that undermine municipalities seeking to manage their own energy. Unfortunately, a 2020 effort by state Sen. Scott Wiener, D-San Francisco, to convert PG&E to public ownership was strangled in the crib. “Last time he tried, he couldn’t even get a hearing,” a staffer told us via email.

Asked about the pitfalls of investor-owned utilities, PG&E spokesperson Mike Gazda replied, saying, among other things, that California’s average energy bills are lower than in 20 other states, according to 2023 data from the U.S. Energy Information Administration. As Gazda acknowledged, however, this is largely due to California’s mild climate. Customers in states like Alaska and Montana will obviously pay a lot more, given that they use more energy to heat and cool their homes.

Gazda also emphasized that residential electric bills for PG&E’s customers are lower today than they were in January 2024, are expected to remain flat for the rest of this year and should even go down next year, as some additional costs are removed from rates. Ratepayers can also reduce their bills — somewhat — by using less energy during afternoons and evenings when high demand leads to higher prices.

Yet none of this changes California’s essential dilemmas. Electricity remains significantly pricier than gas for many reasons that have nothing to do with electricity itself. And that’s a major disincentive to quit fossil fuels by, say, getting a heat pump.

Here’s another worry: As climate change leads to hotter summers, more of us will need air conditioning. National demand for central AC leaped from 27% of homes in 1980 to 67% in 2020, according to the U.S. Energy Information Administration. Many Californians, blessed with our moderate coastal climate, have lagged behind the rest of the nation in needing AC, but this is quickly changing.

Yet hopes for that goal are fading amid furious public pushback as homeowners do the math.

“WE ALREADY HAVE THE HIGHEST GAS PRICES, THIS IS ANOTHER SHOT AT TEARING DOWN THE ABILITY OF MIDDLE CLASS AND LOWER MIDDLE CLASS FAMILIES TO SURVIVE HERE,” wrote one Southern California homeowner, joining a deluge of emails responding to a recent proposal by the South Coast Air Quality Management District to limit nitrogen-oxide emissions in newly installed furnaces — a move that would favor electric heat pumps. 

The agency ultimately dropped the plan, demonstrating that without major changes in the way we pay for energy, we’ll lose the precious opportunities new electric technologies provide.

Yet if California takes up the challenge of making our energy bills more transparent and affordable, we could join Hammond in singing love songs to our heat pumps:

“All you got to do is turn me on/ And I’ll go on and on for you.” 

Shreyas Sudhakar is a rocket scientist, mechanical engineer, and contractor who blogs about heat pumps. Katherine Ellison is a Pulitzer Prize-winning journalist and author who writes about climate change and renewable energy.