The Public Policy

You Stay Classy, Sacramento

The centerpiece of California's energy policy is really the absence of energy.

By and From the March 2010 issue

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In many countries, electric utilities struggle to keep up with demand, and often fail. The World Bank estimates that almost 1.5 billion men, women, and children lack reliable access to electricity. They want it, but they can't have it. In new-agey   California, it's the other way around. The centerpiece of California's energy policy is really the absence of energy.

If that sounds crazy -- and it is! -- consider this impressive web of regulation that the government has spun: Elected officials enacted a moratorium on new nuclear power plants. New coal plants are illegal. Large scale hydropower is unthinkable for California's environmentally sensitive voters, because it harms fish. Natural gas plants emit half as much carbon as coal plants, but they are banned in much of California because they cannot get air quality permits for particulate emissions.

In 2006, the State Water Resources Control Board ruled that 19 coastal natural gas power plants were in violation of the Clean Water Act for using a process called "once-through cooling," by which ocean water is pumped into a power plant in order to condense steam into water to be reused. This can harm aquatic wildlife, so, at the behest of environmentalist groups, the SWRCB ordered coastal power plants to make costly refurbishments. According to the Energy Commission, "[I]t is likely that plant operators will choose retirement in the face of costly retrofits."

California doesn't have generation capacity to spare, so it will have to replace these plants, most of which are located in the southern part of the state. But the south California air basin is out of compliance with air quality standards for particulate emissions. It is well nigh impossible for utilities to obtain an air quality permit for a natural gas plant from the South Coast Air Quality Management District.

Existing nuclear power is also under attack. In 2006, the legislature passed a bill requiring the Energy Commission to assess the nuclear plants' vulnerability to earthquakes. In fact, the legislation was designed to stack the deck against nuclear when these plants come up for relicensing. It is unlikely that California utilities can meet demand for electricity without these 21 power plants. Yet California's elected officials, in Sacramento and elsewhere, seem to think that conventional energy is unnecessary as long as the Golden State aggressively pursues conservation and renewable energy.

That's the theory anyway. However, the state's pro-green, anti-energy policies make it difficult even for the generation of alternative energy.

California is the country's leading dairy state, and the Energy Commission has identified methane emitted by cows as a major source of renewable energy. But it is impossible to make use of this "bio-methane" from California's dairy farms because air quality agencies refuse to permit a generating facility. The state's deserts are obvious locations for generating solar power. Yet California Senator Dianne Feinstein is trying to block the construction of solar power plants in the Mojave in order to protect a species of turtle.

California's mountain ranges are ideal for wind power. For many environmentalists, however, wind turbines are unacceptable, because the giant, rotating blades kill things that fly. The New York Times recently quoted a California wind power developer saying, "Regulators are concerned about birds; now they're concerned about bats..." Next they'll be concerned about taxpayers.

Just kidding on that last point. Renewable energies are far more expensive than burning fossil fuels but that's only a start. To meet the state's current renewable energy targets (20 percent of the state's electricity was supposed to come from renewable energy sources by this year), the Public Utilities Commission reports that California utilities would have to build seven transmission lines, at a cost of $12 billion, to move electricity generated by renewables in remote regions to the urban centers where the electricity is consumed.

However, there could be a catch. Transmission lines are almost impossible to build in California due to the onerous permitting process designed to mitigate environmental impact.

No problem! said Governor Arnold Schwarzenegger. When it became clear that the state couldn't meet its 2010 goals, he simply moved the goalposts. He signed an executive order that increased the unworkable renewable energy targets and postponed them -- by a decade.

California's story should be a cautionary tale of how not to manage energy policy. Instead, it is touted by politicians and all too often swallowed hook, line, and sinker by gullible journalists.

There is something like a consensus among economists that "greening" the energy industry harms economic growth. But Schwarzenegger claims California "can grow the economy and simultaneously protect the environment" and Sen. Barbara Boxer maintains that California's energy policies have boosted employment by creating "green jobs."

Los Angeles congressman and chairman of the powerful Energy and Commerce Committee Henry Waxman ushered major climate change legislation through the House of Representatives last year. He based the renewable energy parts of the bill on the flawed model of his own state.

Barack Obama bragged in an Earth Day speech last year that the average Californian uses 50 percent less energy than the average American because the state government "put in some good policy early on that assured that they weren't wasting energy."

(It's worth batting that down, briefly. California has a moderate climate, high urban density, and an energy policy that drives up the cost of electricity. So, less air conditioning + less heat + high energy prices + most energy intensive industries have already fled the state = lower per capita energy usage.)

Writing in the Atlantic, Ronald Brownstein celebrated the "California Experiment" that "has consistently defined the forward edge of energy policy in America." In Time, Michael Grunwald argued that "California is not just ahead of the game" when it comes to energy, but that, "it's playing a different" -- altogether better -- "game." Think of it as Monopoly, except in this version everybody goes broke and has to sleep on the street.

Everybody except the well connected, that is. One California program that's being celebrated at the moment is called "decoupling plus." It is supposed to give utilities an incentive to pursue energy efficiency. Here's how it works: California regulators allow utilities to increase electricity rates to fund programs that lower energy consumption. If these programs reduce energy use below targets set by the state, then the utilities get to keep some of the value of the saved electricity.

Decoupling plus is supposed to restructure the utilities' interest calculus so that they give priority to energy efficiency. In practice, it's a huge transfer of wealth from taxpayers to favored utilities, with little enforcement. In September, the Public Utilities Commission slashed the utilities' savings targets for 2012 by 42 percent. According to a staff analysis, "review of the PUC's actions relating to energy efficiency incentives...reveals how the scales have been tipped further and further in favor of utility shareholders."

Brownstein writes that decoupling plus has "changed the motivation of utility companies." He's right, just not in the way he thinks. The program has given the utilities the motivation to lobby politicians and regulators in order to reap windfall profits.

For 2010-2012, the Public Utilities Commission has increased electricity rates by $3.1 billion to
pay for energy efficiency programs, and it has complete discretion over how much of this rate increase will end up with the utilities. So a utility's success will be achieved by overcharging rate payers and currying favor with politicians, who will then, no doubt, blather on about how Sacramento has saved us from ourselves.

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About the Author

William Yeatman is an energy policy analyst at the Competitive Enterprise Institute.

About the Author
Jeremy Lott is an editor of rare.us.