If California is Our Energy Future, be afraid, be Very Afraid, America

by Chuck DeVore

When Democratic California Gov. Gavin Newsom called a special legislative session in December to tax California’s oil refiners out of their “excessive” profits, he was following a well-trod path of Golden State governors blaming the oil and gas industry for the state’s high energy prices.

Newsom should look in a mirror to see the reason for high energy prices.

California typically has the highest gasoline prices in the contiguous United States — an artifact of three things:

• Persistent air quality issues that demand a special gasoline formulation;
• The highest fuel taxes in America — including an array of “fees” such as a “cap-and-trade”;
• And an isolated fuel market due to the special formulation that results in no refinery slack so that when a plant has an accident or goes down for maintenance, prices can quickly soar.

Today, gasoline in California goes for $4.62 per gallon, of which about 90 cents are state taxes and fees and 18.4 cents federal.

High prices for gasoline — along with the pressing need to save the planet by reducing carbon emissions to “net zero” — are cited by Newsom as the rationale for cutting oil consumption by 94% by 2045. Part of this plan involves banning the use of natural gas in homes and apartments for furnaces, water heaters and stoves.

Given the outsized influence that California’s often groundbreaking policies can have on the rest of the nation, it’s worthwhile to look at how California has done on its energy policies as well as some of the challenges that lie ahead.

In the early 2000s, before new hydraulic fracturing (fracking) techniques transformed America’s oil and gas industry, experts forecast that the Pacific Coast from Vancouver, British Columbia to Tijuana, Mexico, would need some nine costly liquified natural gas terminals to import enough fuel to keep the lights on. Going big on solar and wind power, it was reasoned, would end up saving California consumers billions of dollars while keeping the grid up.

In 2001, California residential electricity customers were paying 41% more than the national average and 36% more than their Texas counterparts. As fracking drove the price of natural gas down through 2010, California’s residential customers paid 28% more than the U.S. average and 27% more than did Texans (natural gas generates most of California’s electricity). But in the first 11 months of 2022, California electricity prices soared to the highest in the Lower 48 — and higher than Alaska, too — so that now California families are paying 74% more than the national average and almost double (96%) more than do Texans.

That means that the average California household is paying about $814 more per year for electricity than what they’d be paying if electricity in California was priced at the national average. And even though the average Texan uses almost twice as much electricity to heat and cool their homes as do Californians with their mild climate, Texans pay about $85 less per household for electricity than Californians.

This is a remarkable turn of events for a state with a grid that’s now producing 25% of the power generated in-state from wind and solar — it’s almost as if all those made-in-China solar panels, wind turbines and batteries turned out to be quite expensive.

Might things get more expensive in California with the redoubled push to decarbonize?

Read the rest at the Golden State Policy Council.