Advancing a Free Society

Navigating California’s Electricity Maze

Thursday, November 29, 2012
Image credit: 
ponsulak, Shutterstock

In a time of continuing budget deficits and record-high taxes, Californians are currently spending billions of dollars annually on eleven different, often overlapping, renewable and distributed energy programs, with no clear lines of decision-making authority and little accountability or transparency.

If California is to move to an affordable and modern energy future without bankrupting the economy or bringing down the electric grid, there needs to be fundamental reform of California’s energy governance and regulatory environment.  This is the key conclusion of a report on California’s renewable and distributed electricity programs released today by myself and several colleagues on behalf of the Shultz-Stephenson Task Force on Energy Policy.


Mr. George P. Shultz announces Hoover task force report on California energy policy At a Power Association of Northern California (PANC) luncheon on Wednesday, November 28th, Mr. George P. Shultz introduced a new study by the Shultz-Stephenson Task Force on Energy Policy on renewable and distributed power in California. Mr. Shultz is pictured here with PANC president Les Guliasi. (photo credit: David Fedor)



Thomas and Susan B. Ford Distinguished Fellow George P. Shultz announced the release of this study yesterday afternoon at a meeting of the Power Association of Northern California, a trade group comprised of leading figures in California’s power industry. Secretary Shultz has been a leader in the fight for regulatory reform in government, and has increasingly turned his attention to the importance of regulatory reform in California’s energy sector.

Many useful reforms were proposed by former Governor Schwarzenegger, who attempted to create a California Department of Energy to coordinate the multiple bureaucracies currently fighting for turf.  But reform has been continually stifled by bureaucratic politics and infighting in Sacramento. Furthermore, while many current programs well-intentioned, information on these programs is often outdated, inaccurate or completely inaccessible. As we document, some key energy program-related information on state web sites (there is no law suggesting such sites need be even remotely current) is years out of date.

In addition, key cost data on these programs, data that should be made available to the public, is often hidden away, despite repeated admonitions (most recently from the California Energy Commission) that this data be revealed.   This makes demanding even the most basic accountability for CA’s renewable and distributed energy programs a pipe dream.  Without an understanding of their costs, these costs cannot realistically be weighed against their benefits.   This can only work to the advantage of those state policymakers who would like to have the veneer of greenness without the accountability of what they are doing with Californians’ money.

When these overlapping and opaque programs are combined with our new cap and trade tax on conventional energy production, the problems become worse. Revenues from this tax that will go to further unspecified “mitigation” activities, as opposed to returned to the taxpayer in the form of a revenue-neutral carbon tax (an approach favored by most economists that would address potential climate issues without providing another taxpayer-financed boondoggle for politically well-connected firms and lobbyists.)

Further, because of policy failure in Sacramento, higher and higher rates are being passed on to an increasingly small group of customers, so that politically-favored Californians (very roughly speaking, the lower half of the income bracket) and the well-off green conspicuous consumers, who are disproportionately those who install rooftop solar and other similar systems, are having their electricity usage heavily subsidized by other Californians, particularly those in the middle and upper-middle classes, who are already paying the burden of America’s highest electricity rates. This rate inequity continues  despite the fact that these rates, even by the admission of CA regulators, have no relationship to the cost of providing services to those customers paying higher prices.

Because of regulatory sclerosis, we also have no path to break the utility monopoly on providing energy services, ensuring higher prices for CA consumers and less technological innovation.  California’s emerging cleantech companies are eager to play a leading role in California’s energy economy, but they are hamstrung by a regulatory regime that leaves them at the mercy of the utilities and regulators for market access. A new regulatory regime has to level the playing field so that truly innovative electricity delivery, generation, and technology companies can easily find markets for their services, while fundamentally uneconomic but politically-favored alternatives go by the wayside.

We recommend both short and long-term reforms of California’s efforts in renewable and distributed energy policymaking so that Californians can get a clearer sense of the value they are receiving for the money they are spending—and so that our legislatively-enacted energy goals for renewables and distributed energy can be accomplished at the lowest possible cost.  These reforms necessary if Californians want to ensure that their priorities of advanced, affordable, and reliable energy are not held hostage to the whims of regulators and politicians in Sacramento.