California’s Electric Policy is Not a Model for the United States

by Jude Clemente, San Diego State University

“I believe that together not only can we lead California into the future ” we can show the nation and the world how to get there “,” then-California Gov. Arnold Schwarzenegger said during a 2007 State of the State address. “We are the modern equivalent of the ancient city-states of Athens and Sparta. California has the ideas of Athens and the power of Sparta.”

California often is praised as the example to follow in the national mission to reduce energy consumption and greenhouse gas (GHG) emissions.

California-based companies led the country in 2010 by accounting for more than 60 percent of all U.S. venture capital investments in clean energy, and in recent decades, the state purports to have used aggressive demand-side management (DSM) and efficiency programs to flatten its per capita electricity demand rate 40 percent below the national average. For the rest of the United States, the necessity to pursue the California model is becoming more clear:

ࢗ  California is well-positioned to lead on climate policy, said Daniel Sperling, founding director of the Institute of Transportation Studies at the University of California, Davis, and a member of the California Air Resources Board. Sterling, during a Baker Institute conference, said California acts as “a laboratory for others to learn from.”

ࢗ  In the 2009 article “Climate Change: Copenhagen Fizzled, California Forges Ahead,” Matthew Berger quotes Natural Resources Defense Council Senior Scientist Peter Miller as having said, “California has been a leader for many years now in renewable energy ” setting a role model for the rest of the country and the world.”

ࢗ  And according to the Cleantech Group LLC report “California Leads Nation in Clean Energy Policies, Captures 40% of Clean Technology Venture Investments Since 2006,” “In this race for clean technology leadership, California has distinguished itself at the head of the pack.”

California also has its fair share of detractors when it comes to deciding the success of the state’s electricity policies. The criticism centers on higher costs, changes in job structure and increases in imports. Overall, the state’s electricity rates are about 45 percent higher than the national average, and California’s strategy appears to be more demand destruction through even higher prices.

California’s newly implemented 33 percent renewable portfolio standard (RPS) by 2020 could increase electricity costs by nearly 30 percent, according to The Brattle Group’s Jurgen Weiss and Mark Sarro in the 2009 report “The Economic Impact of AB 32 on Small Business.”

That’s 65 percent higher than information put forth by the California Public Utilities Commission (CPUC) in its report “33% Renewables Portfolio Standard Implementation Analysis Preliminary Results.”

The present analysis seeks to augment the growing body of literature declaring that California’s position as the leader in sustainable electricity policy is more illusory than real.

California Model Not Feasible for Nation

California is an exceptional state. In “Stabilizing California’s Demand: The Real Reasons Behind the State’s Energy Savings,” Cynthia Mitchell, Reuben Deumling and Gill Court write that at less than 20 percent, simple linear regression analysis concluded there is “not a high association” between California’s energy efficiency programs and its lower per capita electricity use. At least six characteristics suppress the state’s need for electricity:

  1. Residential electricity price,
  2. Climate,
  3. Household size,
  4. Housing mix,
  5. Conservation ethic, and
  6. Economy’s structure.

Stanford University researchers James Sweeney and Anant Sudarshan in the research project “Deconstructing the “ËœRosenfeld Curve'” also affirm that efficiency policies account for just 23 percent of the overall difference between California’s per capita electricity consumption and that of the rest of the country.

In addition to the factors put forth by Mitchell’s group, the Stanford researchers found that urbanization, housing unit floor space and household fuel mix all make the California model inapplicable to other states.

These regression results directly contradict the World Bank’s assertion in its “World Development Report 2010: Development and Climate Change” that California’s flattened per capita electricity demand is “thanks largely to utility demand-side management and efficiency standards.” Moreover, California’s relatively flat per capita electricity consumption is not the equivalent of reduced consumption, GHG emissions or both. The state’s total power demand and corresponding carbon dioxide emissions have surged by 25 and 20 percent respectively since 1990, according to the Energy Information Administration (EIA).

Following the California model is not only unrealistic for the United States; it would be detrimental to national interest. A concerted effort against energy-intensive goods and services has destroyed California’s economy. Higher energy prices put domestic firms at a global competitive disadvantage by increasing the cost of doing business.

The Milken Institute reports California firms pay 23 percent more than the national average just to operate. California lost 34 percent of its manufacturing base from 2001 to 2010, according to the California Manufacturing and Technology Association, and Chief Executive magazine repeatedly designates California the nation’s “worst business climate.” California’s auditing agency—its version of the Congressional Budget Office—notes that the state’s 2006 Global Warming Solutions Act, which requires new regulations to reduce GHG emissions to 1990 levels by 2020, will cause “the prices of goods and services to rise; lowering business profits; and reducing production, income and jobs.”

Stanford’s Sweeney, who also is the director of the university’s Energy Efficiency Center, writes in “The California Electricity Crisis” that underinvestment in generation capacity was a determining factor in California’s electricity crisis in the early 2000s.

According to a University of Texas Center for Energy Economics case study, “Electricity Restructuring in California,” California had “maintained one of the strictest sets of environmental regulations and opposition to industrial sites and in particular power plants could be significant at the local level. This ” discouraged investment in new capacity.” This deficiency paved the way toward $40 billion in extra energy costs from 2001 to 2003, or about 4 percent of the state’s total annual economic output, writes Christopher Weare in the Public Policy Institute of California’s “The California Electricity Crisis: Causes and Policy Options.” The United States requires an energy growth strategy. Power consumption will increase 16 to 20 percent from 2010 to 2030 even under ideal DSM and efficiency programs, according to the Electric Power Research Institute in its “Assessment of Achievable Potential from Energy Efficiency and Demand Response Programs in the U.S.” During the next 20 years, the EIA expects the country to add more than two Japans to its gross domestic product (GDP), or $8.7 trillion, and to expand its population by the size of France, or 65 million people. Installing the California model would have us painfully contradicting the warning of National Mining Association former President Jack Gerald, who said, “The most expensive kilowatt is the one that’s not there when needed.”

California’s RPS Not Working

California’s new 33 percent RPS by 2020 law, SB 2X, will extend to public utilities such as the Los Angeles Department of Water & Power—the nation’s largest municipal utility—which was not covered under the 20 percent by 2010 mandate. California’s three major investor-owned utilities (IOUs), together serving three-quarters of the state’s population, were out of their RPS compliance by the end of 2010. According to the CPUC, about 15 percent of their collective retail electricity sales came from renewable energy:

ࢗ  San Diego Gas & Electric Co.: 10.5 percent,

ࢗ  Pacific Gas and Electric Co.: 14.4 percent, and

ࢗ  Southern California Edison: 17.4 percent.

Green Power Institute Director Gregory Morris disagrees with the often advertised claim that California’s three IOUs will achieve the 20 percent RPS within a few years.

“I see very little reason to feel like we’re actually going to do that,” Morris is quoted as having said in a Jan. 13, 2010, Edmunds Auto Observer article by Scott Doggett.

Despite a slew of grants, subsidies, tax credits and cash incentives to promote its use, renewable energy is losing market share and has “actually fallen behind every single year since the program went into effect,” the article attributes to Morris.

While the procurement side seems to be progressing, project development has been hampered by regulations and requirements, a transmission shortfall and multiple agencies with overlapping or unclear jurisdiction. Steven F. Greenwald, Mark J. Fumia and Vidhya Prabhakaran of the law firm Davis Wright Tremaine in the advisory “California Mandates 33 Percent Renewable Energy” called SB 2X “esoteric” and said it “further clouds the ability of out-of-state renewable projects to enter the California renewables market.”

According to the Union of Concerned Scientists in the June 21, 2010, article “California Legislature to Reconsider Renewable Electricity Standard,” the underlying goal of California’s RPS “is to drive the development of new renewable energy facilities and displace the need to generate in-state electricity from fossil fuels.”

Wind and solar power, however, cannot displace other sources of power because their intermittency requires that they pair with another power plant or some energy storage device to add capacity to the grid. This spinning reserve is provided predominantly by natural gas and hydropower because of their ability to be ramped up quickly and sustained longer. And now, even though hydropower accounts for more than half of California’s renewable energy, environmental concerns have large hydro plants—those with more than 30 MW—disqualified from the state’s RPS.

Thus, a fossil fuel, natural gas quickly is becoming the default choice to back up wind and solar power. In 2002, natural gas generated 12 percent of the electricity in California’s utility industry. In 2009, natural gas accounted for 30 percent. California’s utilities more than doubled their use of natural gas during these years, while the other utilities increased their gas consumption by less than 30 percent. Overall, California’s utility industry increased generation of all sources by 14 percent while that of the rest of the U.S. decreased generation by 7 percent. Beyond the compliance lapse from 2002 to 2009, California’s utilities emitted more carbon dioxide and sulfur dioxide than other U.S. utilities on a percentage increase basis (see Figure 1). Population and economic growth are not at fault. Gross state product for California and the rest of the country each grew roughly 35 percent during the period, according to U.S. Department of Commerce Bureau of Economic Analysis, while their populations expanded about 5 percent, 2010 U.S. census data shows.

California’s Electricity Imports Impact Neighboring States

“California is not an electrical island,” a Jan. 13, 2001, article in The Denver Post quotes then-Colorado Gov. Bill Owens as having said. “California needs to share the responsibility of building more generation plans, electrical transmission facilities and gas pipelines and deal with the inherent environmental challenges that presents.”

The idea that California’s electricity policies can affect neighboring states adversely is not new. “Abuse of Power: How Manipulative Trading Undermined Energy Deregulation,” 2002 research from the University of Pennsylvania, reports that California’s early 2000s electricity crisis where state policies led to a lack of generating capacity “spread well beyond California’s borders, forcing the closing of aluminum plants in the Pacific Northwest and saddling ratepayers in Utah and Washington states with rate hikes of up to 88%.”

Today California imports more electricity than any other state—often 30 percent of total load—and capacity shortages have made the state overly dependent on outside producers.

California exports some electricity to Oregon and Washington during colder winter months, but wind power, the energy source that will continue to dominate RPS-motivated capacity additions, is strictly a one-sided relationship. California buys the Northwest’s wind, but not the reverse.

With a 33 percent RPS by 2020 in place, California wants to lean on its neighbors for even more renewable power. In 2009, as reported in The New York Times, Schwarzenegger had a proposal.

“Why can we get the water from the Colorado River but we can’t get renewable energy from outside the state?” Schwarzenegger said. “We get most of our cars from outside the state; why can’t we get renewable energy?”

Competition for renewable energy, however, is rapidly on the rise throughout the entire western region, and other Western Climate Initiative (WCI) members will be hard-pressed to meet their own clean electricity targets.

The focus will remain on wind power, which constituted 95 percent of the RPS-motivated capacity additions from 1998 to 2009, according to the Lawrence Berkeley National Laboratory.

Assuming wind power provides just 80 percent of the incremental RPS capacity additions until 2025, an unprecedented build out will be required to meet the RPSs of the WCI (see Figure 2).

The 2010 census confirmed that the four fastest-growing states since 2000 are in the West: Nevada (35 percent), Arizona (25 percent), Utah (24 percent) and Idaho (21 percent). By comparison, the United States as a nation grew 9 percent.

Increased competition from a rival with the economic might of California is a serious concern for other western states.

California consumes about 45 percent more electricity than New Mexico, Utah and Oregon combined, or nearly double the amount used in Arizona or Washington, according to the EIA. As California’s appetite for renewable energy escalates, home-turf purchases for its growing neighbors will become more difficult and expensive.

Lee Beyer, chairman of the Oregon Public Utility Commission, is quoted in an Aug. 24, 2008, article by James Holman on

“They’re (California) certainly trying to grab it everywhere they can,” Beyer said. “The issue is cost. California can pay more.”

California’s GDP is almost twice as much as those of the aforementioned five states combined, and according to the U.S. Census Bureau, California has the ninth-highest annual per capita income rate in the nation at $44,000, compared with Washington at 13th, Oregon at 32nd, Arizona at 41st, New Mexico at 43rd and Utah at 48th.

Reporter Andrew Garber of The Seattle Times writes in a Sept. 20, 2009, article, “California may come hunting soon for large amounts of wind power from the Pacific Northwest, and that has many Washington utilities worried about increased competition and higher electric bills for consumers.”

The national path toward clean, reliable and affordable electricity must be different than the one chosen by California. DSM and energy efficiency programs are only moderately responsible for California’s lower per capita electricity usage, and other states cannot duplicate the characteristics that define the Golden State.

California’s relentless pursuit of renewable energy throughout the entire western region is clean energy’s version of Garrett Hardin’s “The Tragedy of the Commons,” where individuals acting independently in their own self-interest can erode the availability of shared resources.

This collective action problem that results from relying upon renewable power imports helps explain why two leading U.S. authorities on electricity, Jay Apt of Carnegie Mellon University and Robert Michaels of California State University, Fullerton, oppose a federal RPS known as a renewable energy standard.

Although Californians use less electricity than people in other states, the state has not achieved the absolute reductions in demand and GHG emissions required to mitigate climate change.

Those who say overly ambitious RPS targets will hasten the reduced need for conventional energy production are ignoring reality: The International Energy Agency’s 2010 “450 Scenario,” which optimistically assumes that “policy action is taken to limit the long-term concentration of greenhouse gases in the atmosphere to 450 parts per million of CO2-equivalent,” projects fossil fuels and nuclear energy still will produce more than 70 percent of U.S. electricity in 2030.

The statewide, citizen-based advocacy group Environment California in its July 1, 2009, “Energy Program News” projects California will spend nearly $3 trillion on fossil fuels from now until that time.


Jude Clemente is an energy analyst and technical writer in the Homeland Security Department at San Diego State University. He has a bachelor’s in political science from Penn State University, a master’s in homeland security from SDSU and an MBA from Saint Francis University. He also has certificates in infrastructure protection and emergency preparedness from FEMA, the American Red Cross and Department of Homeland Security. He heads JTC Energy Research Associates and is an adviser to Penn State’s Research Project on North American Energy Supply. Email

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