The two most-populous states, California and Texas, are home to one in five Americans. More alike than different in many aspects—diverse population and economy, abundant natural resources—the two states differ in one important respect: policy. With some exceptions, California is progressively liberal while Texas is free market conservative.
These states’ similarities and differences invite comparisons that can be useful in illuminating policy choices among the states and at the national level as well. This essay is one in a series that examines those differences—in this case, electricity and related efficiency.
California policymakers have made aggressive moves towards renewable electricity production and energy efficiency over the past couple of decades. While doing so, they frequently tout the state’s nation-leading electric efficiency and its reduction in carbon dioxide emissions.
California does use the least amount of electricity per capita of any state, at 6,536 kilowatt hours per year in 2016, compared to the average of 11,634 kWh nationally and 14,286 kWh in Texas.
But, that figure overlooks three very important factors.
The first is that more Californians use natural gas for their residential needs (heating their homes and water) than the average American. Thus, on measures of overall home energy efficiency, which takes into account this natural gas usage, California ranks a more average 18th in the nation with Texas coming in 35th.
The second is California’s famously mild climate. With 840 miles of coastline adjacent to the cool waters of the Pacific Ocean, the first few miles of densely populated coastal regions enjoy a temperate and dry environment, allowing many homeowners the luxury of rarely using their air conditioners. And home heating demand is very modest during the winter in Southern California, where the bulk of the population lives.
On the other hand, the farther one lives from the coast, the hotter it gets—an important consideration for the roughly one-third of Californians who don’t live near the ocean.
In contrast, Texas has vast urban areas more than 100 miles from the Gulf Coast, a body of water that, unlike the California’s section of the Pacific, produces heat-trapping humidity.
The third and most ignored reason California doesn’t use much electricity is that their tax and regulatory policies and high costs of doing business have steadily driven out industries that use a lot of energy to manufacture things such as steel and cement.
There’s irony in this, of course, and it’s this: California’s environmentally-minded leaders like to tout the virtue of their post-industrial policies, but in deindustrializing wide swaths of their economy, they have merely outsourced the energy use—and pollution—to other places and then, to add insult to injury, pay to have it shipped to California in carbon-emitting ships, planes, trains, and trucks.
In terms of electric production, California is the nation’s biggest importer of electricity. In the past, this meant a lot of coal-fired power from places such as Arizona and Utah.
But a law passed in 2006 alongside the state’s more famous AB 32, the Global Warming Solutions Act, effectively banned the renewal of power contracts from traditional out-of-state coal-powered generators.
As a result, “electron laundering” has arisen to fill the gap. This occurs when Californians, in the quest for green electrons to power their grid, pay British Columbians for hydropower, which the Canadians are happy sell, as they backfill their own power needs with coal power from Washington State and Alberta. It works out for everyone: California gets higher-priced power that they can claim is green, while the Canadians get American greenbacks to fund their national health care system.
To cover their tracks and keep the green mirage intact, California authorities invented a new category of imported power called “Unspecified Sources of Power” that magically provided 9.25% of California’s electric needs last year. Prior to becoming politically incorrect, these power imports were simply labeled “coal.”
In the meantime, Californians paid an average of 18.41 cents per kilowatt hour for their electricity in July 2018, 67% higher than the national average and more than double the cost of electricity in Texas. In August, California’s rates jumped to 19.08 per kWh, 110% higher than Texas’ rates. In fact, Californians’ July and August electric rates were the highest in the contiguous 48 states.
It wasn’t supposed to be this way. In 2004, before the advent of modern and safe hydraulic fracturing techniques that unlocked huge stores of both natural gas and oil in the continental United States, California policymakers feared a looming natural gas shortage. To address this, they planned on up to nine large liquefied natural gas terminals arrayed along the Pacific Coast from Vancouver, British Columbia to Baja California. In addition, they launched an aggressive effort to boost solar and wind power in California, assuring consumers and industry alike that, when the price of natural gas soared, California would look like geniuses for weaning themselves off of natural gas.
Reality turned out differently. Instead of rising sharply as the result of shortages, the price of natural gas plummeted 70% in the decade following 2005. This drop in the cost of the fuel that still powers more than a third of California’s grid allowed pro-renewable energy policymakers to mask the true cost of their undertaking, with cheap natural gas power more than making up for the periodic renewable power that required prodigious subsidies and costly backup power sources to keep the lights on.
In contrast, Texas pursued a market-based electric policy through deregulation. While liberal consumer advocates were quick to claim failure in the first couple of years after the 2002 electric competition law passed as higher prices signaled more producers to enter the market, in the years since, Texans have seen their retail inflation-adjusted electricity prices decline by 32 percent from 2008 to 2017.
California policymakers have now proclaimed their goal of making their electric grid 100 percent renewable by 2045. In addition, there is serious consideration being given to outlawing the internal combustion engine.
The growing gap in retail electric prices between highly regulated California and its high cost green energy vs. Texas’ competitive electric market ought to be instructive to observe in the years ahead.