Why California’s Finances Could Derail Their Energy Plans

Energy power linesAccording to State Senator John Moorlach, R-Costa Mesa, California has real financial problems that need to be immediately addressed. A self-described Truman Democrat, Joel Kotkin, in a recent syndicated article echoes the same sentiments. Some of the problems are California has the highest taxes overall in the nation, worst roads, underperforming schools, and the recent budget has at least a $1.6 billion shortfall.

Moreover, depending on how the numbers are analyzed California has either a $1.3 or a $2.8 trillion outstanding debt. This is before counting the maintenance work needed for infrastructure, particularly roads, bridges and water systems. Yet tax increases aren’t covering these obligations, and even the bullet train project, which held so much promise when it was passed are now billions over budget.

However, the financial strain also has California’s net financial position running a $169 billion deficit according to the Comprehensive Annual Financial Report, which puts California ranked last in the nation. Deferred maintenance on our state roads and highways is roughly $59 billion. Estimates of California’s unfunded pension liabilities – assuming a rate of return – above 5% has CalPERS at $114.5 billion, CalSTRS at $76.2 billion and UC Pension at $12.1 billion.

California in addition has the highest unfunded retiree medical liability in the nation, second highest gas taxes when cap and trade is added, highest corporate and individual income taxes, and lastly has the worst business competitive environment in the U.S. as well.

Our biggest issue of all could be that our nation’s unfunded pension liabilities have reached upwards of $5.6 trillion with California’s share at $956 billion. These above-mentioned sobering assessments of our state’s financial and societal health are reasons to question why California has become an outlier of progressive policies – particularly when it comes to energy – with renewable energy being at the forefront of our overall energy portfolio.

At one time California was the leader in sensible environmental, education, manufacturing and cultural polices, but those days have seemingly passed. As the country moved to the right during the recent election, California has entrenched itself as the stronghold of the left-leaning, progressive movement. Nowhere has this played itself out than in California’s embrace of global warming with AB 32 and SB 32. Both energy policies are known to restrict economic growth, and make all forms of energy more expensive. Whether you believe or not in global warming and climate change, California’s embrace of the fundamental tool for economic growth – affordable, scalable energy – has now become harder than ever to achieve with the voters, California legislature and Governor’s full embrace of these policies.

At this time California isn’t creating middle or upper middle class jobs, except in the northern California region. With San Francisco leading the way. Apple just announced they are creating 2,000 jobs in Arizona with firms such as Toyota, Tesla and Carl’s Jr., having followed suit the last few years. Recent labor announcements about California creating 21,600 private sector jobs in December turned out to be a false narrative.

According to payroll processing company Automatic Data Processing Inc. working with Moody’s Analytics Inc., put the figure at only 2,400 “goods producing types of jobs.” Meaning that nine out of ten jobs created were service sector, minimum wage paying levels jobs.

With this type of employment opportunities being created how are Californians expected to pay for an energy portfolio that strongly relies on renewable energy? This could be turned around with great paying careers that the oil and gas industry provides. As an example, according to Russell Gold’s book “The Boom,” page 62, the average oil-field worker made $91,400.

Renewable energy at this time doesn’t work on the type of basis that could power neighborhoods, cities, counties, or this state. Additionally, renewable’s technology hasn’t solved a number of key issues for energy security, reliability and scaling at a cost effective measure to reach all California markets.

These main problems are: 1) storage of excess energy, 2) intermittent weather issues when using wind and solar, 3) generous tax credits needed for profits (Tesla as an example), and 4) modernizing the grid needs to take place, because renewable energy causes surges that California’s grid isn’t able to handle from over 38 million Californians.

As California relishes its role fighting the new President, it is hard to imagine his administration doing anything to assist California lowering its energy costs. It’s not hard to imagine that if you live in Los Angeles, San Francisco or other expensive coastal enclaves that a $200,000 a year salary isn’t enough once taxes are paid. Therefore, why is California nudging the new President towards confrontation?

Gun control, immigration, and even snubbing him at his inauguration, members of the California Congressional delegation are playing a dangerous game. Joel Kotkin has many times called California’s energy policy an amalgamation of “green clergy, or a clerisy.” Trump also has control over federal dollars. California is expected to receive $105 billion this year, with $78 billion going to health and human services programs. Likewise Trump has nominated pro-fossil fuel advocates to the Departments of State, Energy, Interior and the EPA. It doesn’t seem wise for California to not want to work with the Trump administration on opening up parts of California to energy exploration to assist with politically disagreeable problems now in the mix.

California has billions of gallons of oil and trillions of cubic feet of natural gas sitting off our coastlines and in the Monterrey shale. Jobs aren’t being created that can sustain working families, infrastructure is lagging and our energy portfolio isn’t functioning correctly to contain costs.  Our high-energy costs are one of the biggest factors why companies and CEOs are leaving California.

Many astute energy observers believe California will need to cut 100,000 jobs and increase energy prices to meet our ambitious climate goals. These goals could be met with moving towards natural gas and nuclear-powered plants.

A desirable goal for the new year would be for voters to begin considering voting for moderate, business-friendly Democrats, and sensible environmental Republicans who believe in an all-of-the-above approach when it comes to energy policy.

This perfect amalgamation of animosity rapidly approaching California could be mitigated with sensible, low-cost energy policies that benefit all of California.

Todd Royal is a geopolitical risk and energy consultant based in Los Angeles.