California Not a Trendsetter on Energy Policy

 |  About: Utilities Select Sector SPDR ETF (XLU)
by: Gregor Macdonald

Like the United States as a whole, the State of California is a major importer of energy. While it’s unremarkable that California imports oil, having peaked in production nearly 25 years ago, the state’s dependence on imported electricity is worth noting. As of 2008, California was short about 23% of its total demand for power. This means the state has to import more electricity than any other state in the union. This is a fascinating backdrop to California’s societal approach to energy policy because, also like the United States, California wants to set quite influentially the terms of its own purchases.

coal-and-flowersPerhaps that’s not such a bad thing. And perhaps it’s even understandable. The biggest buyer is often accorded more power in the price-setting mechanism. However, energy is not exactly a discretionary purchase. And California’s track-record, in which it’s attempted to proceed from a theoretical or ideological position to solve regulatory hurdles, has not exactly worked out. Yes? We see this once again in the new wave of legislation coming out of Sacramento, banning the purchase of dirty-sourced power generation. This would appear to solve only the problem of conscience, rather than the state’s vulnerability as an energy importer.

Such bans however will do nothing at all to shift power sourcing for the electrical grid, in the United States. It is as though California believes it can transition national energy sources by the force of its own scale, and its large demand. That might be true if the state banned the importation of, say, Lee bluejeans and allowed only Levi’s. But in power generation, California will simply earn the right to wear a symbolic badge–thus outsourcing the building of new power generation to someone else’s backyard.

The policy action is therefore really one of banishment. In this way, it tracks pretty closely alot of the idle chatter and footdragging coming from the Energy Department on the federal level, where the belief seems to be we can solve our energy problem not by transformation of rail, but by henpecking our way to a solution through scolding and dieting. Frankly, the scale of US energy demand in both liquid fuels and power is simply to large for such an approach to shoulder. On the scale of energy naivete, it’s intriguing that the state which fancies itself a trendsetter is actually quite in step with the rest of the country.