California Plays with Cap-and-Trade Monies (Steyerland redistributionism)

By Allen Brooks -- September 2, 2015

“Over the past year, the cost of electricity for California residents increased by 5.2% versus a national average that rose 0.8%. If you are a business or industrial user of electricity in California, your May power bill was 42% or 64%, respectively, above the national average. We suspect power costs in California are going nowhere but up given the mandates in this clean energy plan.”

A recently completed study by the Associated Press (AP) into the performance of California’s Clean Energy Jobs Act showed that the money earmarked for the state’s coffers well below projections. More than half the money spent by the program has gone to consultants and auditors.

There’s more. The board created to oversee the plan has yet to meet after three years. And only 15% of the annual job creation target has been achieved over the three-year period the law has been in effect.

California Senate President Pro Tem Kevin de Leon, (D-Los Angeles), who lead the push to enact Proposition 39 in 2012 (which passed overwhelming), says the plan is successful and it is too soon to assess its effectiveness. (We will ignore a politician who says it is too soon to assess the plan’s effectiveness yet declare it is successful.)

The plan was backed by billionaire investor and green energy promoter Tom Steyer, who funded the initiative campaign with $30 million and agrees with Sen. De Leon’s assessment.

Distributed Monies

According to AP, the proponents of the plan told voters in 2012 that it would send up to $550 million annually to the Clean Jobs Energy Fund. The revenue was to come from closing a tax loophole for multistate corporations. So far, however, the fund received $381 million in 2013, $279 million in 2014, and $313 million in 2015, or slightly less than 60% of the targeted income.

As so often is the case, individuals and corporations reorganized their financial affairs to satisfy to pay the least amount of taxes mandated, as expressly allowed by Justice Learned Hand back in 1934.

Greening Schools

So far, schools have only applied for half of the $973 million of funds available. Of the $297 million given to schools to date, $153 million has gone for energy planning by consultants and auditors. Many of the projects being focused on are related to improving lighting within schools.

The reason these projects are targeted is that they work well with the California Energy Commission’s formula, which requires schools to save at least $1.05 on energy costs for every dollar spent on the project.

A series of projects highlighted by the AP are in the Los Angeles Unified School District. They would cost $12.6 million and involve lighting retrofits and heating and cooling upgrades. The savings are estimated at $1.4 million a year, which suggests a nine year payback on the investment. As of last week, no construction work has been done on any school site.

Green Jobs

The goal of these construction programs is to create jobs. When the California Legislature created the fund by sending it half the money it anticipated collecting from the tax law change, it promised to generate more than 11,000 jobs each year. The record so far is the creation of 1,700 jobs over the three years the fund has been in existence.

Possibly more troubling is the revelation that the Energy Commission, which oversees Proposition 39 spending, could not provide any data about completed projects or calculate energy savings because schools are not required to report the results for up to 15 months after completion of projects.

California school district officials report that they intend to meet the 2018 deadline to request funds and a 2020 deadline to complete projects. Any money from the fund not spent on school energy projects would be sent to California’s general fund for the use of lawmakers on other projects.

Cost Savings?

The AP’s study’s results, along with the defense of the poor results of Proposition 39’s tax law changes and the energy spending so far by the bill’s proponents, came shortly after a new study was released claiming that Governor Jerry Brown’s new renewable energy target proposed in his inaugural address in January and being enacted by the California Legislature could result in as much as $51 billion in annual savings for the state’s residents. The study was prepared by Strategen Consulting and “quantifies the economic and societal impacts” of the governor’s proposed goals.

The goal of Gov. Brown’s renewable energy plan is to increase from 33% to 50% the proportion of the state’s electricity generated from renewable sources. It also requires reducing petroleum use in cars and trucks by up to 50%. Lastly, the plan anticipates doubling the efficiency of existing buildings and making heating fuels cleaner.

According to Strategen’s analysis, it sees $51 billion in annual savings from 2030 onward, or $4,000 per household each year. The consultants also see carbon emissions dropping by over 102 million tons per year, a reduction of 42% from 2015’s level, the equivalent to planting a forest the size of Maine.

There should be 739 fewer deaths each year due to the emissions reductions. They also see the creation of 1.2 million job-years by 2030, including 870,000 job-years in the wind and solar industries, up from 44,700 today. Lastly, they believe these steps will significantly decrease residents’ vulnerability to volatile fossil fuel prices. That will come from enhanced grid efficiency, reliability and resiliency, which is achieved by the increased use of renewables backed by energy storage.

The founder and managing partner of Strategen Consulting, Janice Lin, was quoted saying, “We already have the advanced technologies and technical capabilities, which when combined with legislative and regulatory support and backed by forward-thinking investors, will propel California to a global leadership position in energy sustainability and independence.”

The study says that by taking advantage of “innovative grid strategies and technologies” the state could craft regulatory policies that would realize Gov. Brown’s plan. The study’s authors believe that many of these technologies are available today and that they are rapidly descending the cost curve. They point to technologies such as solar power, energy storage, wind energy, LED lighting and electric vehicles as among the technologies that will drive the state’s economy to this nirvana.

Interestingly, according to the Energy Information Administration’s (EIA) July Electric Power Monthly, the average retail price of electricity to ultimate customers by end-use sector shows what the green energy mandates of California have done to its residents and businesses. The data for May 2015, the latest available, measured by cents per kilowatt-hour (c/kWh), shows that California’s residents pay 17.35 c/kWh for their electricity, or 34.3% more than the national average of 12.95 c/kWh.

The national average includes the high-cost electricity states of Alaska and Hawaii where costs are slightly over 20 and 30 c/kWh, respectively. Over the past year, the cost of electricity for California residents increased by 5.2% versus a national average that rose 0.8%. If you are a business or industrial user of electricity in California, your May power cost was 42% or 64%, respectively, above the national average. We suspect power costs in California are going nowhere but up given the mandates in this clean energy plan.

What will be the cost for California’s residents and economy? We put Strategen’s claim of a $4,000-per-family savings in 2030 in the same category as the $2,500 per family savings from Obamacare.

Home Efficiency Questions

We were also intrigued to read about an energy study conducted by the University of Chicago dealing with home energy-efficiency measures. This particular study used data from a random sample of 30,000 low-income Michigan households that were eligible for an U.S. Energy Department home weatherization program.

The study found that the projected energy savings were 2.5 times greater than actual energy savings. That means the people’s energy bills declined but the savings did not equal the cost of the initial upgrades. Critics of the study suggest that it hadn’t been peer-reviewed; more importantly, they questioned the broad conclusions based on the results from one state and one target socio-economic group. However, the authors of the study are completing a similar study of middle-income homes in Wisconsin and finding similar results to the Michigan study.

The conclusions of these studies call into question government programs for making existing homes and businesses more energy-efficient that are touted as among the cheapest and easiest ways to reduce emissions.

The executive director of the American Council for an Energy-Efficient Economy said that weatherization programs for low-income households are among the least cost-effective energy efficiency measures. However, he pointed out that there are other benefits from the program that homeowners receive such as lower maintenance bills, reducing the likelihood of missed utility payments, and a more comfortable home. We guess that these unquantifiable benefits outweigh the stark economic comparison showing costs being 150% more than the benefits.

Another popular explanation for why financial returns from weatherization programs isn’t as great is due to energy consumption in homes that have been weatherized. The experts believe the homeowners of these weatherized homes use more energy because it costs less.

The study’s authors examined this “rebound” effect by comparing temperatures and thermostat settings in homes that were improved compared to those that were not, and found there to be no statistical difference. It appears that the engineering models that predict how much energy will actually be saved from the winterization steps are wildly over-optimistic. This conclusion should not be a surprise.

Conclusion

Mr. Steyer responded to a Wall Street Journal editorial on the AP report of Proposition 39’s results in which he said, “…let’s count up the figures after the work is done.”

As a successful hedge fund manager, we doubt Mr. Steyer would have waited for a decade to see the results of the managements he backed. Nor would he have accepted his own response on the plan’s results. Ideological devotion blinds people to what they demand elsewhere.