February 23, 2024
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Guest commentary: An economic outlook on California’s climbing energy prices

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By Michael Manchak

A recent report from The California Center for Jobs and the Economy reveals that the Golden State currently faces the highest energy rates in the nation for electricity, gasoline, and diesel, with the fifth-highest natural gas prices. 

The forecast for 2024 suggests a continued upward trend in energy prices, primarily influenced by state legislation.

Over the past years, California has witnessed a consistent surge in energy costs, impacting both residents and businesses. 

The underlying causes of these increases stem from state laws that result in higher expenses at the fuel pump, electricity outlets, and heating or cooling homes. 

Experts caution that this trajectory is unsustainable, carrying long-term adverse effects on California’s economy, currently the fifth largest globally, following Japan. 

Despite the prevailing global inflation, the state’s double-digit rate hikes differ significantly from national trends, leading to a notable exodus of residents and businesses, ultimately resulting in reduced tax revenues for crucial services, diminished job opportunities, and a loss of talent and enterprises.

In 2010, California boasted the ninth-lowest residential electricity bills in the nation; however, it now holds the highest position. 

The average California Commercial Price for September was 23.59 cents/kWh, a staggering 100.3% higher than the US average of 11.78 cents/kWh.

Reported data indicates that California’s electricity rates surpass the national average as follows:

  • Residential rates are 86.9% higher.
  • Commercial rates are 100.3% higher.
  • Industrial and commercial users pay an additional $22.7 billion annually.
  • Residential consumers pay, on average, $11 billion more annually, exceeding the lowest-cost state by $14.7 billion.
  • Commercial rates for September were 23.59 cents/kWh, 100.3% higher than the US average of 11.78 cents/kWh.
  • Industrial rates for September were 18.48 cents/kWh, 137.2% higher than the US average of 7.79 cents/kWh.

The California Center for Jobs and the Economy highlights concerns that the state leads the nation in fuel regulation, restricting the fuels available for sale, impacting prices by increasing production costs and limiting alternative sources, and causing price volatility. 

California’s laws have isolated the state from national and global supply options, hindering any potential reduction in prices.

The cost of producing and distributing goods globally must be balanced with energy costs, affecting the cost of everything from food to electric vehicles. 

In November, California had the nation’s highest average diesel prices, 54% higher than the national average, while electricity costs were nearly 87% higher. 

Despite the global reliance on diesel for transportation, California’s fuel prices significantly exceed the national average, raising concerns about the effectiveness of public policies, such as the state’s push to ban diesel trucks at ports without a viable fuel alternative.

As businesses pass on increased costs to consumers, this trend may drive more residents and businesses away from the state. 

The reasons extend beyond energy prices to include taxes, regulations, housing costs, and more. 

To retain its residents and businesses, the state must enhance its competitiveness and avoid driving taxpayers to relocate for survival and prosperity.

Given the current pace of energy price increases in the state, the trajectory appears unsustainable for residents, businesses, and the overall state economy. 

California’s economic outlook is far from golden if immediate measures are not taken to address and reduce energy prices.

Michael Manchak is a graduate of USC’s Marshall School of Business and a commercial real estate professional serving clients on the central coast of California from Ventura to Monterey. His background is in economic development and public policy, and he has served on economic forecasting boards.