By Marc Miles and Wayne Winegarden
California – If forecasts predicting another brutally cold winter are correct, Americans’ furnaces will soon be working overtime. Last year’s frigid temperatures significantly increased heating bills across the country. For instance, the cost to heat a home with propane has increased by more than 50 percent.
The weather is a given every year, but spiking energy costs are not. Energy regulations that discourage economic efficiency — especially here in California — drive up energy prices, drain Americans’ wallets, and cost the country thousands of jobs. Reforming these energy regulations can save consumers money and spur economic growth.
California has some of the most inefficient energy regulations in the country, according to our new study, The 50 State Index of Energy Regulation. California fared particularly poorly due to its restrictions on consumer freedom to choose an energy provider and the ability of electricity producers to adjust to changing conditions. Instead of effectively allocating energy resources, California has implemented regulations that create costly roadblocks.
California would do well to emulate states, such as Texas, that let consumers choose between different energy providers. Residents and businesses can compare different electricity suppliers’ prices and services, and choose the one that best meets their needs.
When consumers are empowered, power companies must compete to attract and retain customers. That helps reduce prices. In Texas, rates declined by more than a third after retail choice policies were introduced.
Texas actively promotes retail choice by offering consumers information about the different energy options available. Texans can also take advantage of an online comparison tool that allows for convenient, one-stop shopping. It’s no surprise that over 80 percent of Lone Star State residents and businesses exercise their freedom to choose the best deal.
Despite the proven success of retail choice, only 17 states have embraced such policies. California isn’t one of them. If lawmakers introduced retail choice, residential consumers would have more money in their pocketbooks, and businesses would benefit from lower operating costs. Such savings would benefit the California economy.
Regulations on electricity production are also boosting energy bills unnecessarily. One common type of regulation – the “renewable portfolio standard” – requires electric companies to generate a set percentage of their power from renewables such as solar and wind.
But renewable energy isn’t cheap. The federal Energy Information Administration estimates that renewable sources like solar thermal and offshore wind can be 300 percent more expensive than electricity generated from natural gas. Power companies pass these expenses directly on to consumers in the form of higher electric bills.
California would be wise to ditch its renewable portfolio standard.
Wyoming declined to institute such a standard, and its residents have reaped the benefits. Electricity costs just 7.91 cents per kilowatt hour in Wyoming; the third cheapest rate in the nation.
Compare that to California. Its renewable portfolio standard requires energy providers to generate 33 percent of the state’s electricity from renewable sources by 2020. It’s no surprise, then, that the price of California’s electricity per kilowatt hour is 119 percent higher than Wyoming’s.
High electricity prices raise costs for businesses and consumers alike, and have adverse economic consequences. A University of Kentucky study demonstrates that even a ten percent increase in electricity prices can cost a state billions of dollars in lost economic activity.
Based on our Index, the average rate of economic growth in the states with the most economically efficient energy regulations was eight percentage points higher than in the states with the least economically efficient energy regulations.
Energy regulations also smother job creation. Despite the recession, the average employment growth in the most economically efficient states increased by 2.6 percent between 2007 and 2012, compared to an average contraction in employment of 2.2 percent in the least efficient states.
There’s no need for these job losses to continue. Doing away with inefficient energy regulations can jumpstart job growth and lower consumers’ energy bills.
And by the way, good luck staying warm this winter.
Marc Miles, Ph.D., is president of Global Economic Solutions. Wayne Winegarden, Ph.D., is senior fellow at the Pacific Research Institute and a Partner in the consulting firm, Capitol Economic Advisors.
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