POWER June 2011 - 6

SPEAKING OF POWER
Turning Gold into Lead
D
espite California's deep economic
wounds, Governor Jerry Brown (D) last
month signed a bill (SB 2X) that increased
the state's already ambitious renewables
portfolio standard (RPS) goal from 20%
to 33% by 2020. Together with the state's
Global Warming Solutions Act of 2006, which
requires caps on greenhouse gas emissions
starting next year, the new law will push up
the price of electricity and further delay the
Golden State's economic recovery by permanently
driving away irreplaceable businesses
and manufacturing jobs.
Worst-Run State
Last October, 24/7 Wall St., a financial
news and opinion electronic newsletter,
ranked the best- and worst-managed states
in America. The best-run state was Wyoming,
which received high marks in just
about every evaluation category. Wyoming
is also the least-populous state, perhaps
hinting at one reason for its success.
The worst state on the 24/7 Wall St. list
was Kentucky, barely edging out California
for last-in-class honors. " While it does not
quite rank as the worst state on our list, California
stands out as being among the most
poorly governed, " the authors wrote. " The
most populous state in the union has been
mired in debt and political unrest for nearly
a decade. It bears the unique honor of being
the only state considered economically unstable
enough to have its debts, at a record
$341 billion, rated at an A- by S&P. "
This year, without the $3.5 billion in
federal stimulus funds to cover their losses,
California legislators may finally be
forced to pragmatically deal with a $19
billion budget deficit, on top of a 2010-11
carryover deficit of $6.1 billion.
A low opinion of California's business
climate is not limited to 24/7 Wall St. In
its 2010 annual survey of the best and
worst states for business, Chief Executive
magazine gave its " booby prize " for worst
state to California for the second year in
a row. The global consulting firm Bain
& Co. found that " California is far worse
[for business] than any other state by a
very significant margin. " Development
6
Counselors International (specialists in
business relocations) surveyed corporate
executives in March 2011 and found that
72% responded that California has the
" worst business climate " in the entire
U.S. The Tax Foundation lists California
as 49th in its 2011 State Business Tax
Climate Index. And, according to Equifax,
the four metropolitan areas with the
greatest number of small-business bank(CARB)
scenarios predicts up to 320,000
additional job losses when the bill is fully
implemented. A study by Charles River Associates,
using CARB data, predicted a drop in
household income of $1,175 as the best possible
result of AB32. A report by Varshney &
Associates concluded that the cost for every
household will be " 9% of its after tax annual
income ($3,857) on AB32 related regulatory
costs. " The California Small Business RoundAB32
and the new RPS have trifling environmental
value, in my view, but do increase
upward pressure on the cost of electricity.
ruptcies (up 10% in 2010 alone) were located
in California.
The direct result of a decade of antibusiness
practices has been permanent loss
of good-paying middle-class jobs. For example,
California has lost 640,000 factory
jobs (34% of its manufacturing base) and
1.5 million residents over the past decade,
while Texas gained more than 800,000 residents
and added close to 800,000 jobs to
its economy, according to the Bureau of
Labor Statistics. California's unemployment
rate today hovers around 12.3% (Texas sits
at 8.1%) with a cost of living 33% higher
than the national average. It's not difficult
to pinpoint why so many businesses have
pulled up stakes and relocated: an antibusiness
climate, the very high cost of doing
business, and very high business and
personal income taxes.
Another equally important factor that is
pushing manufacturing jobs out of California
is the rising cost of electricity, caused
by the state's ill-conceived energy policies.
Policies Push Up Prices
The two key energy policies, among many,
that are rapidly pushing up the cost of
electricity are the California Global Warming
Solutions Act (AB32) and the state's
newly hiked RPS.
That AB32 is a jobs killer is not in dispute.
Even one of the California Air Resources Board
www.powermag.com
table predicts 1.1 million job losses caused
by a fully implemented AB32, about 6% of
the state's current workforce.
Together, AB32 and the new RPS have
trifling environmental value, in my view,
but do increase upward pressure on the
cost of electricity, further eroding the
economic competitiveness of the world's
eighth-largest economy. Governor Brown
said that he believed the state could get
40% of its electricity from renewables " at
reasonable cost " in the near future. Today,
electricity costs are so " reasonable " that
Pacific Gas and Electric Co.'s top tier residential
rates exceed $0.40/kWh, and additional
rate increases are on the horizon.
Prices Push Out Jobs
California remains an energetic center of
technological innovation, but its energy
policies are causing businesses and middle-class
manufacturing jobs to be exported
at an irreplaceable rate. Also seemingly
overlooked by the state's political leadership
is that once these jobs leave the
state, the losses are permanent.
In the Middle Ages, alchemists searched
for the secret of transmuting lead into
gold. Today, California's economy-killing
energy policies have achieved the impossible-converting
gold into lead. ■
-Dr. Robert Peltier, PE is POWER's
editor-in-chief.
POWER | June 2011
http://www.powermag.com
POWER June 2011

Table of Contents for the Digital Edition of POWER June 2011
