California's energy production

Summary: California has plentiful natural resources that have been exploited for economic profit over the past several centuries. Despite its economic challenges, the state is a major market force and leads the United States in cultivating clean and efficient sources of energy.

California has abundant natural energy resources, both conventional and renewable, although its notable lack of coal production and reserves has been an influential factor in the state’s economic and environmental history. The emergence of San Francisco as a major urban center during the late 1800s led to rapid deforestation in the northern part of the state, and imports of coal from Washington State and fuelwood from the Sierra were needed to sustain the region in its role as the nation’s leader in manufacturing. The state eventually turned to hydroelectric power to meet its energy needs, to support both a heavy mining industry and urban growth. In order to capture its substantial hydroelectric potential, California became the first in the world to build long-distance power transmission lines.

Just before the start of the twentieth century, oil was discovered in southern California, which led to a black-gold rush. The region led the world in oil production until 1930. The supply was so overwhelming that the price per barrel was kept very low and oil interests struggled to cultivate uses for their product, such as funding new (petroleum-based) roads and encouraging the market for motor vehicles. The de Young family, who owned the San Francisco Chronicle, also had vested interests in the petroleum industry, and during the 1910s the Chronicle ran frequent promotions for road goods and the use of automobiles. In 1916, William de Young editorialized about the merits of passing a $15 million bond issue that would fund road-building efforts, citing the economic benefits of publicly subsidized infrastructure. The de Youngs’ principal rivals at the time, the Hearsts, also held significant oil interests, and William Randolph Hearst’s newspaper, The Examiner, ran similar promotions for petroleum goods.

Large-scale natural resource extraction and production set the stage for infrastructure development throughout the state, from massive hydroelectric projects to oil pipelines, and defined both the economics and the politics of the region throughout the earlier half of the 1900s. Abundant, cheap oil and hydroelectric power resources drove rapid industrialization in the state during that time. During this period, California also generated the most hydroelectric power and produced large quantities of natural gas. Many of the major infrastructure projects that formed the backbone of development in the state were orchestrated by wealthy family dynasties, and the energy industry was characterized by acquisitions and monopolization. The Pacific Gas and Electric Company (PG&E), formed in 1905, had absorbed its competitors in most of northern California by 1930.

Electrical Restructuring, Deregulation, and the California Electricity Crisis

During the fuel crisis of the 1970s, California utilities suffered financially. Although the state had invested much in the construction of the Diablo Canyon nuclear power plant, the generation of nuclear power was met with growing public resistance. Meeting demand with supply was increasingly a problem. In 1974, the California State Legislature created the California Energy Commission (CEC) to help forecast and meet future needs. Shortages and the fear of rolling blackouts led the regulators to encourage utility-sponsored conservation efforts, but these were largely unsuccessful. Regardless of the savings inherent in energy efficiency (decreased peak loads, for example, reduce demand for new capital projects), the fundamental disincentive to conserve persisted: Utilities profited off the sale of power.

In order to eliminate this disincentive, in 1978 the California Public Utilities Commission decoupled sales and revenues for natural gas. In 1981, PG&E proposed that the same be done for electricity. This policy was called the electric revenue adjustment mechanism (ERAM). It ensured that utilities would receive the amount of revenue necessary to stay in business, with excess or deficits directed toward a separate “balancing account,” which could be used to amortize the account on a yearly basis. This proved to be an effective incentive for the utilities. State spending on conservation projects rose from $49.5 million in 1981 to $124.3 million in 1984. That year, the four largest utilities in the state reported an aggregate energy savings of 2.6 billion kilowatt-hours.

By the early 1990s, the electrical industry nationwide had begun to stagnate and was failing to provide fair prices or reliable services. People had begun to question the assumption that utilities were “natural monopolies” that could be regulated into performing well. In 1996, Congress and the Federal Energy Regulatory Commission (FERC) began restructuring the wholesale power market to allow for the competitive supply of power generation (also known as deregulation).

This move allowed energy to be traded on a spot market, which in California was administered by the California Independent System Operator (CAISO, often called Cal ISO). Following deregulation, the CEC was tasked with increasing the generation of renewable energy statewide.

In the following years, energy traders found ways to manipulate the market, artificially causing power shortages. In combination with a gap that resulted from supply and demand factors, including a drought season that reduced the import of hydroelectric power from Washington and Oregon, this led to the California electricity crisis in 2000 and 2001. Widespread blackouts, skyrocketing wholesale electricity prices, and the eventual bankruptcy or near bankruptcy of the state’s major utilities occurred as a result. This resulting debt contributed to the state’s ongoing budget crisis.

As a result of the energy crisis, the California government created the Energy Action Plan, designed to prevent future outages and price spikes through a combination of energy conservation, new and more responsive generation, and modernization of the transmission and distribution system.

Consumption

California is the most populous state in the country and it consumes more total energy than any other state besides Texas. However, it has the third-lowest energy consumption per capita (after New York and Rhode Island), due to strong energy efficiency policies and a moderate climate. Although the state’s population increased by 13 percent during the 1990s, no new power plants were built during that time, largely as a result of successful utility-driven conservation initiatives such as efficient appliance standards.

Transportation is the single-largest consumer of energy in California, and the state has some of the longest average commute times and the most motor vehicles in the country. Because of strict air quality laws, the state’s refineries are required to produce cleaner-burning fuels, including reformulated motor gasoline and low-sulfur diesel. Although there are seven ethanol production plants within its borders, the state also imports large quantities of ethanol from the Midwest and abroad. These unique standards and California’s geographic isolation from other sources of oil make the state vulnerable to price spikes at times of high demand. If one of the major refineries suffers an outage, supplies must be shipped in via marine tankers and can take several weeks to be delivered.

Production

California ranks fourth in the nation for total energy production. It is home to more than seventeen of the nation’s one hundred largest oil fields, including the Belridge South oil field, the third-largest oil field in the lower forty-eight states. Substantial crude oil and natural gas deposits are also thought to lie offshore in the outer continent shelf. In 2015, California ranked third in the country in terms of crude oil production, accounting for about 6 percent of total US production.

The state produces more hydroelectric power than any other state except Washington. Approximately 13 percent of the hydroelectric generating capacity of the United States is located in California, although the net generation varies depending on annual precipitation. Due to a prolonged drought, hydroelectric power supplied less than one-tenth of California’s total net generation in 2015; with adequate precipitation, hydroelectric can account for more than one-quarter of the state’s total net generation. About three-fifths of California’s electricity needs are met with natural gas, which comes primarily from the Southwest, Rocky Mountains, and Canada, as well as from local natural gas fields. California had one operating nuclear power plant, which accounted for about 10 percent of the state’s total capacity in 2021.

In 2023, California ranked second in the nation in conventional hydroelectric generation. In 2023, approximately 54 percent of its electricity was generated from renewable sources. It has more than 2,700 megawatts of installed geothermal capacity—the most of any US state. Solar resource potential is high, particularly in the southern part of the state. In 2014, California became the first state to generate more than 5 percent of its utility-scale electricity from solar power. In 2024, utility-scale solar photovoltaic and solar thermal sources suppled 37.8 percent of California's net generation; rooftop solar has been popular for Californian homes and business. In 2014, the world’s largest solar farm was California’s 550-megawat Topaz Solar Farm. The Topaz Solar Farm was surpassed in capacity in 2015 by the 579-megaway Solar Star Farm, also located in California, which was subsequently surpassed as the world’s largest in 2016 by the Kamuthi Solar Power Project in India in 2016. By 2024, California's solar projects were dwarfed by those in China and India.

California also has abundant wind resources, primarily in the Altamont Pass (which is located east of San Francisco), Tehachapi (which is southeast of Bakersfield), and San Gorgonio (which is near Palm Springs, east of Los Angeles). These three regions produced 30 percent of the world’s wind energy in 1995. By 2024, the state ranked eighth in the nation for wind power generation, producing 14,897 gigawatt-hours (GWh). The regulatory impetus for renewable energy development in the state is driven by ambitious renewable portfolio standard (RPS) requirements, which have established targets of 33 percent of sales by the end of 2030.

Bibliography

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