BIC Alliance President & COO Thomas Brinkso
The U.S. economy is currently the envy of the world. Regardless of how one feels about our leadership, it is undeniable that federal tax cuts and intentional deregulation have resulted in wage growth, job growth and historically low unemployment numbers, which lead the world.
Even as the country as a whole is doing quite well, different states within our nation have different environments and outlooks. This is due, in part, to our federalist system, in which state governments are allowed to enact different policies. These differing state policies and results may be compared and contrasted much like miniature laboratories, to judge how experiments with variables affect end results. I'd like to point out how taxes and regulations are affecting issues related to gasoline and power.
California's gas prices are the most expensive in the U.S. Most of the time, Californians pay 30-50 cents more per gallon at the pump than the rest of the country. The difference in gas prices is reported to have resulted in California drivers paying an additional $11.6 billion at the pump over the past five years.
After a more recent spike in prices, California Gov. Gavin Newsom asked his state's attorney general to investigate why the state's gas prices are so high. The California Energy Commission triggered his inquiry in a report, suggesting big oil companies are "misleading and overcharging customers." Is this really the case?
At that time, a CNN story focused on refinery outages as the cause. While there were several refineries supplying the West Coast with gasoline that experienced unexpected outages at the same time, at most, seven of the region's 25 refineries were either down or at a lower production capacity in October of this past year. That's just blaming a temporary issue for what is really a long-term problem. The reasons California pays so much more are high taxes and expensive regulations imposed by its politicians.
Californians pay the highest combined state and federal gasoline taxes in the nation. According to API, Californians now pay 80.45 cents per gallon in total federal and state gasoline taxes.
State government regulations on oil production and refining in California have added even more to the price of local gasoline. For instance, the state's low-carbon fuel standard currently adds around 16 cents per gallon to the price of gas. And these costs are forecast to increase. A December 2018 report by California's nonpartisan Legislative Analyst's office predicts the low-carbon fuel standard will increase to approximately 46 cents per gallon by 2030.
Separately, California's controversial cap-and-trade program is estimated to add about 13 cents per gallon to the price of gas, according to the Legislative Analyst's office. This, too, is expected to increase in the coming years.
Along with its policies of high gasoline taxes, California has also promulgated its own special gasoline requirements that increase the cost of refining and transportation. Higher taxes and additional regulation make higher gasoline prices inevitable.
California has also been in the news recently for its rolling electrical blackouts and forest fires. Pacific Gas & Electric (PG&E), a public utility company, shut off electricity recently to nearly 1 million customers to prevent potential wildfires. There are numerous factors that have contributed to this situation, including forest management policy that prohibits logging or preventative control fires to remove underbrush. Most agree California's increasingly dry, overgrown forests are effectively large-scale tinderboxes. So, of course PG&E is working to fireproof more and more of its transmission lines as the risk of fire has grown higher and higher.
The company says customers can now expect rolling power outages for another 10 years as it upgrades its electrical systems. Critics argue this should have been done some time ago, but the failure to fire-proof transmission and distribution networks hasn't been a priority for anyone, including regulators. Regulators' priorities are evidenced by PG&E's spending. The company spent more than half a billion dollars in 2018 on electric discounts for low-income citizens and another $125 million for efficiency upgrades. Aside from these regulatory priorities and the fireproofing, the cost of PG&E's preventative power cuts could be upward of $2 billion, according to some estimates.
The most recent stats from the EIA show that California is ranked sixth out of 50 states for most expensive electricity. The state is certain to rise in this dubious listing after the costs of these recent wildfires are accounted for. Gov. Newsom has discussed taking over the utility and has argued PG&E's greed and corruption are leading to the massive blackouts. I'm sure government control over the power grid will bring the costs down and reliability up, right?
Now, paying higher taxes and more for power and gasoline would be OK if consumers felt they were receiving equal value for it in the form of better services. However, one of the outcomes of the high taxes and regulation policies of states like California and New York is the exodus of its residents to less expensive states. Not surprisingly, out of the eight fastest- growing states by population last year, four of them -- Nevada, Texas, Washington and Florida -- have no income tax. The only states that haven't grown are high-tax states. Since 2001, about 410,000 more people have left California for Texas than the reverse.
Interestingly, the influx of new residents is contributing to a shift in the political balance in Texas, Florida and those other states, as the tax and regulation refugees continue to vote ironically for the same kinds of policies that caused them to flee their former home states in the first place. The promise made by politicians that government will provide attractive results if they can just get more of your money is a siren's song to many of our well-meaning citizens. It has been said that the definition of insanity is to do the same thing over and over and expect different results. We must vote and make tax and policy decisions with our minds, not our hearts.
In this issue of BIC Magazine, we feature interviews with Ron Corn, senior vice president of petrochemicals at Chevron Phillips Chemical Co.; Steve Hamilton, plant manager of ExxonMobil's Baton Rouge Polyolefins Plant; Dave Witsken, president of the Energy & Industrial Division at BrandSafway; and Dan Camp, general manager of Industrial Tent Systems.
We also present a wide array of articles on topics important to your business, such as the planned expansion of the Houston Ship Channel, how Gulf Coast locations are increasing refining sites' competitiveness, and what petrochemical leaders anticipate as the outlook for international trade.
We at BIC Alliance wish the best for you and your business heading into 2020.
