Affordability Problems Explained

The former CEO of Cypress Semiconductor, T.J. Rodgers, has been an outspoken critic of much of what goes on it Sacramento for decades.  His latest pointed critique of brand spanking new Guv. Gavin brings some well-known statistics together in one place in reply to Gavin telling the business community I should (must?  will?) do more about affordability.

When I was CEO of Cypress Semiconductor, I chose Round Rock, Texas, over San Jose, Calif., for Cypress’s second wafer-fabrication plant, and I chose to locate our third plant in Bloomington, Minn. Other CEOs made similar decisions. Silicon Valley barely has any silicon left; there are now zero state-of-the-art wafer-fabrication plants here. We had to move because government has made Silicon Valley uncompetitive for manufacturing.

Despite boasting the second-highest gasoline tax in the U.S., California’s roads are so potholed it actually pays to buy tire insurance. California power costs around 15.7 cents a kilowatt-hour, compared with 11.2 cents in Oregon and 9.7 cents in Washington state. But even those state-regulated windfall rates aren’t enough: Pacific Gas & Electric is about to go bankrupt again.

California took in record tax revenue in 2018, beating estimates by $1 billion according to the Los Angeles Times. But Mr. Newsom demanded even more: “I want to see the [companies in Silicon] Valley step up and match our contributions,” he said.

Rodgers also invokes the dreaded NIMBYs but doesn't dwell on that aspect of the housing supply equation.  Nice to know our electricity is 62% more expensive than the State of Washington's juice.  Anyone know where you can buy good tire insurance for those trips on El Camino?

 

Comments

[Joe]

Here's the Sac Bee report on PG&E:

Hours before the expected bankruptcy filing, the Public Utilities Commission — ignoring dozens of chanting protesters — agreed Monday to let PG&E borrow $5.5 billion to steer the company through bankruptcy. Also Monday, a group of investors offered $4 billion in separate financing to help PG&E avoid bankruptcy, according to Bloomberg news.

State regulators and elected officials aren’t looking forward to this, either, as they struggle with the idea of granting at least some measure of relief for a company that’s become extraordinarily unpopular.

They’re hoping to cobble together a giant settlement plan that will somehow enable PG&E — or whatever the entity is that emerges from bankruptcy — to provide reliable service and prevent more wildfires while paying its debts without gouging ratepayers.

That’s a tall order. In the short run, despite their antipathy toward PG&E, state officials have to make sure the utility is healthy enough to keep the lights on and ramp up safety efforts for the upcoming fire season.
https://www.sacbee.com/news/state/california/fires/article225112025.html#storylink=cpy
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"Keep the lights on", now there is something for the new Guv to work on.

[Joe]

PG&E pulled the bankruptcy lever as expected and here is some reaction via the WSJ article:

The restructuring process could provide an opening for PG&E to amend or cancel some $34.5 billion in longstanding contracts to purchase wind and solar power, many of which were negotiated when market prices were much higher.

The fate of those contracts has raised concerns among wholesale power providers like Consolidated Edison Inc . and NextEra EnergyInc. that renegotiation could create uncertainty for future development.

“It could have a real ripple effect throughout the power industry, not just with respect to the existing contracts that are there,” said Luckey McDowell, a partner in Baker Botts’ restructuring group. “It could have a chilling effect in respect to new investment.”

California Gov. Gavin Newsom has also expressed worries about the potential cancellation of the contracts, which could affect the state’s ability to meet aggressive goals to cut greenhouse gas emissions and combat climate change.
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Repeat mantra: "Keep the lights on".

[waterpower]

Washington and Oregon both have massive % of electricity coming from hydro. Probably can account for much of the difference in cost.

[resident]

California should be able to buy hydro generated power at less than those quoted rates for Washington and Oregon (wholesale) from them and transmit it down here for much less than what we are paying now. The wind and solar are really expensive. They are getting cheaper but the old contracts are locked in at old prices which was stupid. Maybe this chapter 11 will end up saving poor us money.

[tera ostergerg]

What climate change are we speaking about? What a joke. More "flat-earth" climate change advocates. When are you going to stop stealing from the poor to fund this Hoax Climate Change Theory? https://youtu.be/mqejXs7XgsU

[Just Visiting]

This all explains why there is negative growth and real estate prices have been collapsing since all those regulations and taxes have been in place.

Oh...wait...

Those dated apartments on El Camino aren't expensive because of the cost of power.

The cost of housing (and commercial real estate)--the main driver of "affordability" is driven by demand--not the cost of power or high marginal tax rates. It's expensive to rent/lease because the competition for the space is so fierce.

That's not to say that the cost of power isn't a big (and complex) issue, but for some reason the demand for businesses here continues to expand, bringing jobs, which bring new people, exacerbating the demand for housing. That's why commercial and residential real estate is expensive--and that's the main driver for some businesses choosing to go elsewhere; and why some residents are forced elsewhere. But still not near enough businesses choosing to go elsewhere to counteract the increasing demand.

In an economically efficient world, the cost to lease or buy business property here would be high enough to peg the demand perfectly where same number of businesses leave as come, keeping the pricing relatively steady. Obviously that is not the case now.