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California Ranks Last in ‘Business Friendliness,’ #1 in Electricity Cost – and Another Company Flees the State
Smithfield Foods, Inc. is joining the ever-going ranks of businesses fleeing California due to the exorbitant cost of business – and, especially, of energy – in the Golden State.
On Friday, Smithfield announced that it will cease all harvest and processing operations in its Vernon, California plant in early 2023 and begin planning to close all of its farms in the state.
“Smithfield is taking these steps due to the escalating cost of doing business in California,” the company said in a press release.
Fully 272 corporate headquarters left California between January 1, 2018 and June 30, 2021, a Hoover Institute study finds, with the rate of exit doubling in the first six months of 2021 from its full-year 2020 rate.
While California ranks as one of the worst states in terms of overall business cost, “business friendliness,” and business tax climate - the high cost of utilities is a major factor fueling the exodus, as California businesses have the highest average cost of electricity:
Highest average electricity price (17.74 cents per kWh) of 48 lower states and D.C. (Approve.com 2021 Business Cost Index)
48th in overall business costs (WalletHub)
Worst (50th) in terms of state “business friendliness” (CNBC study)
48th in 2022 State Business Tax Climate Index (The Tax Foundation)In California, the cost of utilities is 3.5 times higher per head to produce pork compared to the 45 other U.S. plants Smithfield operates, a company spokesman told The Wall Street Journal.
In addition to the high “fixed” costs of California’s electrical system, public programs like CARE and wildfire mitigation, are also driving up the price of electricity in the state, a UC Berkeley study concluded, Cal Matters reports.
“When households adopt solar, they’re not paying their fair share,” the study’ co-author Meredith Fowlie told Cal Matters. While solar users generate power that decreases their bills, they still rely on the state’s electric grid for much of their power consumption — without paying for its fixed costs like others do, Fowlie explained.
That's a new twist - blaming solar power for your high energy costs. Whatever - if the exodus continues, California's huge economy may come crashing down.
(Score: 5, Informative) by dalek on Monday June 13 2022, @11:07PM
California generates a significant amount of its electricity from hydroelectric plants. Right now, the Southwest is experiencing a severe drought. To the east, water levels in Lake Mead and Lake Powell keep reaching record lows, cutting into the amount of electricity that can be produced. If water levels drop too low, it won't be possible for large dams like Hoover Dam to continue producing electricity. Before you say that this is a failure of clean energy, one of the reasons that California relies on hydroelectric plants so much is that it's a source of cheap electricity.
Yes, there are some regulatory issues involved that are factors in Smithfield closing their plant. But those regulatory issues are specific to California. It doesn't explain why Smithfield also wants to close plants in Arizona and Utah. The regulations in California don't extend beyond state lines, and it's fairly unlikely that either Arizona or Utah would be willing to enact similar regulations.
It's more likely that the regulations hastened Smithfield's exit from California. Other factors like drought causing water and electricity to become more expensive are bigger factors here, making it considerably less profitable to operate in the western US. If this was just a single severe drought, it might not justify packing up and leaving the western US. However, companies are probably looking at this as the new normal, or perhaps even something that's going to get worse.
Here's a story that discusses it further, without the politics: https://www.nationalgeographic.com/environment/article/historic-drought-in-west-forcing-ranchers-to-take-painful-measures [nationalgeographic.com]. That's probably the main factor here, with regulation being the reason that California's plant closed before the others.