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In Los Angeles’s latest soap opera, city controller Wendy Greuel has declared an “urgent financial crisis.” Get used to hearing those words a lot across the urban landscape.

Ms. Greuel warned that next month L.A. could run out of money if the city’s Department of Water and Power doesn’t make good on its promise to pay the city $73.5 million. If that happens, the city may have to start depleting its emergency reserve fund, which could hurt its credit rating and make it more difficult to borrow to pay future bills. Due to the city’s bleeding finances, Moody’s earlier this week downgraded the city’s general obligation bond rating to Aa2 from Aa3.

What’s brought the famed city to this pass? Global warming, of course. Or more precisely, the crusade against global warming.

A couple of months ago, Mayor Antonio Villaraigosa proposed electricity rate hikes of 9% to 28% to wean the city off coal and pay for its aggressive renewable energy portfolio. Residents and businesses bristled at such a steep increase in their electric bills, especially during a recession. Facing irate constituents, the city council nixed the utility’s proposed 5.7% three-month rate hike, the first of four increases planned.

This in turn prompted the utility to withhold $73.5 million of the $220.5 million surplus revenue it was expected to transfer to the city. Without the rate hike, the utility’s interim manager S. David Freeman says it doesn’t have enough money to pay its own bills and hand the city the $73.5 million. The city council complains that the utility is holding the city hostage.

What’s really holding the city hostage is the state’s global warming law and the mayor’s green energy agenda, which includes boosting renewables to 40% of the city’s energy portfolio by 2020. The state’s renewable goal is 33%. The mayor says the city could face hundreds of millions of dollars in fines if it doesn’t comply with the state’s numerous renewable energy and carbon reduction mandates. But of course complying with these mandates means a sharp increase in energy prices, as Los Angeles residents are now discovering.

L.A.’s predicament is merely a preview of what municipalities across California have to look forward to as the state’s renewable energy mandates begin to bite. It’s also a cautionary tale for states that want to emulate California’s global warming law. Little wonder a popular revolt is building against the state’s carbon dictates. A repeal referendum may make it on the ballot in November.

The Wall Street Journal, 10 April 2010