In 2011, the New Energy Economy Will Cost Coloradans…
For all the ink that Colorado’s public officials have spilled on the subject of the New Energy Economy, there’s been little discussion of its cost.
Ex-Governor Bill Ritter, for example, recently took to the pages of the New York Times to brag about his energy legacy. While he made an unsubstantiated claim about creating “thousands of new jobs,” he ignored the inconvenient truth that Xcel’s rates increased precipitously during his tenure, despite the fact that electricity demand was down due to an economic recession.
To be sure, it’s difficult to isolate an annual cost figure for the New Energy Economy. For starters, there’s a lot of policies to investigate; as ex-Governor Ritter noted in his New York Times op-ed, he enacted a suite of expensive energy policies (57 laws, to be exact). Moreover, utility accounting is arcane and largely opaque. So discerning the sum cost of these disparate measures is not easy, which is why no one has yet calculated the annual cost of the New Energy Economy…until now.
Using Xcel filings before the PUC, I’ve crunched the numbers, and reached a conservative estimate of 2011 New Energy Costs for Xcel customers. In order to make this accounting effort manageable, I concentrated on the four most prominent (and expensive) New Energy Economy policies: HB 1365 (a fuel switching bill), the Renewable Electricity Standard (a green energy production quota), Demand Side Management (an energy efficiency program), and SB-100 (legislation to incent the transmission of renewable electricity).
Below, I summarize briefly each program, and affix to it a cost. At the end, I present a total 2011 New Energy Economy receipt for Xcel customers.
HB 1365, the Clean Air Clean Jobs Act, effectively mandates fuel switching from coal to natural gas for almost 1,000 megawatts of electricity generation along the Front Range. It was originally pitched to Governor Ritter by natural gas producers in the July of 2009 as a means for him to achieve his greenhouse gas emissions reductions goals. Shortly thereafter, however, a cap-and-trade policy died a spectacular death in the U.S. Senate, indicating that the American people were uninterested in expensive energy climate policies during an economic recession. So the Ritter Administration tacked, and rationalized a new justification for fuel switching: Big Brother. It claimed that fuel switching from coal to gas was imperative in order to ward off a supposed tsunami of federal air quality regulations. As has been extensively documented here, these claims were untrue. Nonetheless, the General Assembly passed HB 1365, after only 17 days of deliberation.
- 2011 Cost: $16.8 million
- Source: Xcel acknowledged these 2011 costs during hearings for the HB 1365 implementation plan (see p 66 of this filing). The preponderance of the $16.8 million is for the accelerated depreciation of coal power plants that Xcel is retiring prematurely due to HB 1365. Xcel’s already has invested in these plants, so they are entitled to full cost recovery of their remaining value, and a return on investment, even though its customers won’t actually use the energy. Notably, this cost is only the tip of the iceberg. Xcel estimates the plan will cost $1.4 billion in construction alone through 2020.
Renewable Electricity Standard
Last March, ex-Governor Bill Ritter signed HB 1001, a mandate requiring investor-owned utilities to generate 30 percent of their electricity sales from renewable energy sources by 2020. In addition to production quotas, the law also sets price controls. By statute, the retail rate impact of acquiring green energy to meet the Renewable Electricity Standard is limited to 2 percent of annual sales. That is, green energy is not supposed to increase utility bills by more than 2 percent annually. As I explain here, the rate cap is largely a sham. In practice, the PUC has allowed Xcel to employ a bevy of accounting tricks to obfuscate the true cost of green energy.
- 2011 Cost: $116.6 million
- Source: In PUC filings for the on-going Solar*Rewards imbroglio, Xcel estimates that it will spend $97 million on solar subsidies this year. These costs count against the Renewable Electricity Standard rate cap. According to Xcel’s 2010 Annual Progress Report for the 2007 Colorado Resource Plan, the 250 megawatt Cedar Creek Wind Project will come online in the third quarter of this year. I estimate[i] that this project will cost Xcel ratepayers $11.8 million this year. The 2011 “ongoing” cost of past renewable energy acquisitions is “locked in” at $6.8 million.
Demand Side Management
In 2007, the General Assembly enacted, and Governor Ritter signed, HB 1037, “An Act Concerning Measures to Promote Energy Efficiency, and Making an Appropriation Therefore.” The legislation authorizes the PUC to implement policies to “manage” demand, and thereby avoid the need to for new supply. In practice, demand side management policies are energy efficiency subsidies to incent Coloradans to tune up their air conditioner, buy an energy efficiency refrigerator, and sundry.
- 2011 Cost: $68.5 million
- Source: In Recommended Decision No. R10-1336, Administrative Law Judge Keith J. Kirchubel approved a $68.5 million Demand Side Management 2011 budget for Xcel. Who knew saving energy is so expensive? The PUC has yet to decide on the recommended decision.
New renewable energy sources like wind farms and solar power plants usually are sited far from the electricity grid. As such, transmission costs (i.e., the cost of linking to the grid) are often prohibitively expensive for renewable energy developers. In 2007, Colorado Governor Bill Ritter signed into law Colorado Senate Bill 07-100, commonly referred to as SB 100, which authorizes the PUC to create incentives for investor-owned utilities to plan and build transmission to accommodate renewable energy. In practice, these means favorable rate treatment, such as granting Certificates of Public Convenience and Necessity before an asset is “used and useful,”and also quicker cost recovery.
- 2011 Cost: $10.4 million
- Source: This is a rough estimate. According to Xcel’s December 2010 transmission assessment (p 2), there are 4 SB-100 projects underway: Pawnee-Smokey Hill 345 kV line, Missile Site 230 kV switching station, Midway-Waterton 345 kV line, and the Missile Site 345 vV switching station. The combined projected cost of these projects is $208.8 million. I amortized those costs over 20 years (without accounting for interest or inflation or any other factor) to obtain a simple 2011 cost estimate. Notably, Xcel has proposed $500 million in SB-100 transmission projects, so these costs likely will increase with time.
New Energy Economy 2011 Receipt for Xcel Ratepayers
HB 1365: $16.8 million
+ RES: $116.6 million
+ DSM: $68.5 million
+ SB-100: $10.4 million
= $212.3 million (!)
Xcel’s projected sales this year are $2,661,436,900. Therefore, in 2011, the New Energy Economy cost Xcel ratepayers 8 percent of their bill.
William Yeatman is an energy policy analyst at the Competitive Enterprise Institute.
[i] My calculation is relatively straightforward. I use Xcel’s 12.5 capacity rating for wind power and the federal government most recent estimates of wind power posts (about $90.megawatt hour). It is assumed that the plant will be in operation for half a year. This is almost certainly an underestimation, because Xcel’s capacity rating is too low, and the federal government wind estimates are rosy, to say the least.