Filed under: Legal, Legislation, New Energy Economy, preferred energy, renewable energy, solar energy, wind energy
Energy Policy Center analyst Michael Sandoval offers testimony on behalf of Senate Bill 44 before the House Committee on State, Veterans, and Military Affairs on March 2, 2015.
Testimony as prepared:
Testimony on behalf of
SB 44 CONCERNING A REDUCTION IN COLORADO’S RENEWABLE ENERGY STANDARD
March 2, 2015
State, Veterans, and Military Affairs Committee
Mr(s). Chair and Members of the Committee,
My name is Michael Sandoval. I am an Energy Policy Analyst for the Energy Policy Center at the Independence Institute.
Thank you for allowing me the opportunity to testify today on behalf of SB 44.
At the Independence Institute, we are agnostic on energy resources. It is our strong belief that the choice of energy resources should come from the demands of the free market, and not from the preferences of policymakers, lobbyists, or special interest groups.
The goal of the Energy Policy Center is to promote a free market in energy production, where no protections, subsidies, or regulations result in energy winners and losers. We advocate that government remain neutral, which then encourages a level playing field. That is the best way to ensure that consumers reap the benefits of a healthy energy market – where competition, lower prices, and more options provide the foundation for affordable and most importantly, reliable energy.
SB 44 affords utilities the flexibility they need to meet electricity demand in the most cost effective way. SB 44 is an energy freedom bill that does not preclude utilities from incorporating wind, solar, or other alternative energy sources in order to achieve a minimum percentage of electricity that electric service providers must generate. Rather it allows utilities to achieve that mix in a way that does not force them to rush to comply in coming years.
SB 44 would eliminate the step-increases mandated by previous legislation that would negatively affect utilities’ ability to respond to customer demands and force ratepayers to contend with ever increasing costs of energy in Colorado.
The most recent numbers from the Energy Information Administration indicate where Colorado sits vis-à-vis its neighbors when it comes to the average retail price of electricity to the residential sector. As of November 2014, Colorado ranks 27th, with a residential retail cost that exceeds that of New Mexico, Wyoming, Nebraska, Montana, Oklahoma, Utah, and Idaho.
According to the Database of State Incentives for Renewables and Efficiency, in 2013 Colorado renewable portfolio standard of 30 percent by 2020 is the highest in the entire Rocky Mountain region, trailing only the west coast state of California.
The Independence Institute believes SB 44 addresses concerns about the state’s market-skewing renewable portfolio standard’s impact upon utilities and ratepayers. The step-change increases in the state’s renewable energy mandate over the course of the next few years will result in higher costs for utilities and ratepayers alike.
These increased costs will likely result in job losses, higher costs for consumers, and a loss of competitiveness for Colorado businesses in comparison to neighboring states without or with lower renewable energy standards. SB 44’S 15 percent figure would bring the state more in line with states throughout the Mountain region.
Again, aligning minimums between investor-owned utilities and cooperative electric associations will level the playing field that will keep electricity rates competitive, but will not prevent individual providers from exceeding those minimums with a market mix of conventional and alternative sources, including wind and solar, that best fits their own market profile and satisfies the needs of their customers.
In conclusion, SB 44 gives utilities the flexibility to adjust power sources as needed and respond to needs of consumers—and not the demands of special interests—from 2015 and thereafter.
As I stated at the beginning it is the strong belief of the Independence Institute that the choice of energy resources should come from the demands of the free market, and not from the preferences of policymakers, lobbyists, or special interest groups and we believe that SB 44 is consistent with that principle.
The numbers are in, and they aren’t pretty. Four of the largest cost driving pieces of legislation enabling Colorado’s New Energy Economy cost Xcel Energy ratepayers nearly half a billion dollars in 2012 alone. Adding insult to injury, some of the electricity produced wasn’t needed in the first place according to a just released report from the Independence Institute’s energy policy analyst William Yeatman. So Xcel ratepayers paid handsomely for electricity that ended up as surplus.
Using Xcel’s regulatory filings Yeatman determined:
- In 2012, the New Energy Economy cost Xcel ratepayers $484 million – more than 18 percent of Xcel’s total electricity sales. Based on 1.4 million ratepayers, the New Energy Economy cost $345 per ratepayer in 2012.
- Due to a depressed economy, there is an oversupply of electricity generation onXcel’s system, which means Xcel ratepayers spent $484 million on the New Energy Economy in 2012 in order to obtain electricity that they did not need
Yeatman also breaks down the cost by each of the four pieces of legislation, which includes the renewable energy mandate and its massive $343,000,000 cost. It’s clear that State Representative Max Tyler’s and former Governor Bill Ritter’s fanciful promise of a two percent rate cap is much different in reality.
Prior to the New Energy Economy, Colorado worked on a least cost principle meaning utilities were to deliver reliable power to ratepayers in the most cost effective manner. When it comes to renewable mandates and the New Energy Economy, state lawmakers would be wise to remember economist Milton Friedman’s words, “there’s no such thing as a free lunch.”
Colorado already has the most expensive electric rates of all neighboring states and the second highest in the Rocky Mountain West, with projections to go even higher in the near future. Now, a bill just introduced into the state senate threatens to make Colorado’s energy rates even more expensive. The following is a column from the Colorado Consumer Coalition about the dangers of SB 178. Senator Kevin Lundberg offered an amendment that would have achieved the bill’s supposed primary purpose and saved consumers money, but it was voted down as the column details.
Colorado consumers—from Denver down to Pueblo and all across the state—could wind up paying even more for their electricity following a troubling development at the legislature this week. An obscure bill just introduced on Tuesday with almost no warning, only days before the end of the 2012 session, would pull the rug out from under the state’s public utilities and turn their long-term energy planning inside-out. And ratepayers would be left holding the bag.
Senate Bill 178 would scrap a key feature of Colorado’s renewable-energy mandate, on which utilities have based their plans and projections for years to come; the change would force them to get even more of their electricity from pricey renewables like wind and solar power than the law now requires. Specifically, the bill would take away a break that utilities have been able to pass on to consumers as they strive to meet costly state mandates to derive 30 percent of their electricity from renewables by 2030.
The break to ratepayers was enacted in 2004 along with the mandates because those who had been advocating for the shift to a greater reliance on alternative fuels also realized such a seismic change doesn’t come cheaply. And it’s neither fair nor even possible to make hard-pressed home- and business owners bear the whole burden. So, the policy’s authors not only placed a 2-percent cap on year-to-year rate increases due to the increased cost of renewables, but they also wrote the law to give extra credit to utilities for switching to alternative energy sources. That gave the utilities greater flexibility in meeting the statutory standards for renewables so consumers wouldn’t have to dig so deeply into their pockets.
Now, SB 178 aims to monkey-wrench that delicate balance. By revoking the extra credit for switching to renewable energy after 2015, the bill effectively would require the public to rely on an even higher percentage of renewable energy sources than most of the state’s utilities had anticipated. The result would be to wreak havoc with the balance sheets and strategic plans of the utilities, for-profit and nonprofit alike. They’d have to scramble to acquire more renewable sources for power and, inevitably, pass the cost on to the public through higher power bills.
Not surprisingly, when the bill was unveiled Wednesday at a meeting of the Senate Judiciary Committee, lawmakers got an earful from representatives of some of those utilities as well as other stakeholders—many of whom had only heard of the legislation a few days earlier and, in some cases, only hours prior to the hearing. And they told lawmakers point-blank what would happen if the bill were enacted.
“This bill will result in increased costs to… members and their customers,” said Thomas Dougherty, representing Tri-State Generation and Transmission Association, a wholesale electric power supplier owned by 44 electric cooperatives and serving 900,000 Coloradans.
Ratepayers of Black Hills Energy, which serves the Pueblo region, would be dealt a major blow by the legislation, the company’s Wenday Moser told lawmakers Wednesday.
“We are very concerned about Senate Bill 178 because we are concerned about our ability to meet the renewable energy standard,” Moser said. “As of now, Black Hills is marginally meeting the standard…We are struggling to meet that standard.”
Dougherty had noted in his testimony that even though the law caps renewable-energy cost increases at 2 percent a year on power bills, that increase in an of itself still can pack a punch for consumers. And Moser made clear that the cap really won’t spare consumers at all over the long run.
She pointed out that companies such as hers simply will be forced to assess that extra 2 percent “for many more years” until recovering the added costs of the additional renewables. After all, the utilities are legally bound to attain the renewable-energy standard; it’ll just take them longer to recover those costs from consumers.
Why this bill at this time—out of the blue like this? What possibly could have motivated some lawmakers to propose such a reckless policy for so little gain—at a time when Colorado already is well on its way toward greater reliance on renewable energy?
A representative of Attorney General John Suthers told the committee at Wednesday’s hearing that his office wasn’t behind the bill but had endorsed it because of concerns about a provision in the current law allowing the extra renewable-energy credits for purchases of Colorado energy but not for renewables originating outside the state. That, the AG’s rep said, set up Colorado for a constitutional challenge in court.
Fine, responded a skeptical Sen. Kevin Lundberg, of Berthoud—then why not simply extend the same extra credit to any acquisition of renewable energy from outside Colorado as well? Lundberg was told the attorney general would in fact be fine with that alternative, so Lundberg proposed it as an amendment to the bill. Unfortunately, it was voted down.
Lundberg and fellow Judiciary Committee Sens. Steve King, of Grand Junction, and Ellen Roberts, of Durango, deserve credit for asking tough and probing questions about the bill during the hearing. All three laudably voted against the measure, but they were outgunned by the majority, and the measure now moves to the Senate floor for further action.
Pending what happens next, let’s give credit to Black Hills Energy, too, for telling lawmakers what they really needed to hear—whether they wanted to or not—about a costly, destructive bill with no discernible value to Colorado Consumers.
My take: this bill isn’t about leveling the playing field for in-state versus out-of-state renewable energy producers but rather about forcing Colorado energy consumers to rely more heavily upon unreliable, expensive wind and solar energy. To make matters worse, this will be a windfall for Xcel Energy because the more expensive electricity is, the more Xcel makes. If this bill gets fast-tracked through the legislature like HB 1365, the infamous fuel-switching bill, consumers will have more proof that Xcel “owns” the state legislature.
Apparently Maine, not California (followed closely by Colorado), has the highest renewable energy standard in the country, and Governor Paul LePage wants to get rid of it. According to Gov. LePage, the 44 percent renewable energy requirement puts Maine at an economic disadvantage because it drives up the cost of energy in his state. Maine Public Broadcast Network quoted Gov. LePage:
The next closest to us is Massachusetts, at 20 percent, and we can’t compete with states like Wisconsin, Wyoming, Nevada, Nebraska, South Carolina, North Carolina, Kentucky, Tennessee.
So we need to get rid of the renewable portfolio. We need to reduce that.
Maine is not alone. Renewable energy is driving up the cost of electricity across the globe. The European Union predicts a 100 percent increase in electricity prices by 2050 due to their renewable energy portfolio standards (RPS). Earlier this year my colleague William Yeatman estimated that Colorado’s RPS will cost rate payers more than $100 million in 2011 alone.
Time for Colorado to follow Governor LePage’s lead.
Normally reading an energy compliance plan is about as exciting as watching low VOC paint dry. But Xcel Energy’s 2012 Renewable Energy Standard Compliance Plan, filed with the Public Utilities Commission in May 2011, has some pretty powerful stuff in it including admissions about Colorado’s “phantom carbon tax” and the cost effectiveness of renewable energy.
In Section 7 — Retail Rate Impact and Budget, Xcel acknowledges that my testimony in front of the Agriculture Committee on HB 1240 (the bill explained here and here) in February 2011 was correct. No national carbon tax in the near future.
The carbon assumptions approved by the Commission in Docket No. 07A-447E assumed carbon regulation would be enacted in 2010; such regulation was not enacted and the prospects for near term carbon regulation appear to be slim.
Passage of a national carbon tax under Cap and Trade was the underlying assumption when HB 1164 passed the state legislature in 2008. With no carbon tax at the national level and virtually no chance of one passing any time soon, why does Colorado still have one? Good question. Lawmakers on both sides of the aisle capitulated to special interests, including Xcel, and voted to kill HB 1240, which would have repealed the controversial “phantom” tax.
Because Xcel assumes there will be no carbon tax in the near future, it presents a cost model that excludes the carbon tax and another model that does include the tax but not until 2014.
Due to the uncertainties related to the timing associated with possible carbon emission regulation, the Company did not include any carbon cost imputations in the model runs and other calculations set forth on Table 7-3. However, as discussed later, Public Service also presents with this Compliance Plan, as Table 7-4, a sensitivity case that assumes the same carbon imputation costs ($20 per ton, escalating at 7% annually) as approved in the 2007 Colorado Resource Plan but on a delayed implementation schedule of 2014.
One wonders if the the carbon tax supporters feel a bit betrayed by Xcel’s admission.
For those of you searching for the “carbon tax” on your Xcel bill, stop looking. It does not show up as a line item, but as my colleague William Yeatman and I have written before, “the tax is used in the models, and the models dictate spending. It leaps from the computers to your wallet, like the worst sort of virtual reality.”
The carbon tax is just one way that the PUC allows Xcel to greenwash the real cost of Colorado’s renewable energy, which must be 30 percent of Xcel’s electricity portfolio by 2020. In spite of a legislatively-mandated two percent rate cap, Yeatman documented how Colorado’s New Energy Economy will cost Xcel ratepayers an additional 8 percent this year alone.
Which leads to this gem about the economic viability of renewable energy. Xcel says it just isn’t cost effective unless it is taxpayer subsidized.
Going forward, it is very questionable if new renewable resources can be cost effective if they do not get the benefit of the Federal Production Tax Credit. Currently the production tax credit for wind is set to expire at the end of 2012 and at the end of 2016 for solar resources.
This is interesting because former Governor Bill Ritter said recently in a debate titled “Clean energy can drive America’s economic recovery” that both he and “the utility” can increase renewable energy for the same price. (Read the entire debate transcript here)
In fact, last year, the utility and I, after talking with each other said, you know what? We can get to 30 percent [renewable] with the same rate cap in place. So, as a state, we’ve got a 30 percent renewable energy standard.
This is where the financial shell game tricks ratepayers. The rate cap is a sham. The real cost of renewable energy is recovered elsewhere on ratepayers’ bills, as we have explained in the past. The American Enterprise Institute’s Steven Hayword, one of Bill Ritter’s opponents in that debate, stated what should be clear economically unless one’s judgment is clouded by green energy infatuation.
the basic problem with so-called clean energy is that nearly every form of it is more expensive than the fossil fuel energy it seeks to displace. Now, I know of no economic theory that says the economy benefits by reducing the purchasing power of consumers.
Representative Max Tyler also claimed an economic fantasy in a Denver Post opinion editorial, “Raising the RES [Renewable Energy Standard] will not raise utility rates.” Writing that rates won’t go up, does not make it true. Rates will go up as we have demonstrated, and now Xcel says that unless taxpayers subsidize renewable energy sources, they just aren’t cost effective — certainly not for ratepayers or taxpayers.
The PUC will decide on Xcel’s Compliance Plan in October 2012. While Xcel seems to accept the reality of no national carbon tax and that renewable energy is an economic fairy tale, it remains to be seen if the PUC, lawmakers and special interest groups will have the same eco-epiphany.
In a recent New York Times editorial former Governor Bill Ritter reveals the magic formula for states with struggling economies – just “create” green jobs the way he did in Colorado! In reality, the only job he created was his own.
Ritter starts by empathizing with other governors as they wrestle “with budget issues, making unenviable choices on which services, programs or salaries to reduce or eliminate, and deciding whether higher taxes and fees are viable.”
He laments that state leaders are “hemmed in by state requirements that the budget be balanced without deficit spending.” He understands how “daunting” and “all-consuming” these decisions can be.
Fortunately, Mr. Ritter offers a solution – use government force to “create” green jobs! He signed 57 pieces of new energy legislation during his one term in office that apparently lured wind and solar companies and “thousands of new jobs” to the centennial state.
The 2011 legislative session began in earnest last week in Colorado. Below are several bills we are watching.
SB11-058 Electric Utilities Employ Least-Cost Planning for New Resource Acquisition
- Senator Scott Renfroe (R-SD13) is the prime sponsor.
- The Public Utilities Commission must consider “cost” when deciding on new energy facilities and resource acquisition.
- Cost to ratepayers comes before the PUC commissioners’ environmental values.
- “Costs that are not identified as those that will be actually incurred by the electric utility may no be included in the revenue requirement analyses.”
- No $20 per ton phantom carbon tax.