Even as Oregon legislators consider a bill that would force utilities to get one quarter of the electricity they sell from renewable sources by 2025, they have little definitive information about the issue that likely concerns ratepayers most:
What’s it going cost?
No one, its turns out, knows for sure. Backers of Senate Bill 838, which has overwhelming political support, have been selling the bill as cost-neutral to ratepayers. They concede, if pressed, that rates could go up in the short term as utilities build new wind farms and that power is added into the regional supply system.
But they say it’s best to take the medicine now before utilities get hit with spikes in fossil fuel prices and additional costs of limiting carbon emissions from natural gas and coal.
“The dirty little secret is that no matter what you invest in now, it’s going to put upward pressure on rates,” said Jason Eisdorfer, an attorney for the Citizens’ Utility Board ratepayer advocacy group. “Does investing in renewables mean maybe rates increase sooner – yes. But if you nickel and dime this right now, we think the costs will be significantly higher in the future.”
Business groups, almost alone in challenging the bill, are concerned not only about the potentially high cost of renewables, but whether the bill contains meaningful protections for ratepayers.
In a major concession to win the support of utilities, the bill contains an automatic adjustment clause that would allow them to recover all “prudently incurred costs” of the renewable investments without having to open their books for examination by the Public Utilities Commission as part of a general rate increase request.
“The bill doesn’t take our interests into account,” said Melinda Davison, a lawyer with the Industrial Customers of Northwest Utilities.
At the heart of the debate is whether enacting a renewable-energy portfolio standard will drive rates sharply higher. Backers of the bill cite a recent study by the Ernesto Orlando Lawrence Berkeley National Laboratory that concluded that the long-term cost increase of state renewable mandates should be relatively modest – less than 1 percent.
They also point to a 2004 study by the Northwest Power and Conservation Council that found the delivered electricity prices generated from coal, natural gas and wind were essentially comparable.
Most studies, however, have attempted to build in costs that are difficult to forecast, such as the price of natural gas, or the anticipated costs of possible carbon taxes.
Analyses of wind’s costs, meanwhile, are dependent on the continuation of a federal production tax credit running through 2008 that may not be extended.
Authors of the Northwest Power and Conservation Council’s 2004 study now say they underestimated the cost of wind power development. Project construction costs for wind farms have increased 40 percent to 50 percent since the study was completed, said Jeff King, a senior resource analyst at the council. The price of wind turbines alone has increased 60 percent to 100 percent since 2003 as the industry has undergone a building boom, he said.
Utilities, meanwhile, say they face more competition for good wind sites.
“We’re definitely feeling that pressure,” said Scott Bolton, a PacifiCorp lobbyist. “What happens a few years down the line when all the prime sites are snapped up and we’re left with sites that don’t have good transmission access?”
Business groups such as the industrial customers and Associated Oregon Industries worry that the answer to that question is increased costs.
Backers of the legislation say they’ve built consumer protections into the bill – namely a provision that caps the cost to utilities of meeting the bill’s mandates as a percentage of a utility’s overall budget in any given year. Said bill sponsor Sen. Brad Avakian, D.-Portland: “The cost cap is a very good safeguard. I would hedge my bet towards, ‘We’re going to be safe on this.’ ”
But a cost cap, critics contend, is not the same thing as a rate cap, because it only counts the incremental costs of renewables – over and above electricity costs from a nonrenewable source. Meanwhile, utilities typically look to recover from ratepayers the entire cost of their mandated investments – not just the incremental cost.
Proponents of the renewable energy mandate say surveys show overwhelming public support for cleaner energy sources. Yet it’s not clear how willing people are to pay for it. Local utilities already offer customers an option of buying power from renewable sources, at an added cost of up to 10 percent. Even with strong promotion, only about 6 percent of Portland General Electric customers choose to buy green power.
By Ted Sickinger
21 March 2007
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