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Renewable mandate driving up energy costs

Now that the 2014 Kansas legislative session is complete and the media are offering their commentary with respect to energy policy, we feel compelled to offer a couple of clarifications.

First, let us be clear that we are in no way opposed to renewable energy resources. Rather, we are opposed to the market distortions that certain policies have produced.

Mandates on Kansas’ electric utilities were passed by the Legislature in 2009. They require that 15 percent of nameplate electric generation capacity be from renewable resources by 2015, and 20 percent by 2020. The federal government also put into play production tax credits amounting to 2.3 cents per kilowatt-hour (on average, about 45 percent of the wholesale cost of electricity in Kansas). This direct federal subsidy to the wind industry – amounting to more than $12 billion nationwide last year and hundreds of millions of dollars in Kansas – together with state subsidies, is what has built the wind industry.

However, on Dec. 31, 2013, those federal tax credits expired, leaving ratepayers to cover future costs of meeting the mandate. There is a 10-year lifetime for the credit on all existing systems and on those “in construction.” Present renewable developments will still have that significant advantage until Dec. 31, 2023.

Kansas has given further subsidies to this industry as a result of the lifetime exemption from ad valorem property taxes, which last year amounted to a tax advantage of more than $117 million across the state. No other industry has ever been granted a lifetime exemption from these property taxes.

The claim is made that the Kansas Corporation Commission sees only about a 2 percent rate impact due to the renewable portfolio standard (RPS). There is a question, however, of whether the KCC is taking into account all costs. We are working with the KCC to more fully examine all costs associated with the mandates.

Multiple studies demonstrate that the true “levelized cost” of wind power is substantially higher than what is estimated based on Energy Information Administration figures. One such study released in late 2012 shows that the true cost of wind measured against coal on standby is about twice as expensive as dispatchable coal, and about 50 percent higher than natural gas on standby. You cannot deliver wind energy stand-alone; rather it must “merge” into existing base load, whatever the source. That merging and “demerging” when the wind dies suddenly presents special grid-balancing challenges to base-load providers, which adds to the cost of electricity.

Kansas ratepayers across a blended spectrum of delivery by Westar Energy have seen electricity prices escalate by 41 percent since 2008. The claim that the RPS accounts for only a small portion of the increase simply does not stand against the facts. RPS, according to Westar numbers, nearly matches the rate impact related to Environmental Protection Agency regulations. Additionally, moving the power from turbine to the electrical outlet is not cheap. Newly added transmission costs are very significant in that 41 percent run-up.

We feel more strongly than ever that the RPS has no place in the economy of electricity delivery. If renewable power is so effective and cheap, then why should it have to be mandated?

Rep. Dennis Hedke, R-Wichita, is chairman of the House Energy and Environment Committee. Sen. Forrest Knox, R-Altoona, is acting chairman of the Senate Utilities Committee.