Testimony Before the Senate Business and Transportation Committee in Support of SB 656, SB 657, and SB 659

Testimony of John A. Charles, Jr.

President & CEO, Cascade Policy Institute

Before the Senate Business and Transportation Committee

In support of SB 656, SB 657, and SB 659

April 3, 2017

The Public Purpose Charge (PPC) was originally authorized by the legislature to run for 10 years: from March 2002-March 2012. It was anticipated that subsidies for conservation, renewables, and market transformation would no longer be necessary after that time.

The chart below shows that the original forecast was correct. PPC administrators are running out of things to do. The low-hanging fruit for retrofits has been picked, and newer homes have been built to stringent energy codes. The mission has largely been accomplished.

Therefore reducing the PPC from 3% to 2%, as called for in SB 657, is appropriate. In 2019 you should drop it by another percent, and then phase it out entirely in 2021.

Keep in mind that the Energy Trust receives additional ratepayer funding through the “increment” allowed under SB 838. During 2017, that increment will more than double the amount of money that ETO will receive from the basic PPC. Therefore, the Trust would continue to have significant funding regardless of what you do with these bills.

Ratio of Energy Benefits (kWh saved or generated) to Expenditures

All PPC Administrators

2003-2004 2005-2006 2007-2008 2009-2010 2011-2012 2013-2014 2015-6/2016 % change, 2003-6/2016
ETO Conservation 5.7 6.6 6.7 4.4 4.5 5.3 3.4 -40%
ETO Renewables 13.8 4.0 33.5 1.6 1.4 2.0 1.6 -88%
School   districts 0.8 0.6 1.0 0.5 0.5 0.3 0.4 -50%
OHCS low-income 1.3 0.9 0.7 0.5 0.8 0.4 0.6 -54%
Self-direct (conservation) 7.2 3.2 4.3 5.2 3.0 2.5 3.8 -47%

Source: Biennial reports to the Legislative Assembly on PPC expenditures, all years. 

Since the PPC was first authorized in 1999, it has escaped scrutiny by the legislature. The oversight called for in these bills is long overdue and I encourage your support.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.

Conservation Is Not Always the Best Option

The Oregon Public Utility Commission (PUC) is considering a request by the Energy Trust of Oregon (ETO) to allow the Trust to spend ratepayer dollars on certain energy efficiency measures that don’t pencil out. The Oregonian has correctly noted that if the estimated benefits of such projects are less than costs, we should stop spending ratepayer dollars on the subsidies.

Several recent op-ed writers have taken The Oregonian to task on this because the local mantra of environmental advocates has long been that conservation is always better than building a new power plant. In a world of high natural resource prices, this is likely true; as a region we have saved a lot of energy through conservation over the past 30 years.

But we are in a new boom period for American energy production, across multiple fronts, including natural gas, coal, oil, and propane. With a glut of natural gas, domestic prices have dropped, leading to negative results for the benefit-cost tests applied to some conservation projects. Yet, advocates who were happy to trumpet the virtues of “cost-effective” investments all those years now resent the fact that the math no longer works in their favor. Therefore, they’d like to change the rules.

Proponents have made a lot of arguments for continued public subsidies: the ETO should be allowed to offer a “core program” of insulation measures for natural gas homes that are exempt from cost-effective determinations; there are “non-energy” benefits from conservation, such as more comfortable buildings; and natural gas prices might rise again, so we should keep all these contractors working to install stuff even if it doesn’t make financial sense today.

But the law that created the Energy Trust was clear that ratepayer funds collected through the three percent monthly tax on ratepayers (otherwise known on your monthly utility bill as the “Public Purpose Charge”) could only be spent on “cost-effective” measures. It’s bad enough that the PUC has been letting ETO operate with a waiver from this requirement for the past two years; there is no justification for another extension.

The PUC staff recently made draft recommendations to the Commission that will disallow those measures with the worst benefit-cost numbers, but continue allowing many that are close to positive, but still losers. The PUC should take the guesswork out by simply complying with the law. Ratepayer funds should only be spent on conservation measures where estimated benefits exceed costs.

John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in the Oregonian on September 21, 2014.

The PUC Is Right: Some Conservation Projects No Longer Make Sense

The Energy Trust of Oregon (ETO) is a nonprofit organization funded by taxes imposed on utility ratepayers. Most of the tax money is spent on subsidies for energy conservation programs.

While energy efficiency is a good idea, not all projects pencil out. State law requires that specific measures, such as installing additional attic insulation, be “cost-effective.” That means that installing the measure makes more financial sense over the long term than having the utility simply provide more energy. Projects that are too costly are disallowed.

Now that the country is experiencing a glut of natural gas, many conservation measures no longer meet the legal requirement; but the Energy Trust wants an exception in order to continue funding its energy efficiency programs. Proponents argue that energy conservation is always cheaper in the long run than building a new power plant, but clearly this is not the case. According to the Energy Trust itself, some of their efficiency measures only return two dollars of benefits for every five dollars spent.

The staff of the Public Utilities Commission is recommending that some conservation measures preferred by the Trust be disallowed in order to protect ratepayers from excess taxation. This is the proper recommendation to make, and the Commission should support it.

When natural gas prices are low, ratepayers should be rewarded, not punished by continued taxation for projects that no longer make sense.

It’s Time for Renewable Energy to Stand on Its Own Legs

The Energy Trust of Oregon (ETO) is a non-profit organization that carries out energy efficiency activities on behalf of PGE, Pacific Power, NW Natural Gas, and Cascade Natural Gas. ETO also subsidizes the above-market cost of small, renewable energy projects. For 2014, ETO proposes to spend $178.9 million while taking in revenues of $163 million. Revenues are derived from monthly surcharges on the bills of utility ratepayers. The state legislature authorized the imposition of these surcharges (ranging from 3% to roughly 6%, depending on the utility and the year) in legislation adopted in 1999.

ETO’s budget is available for public review and comment (www.energytrust.org) through the end of November 27, 2013 and will be approved by the ETO board in December. Cascade President John A. Charles, Jr. filed the following comments with with Margie Harris, Executive Director of the Energy Trust of Oregon, on November 27:

Dear Margie,

I have listened to your budget presentation twice and also attended the most recent Renewable Energy Advisory Committee (REAC) meeting. Based on those observations I have one suggestion for the 2014 budget/action plan:

Consider shifting the emphasis for renewable energy subsidies away from intermittent sources. Since 2003, ETO has supported the development of 5,217 renewable energy projects of 20 MW or less. Almost all of these projects―99.6%―have been solar and wind, the two most expensive categories. Yet, because these technologies fail to produce any electricity most of the time, wind and solar projects have only accounted for 40.5% of the power generated by all ETO projects.

Not only has the ETO renewable program had high costs with low power output, most of the alleged social benefits of these sources don’t exist because the random failure of wind and solar means that the system operator for the regional grid has to maintain ever-growing amounts of spinning reserve. These back-up sources have adverse environmental effects that are not accounted for by the recipients of ETO subsidies. In essence, wind/solar project owners internalize the benefits of ETO subsidies while externalizing the costs of grid reliability.

In your 2014 draft budget, you propose to spend $9.9 million on solar projects to get 0.9 aMW of power, at a levelized cost of 10.4 cents/kwh. This is roughly triple the cost of your other renewable projects. I don’t think this is a good deal for ratepayers, and it’s not a good deal for the grid.

The “final frontier” for ETO should be to invest in renewable projects that produce reliable, dispatchable electricity. The regional grid craves stability; wind and solar create volatility. This is a fundamental system conflict, and ETO should strive to be part of the solution by terminating future subsidies for intermittent sources.

At the last REAC meeting, someone on your staff noted that solar projects are proceeding even without the Business Energy Tax Credit (BETC) [repealed by the Oregon legislature in 2012] due to declining solar costs of some 40% over the past 4 years. This should not be surprising if you understand the term “co-dependent.” In technological development as well as human interaction, when we stop rescuing people from their own failures, they tend to become self-reliant a lot faster. I’d suggest that after subsidizing 5,000 solar projects, it’s time for ETO to declare victory and move on, allowing this industry to stand on its own legs.

Sincerely,

John A. Charles, Jr.

Cascade Policy Institute

John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization.