Policy Picnic – February 23, 2017

Please join us for our monthly Policy Picnic led by

Cascade Policy Institute’s

Research Associate Lydia White


The Seen and Unseen World of Solar Net Metering

Environmentalists claim residential solar energy is the solution to fulfilling our energy needs, but they often overlook its unintended consequences. Looking through the lens of Frédéric Bastiat’s “That Which is Seen, and That Which is Not Seen,” Lydia will address the flaws of solar net metering. The “Seen” paints a rosy picture of sustainable green energy captured by our greatest renewable resource, the sun. But, the “Not Seen” reveals the unreliability and unaffordability of net metering and the inequity this program creates.

Admission is free, but reservations are required due to space limitations. You are welcome to bring your own lunch; light refreshments will be served.

Reserve your free tickets here.

Cascade’s Policy Picnics are generously sponsored

by Dumas Law Group, LLC

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Surprise! Renewable Energy Mandates Are Actually Fossil Fuel Mandates

By John A. Charles, Jr. and Lydia White

The Sierra Club and other environmental groups are objecting to PGE’s plan for new, natural gas-powered generation to help replace the electrical output that will be lost when PGE shuts down the Boardman coal plant in 2020. What these groups should admit is that they are the ones responsible for that decision.

Last March, the Oregon legislature adopted the Oregon “Renewable Portfolio Standard” (RPS), which requires PGE to procure 50% of its retail load from designated renewable energy sources by 2040. This requirement, enacted with few public hearings in the rush of the one-month session, was demanded by environmental groups as a way to burnish the state’s mythical green power credentials.

The RPS is essentially a mandate for more utility-scale wind and solar power. These are known as “intermittent resources” because wind farms don’t generate any power about 68% of the time, while solar goes dead about 71% of the time. Being forced to rely on randomly-failing generators means that utilities must have back-up sources (known as “spinning reserve”) in order to preserve grid reliability.

Electricity cannot be stored like other commodities. As soon as electricity is fed into the grid, it travels at the speed of light through many pathways until it is consumed almost instantaneously by a household, factory, or some other end-user. Supply and demand have to be matched at all times in order to avoid grid failure, or “blackout.”

Right now, wind and solar only account for about 5.69% of Oregon’s electricity supply. As lawmakers keep ratcheting up RPS mandates towards 50%, the need for spinning reserve will go up as well. The only practical fuel is natural gas.

These new gas-fueled plants will be running even when not used, in order to be ready when the windmill blades stop turning or the sun goes down. This will result in wasted fuel and increased air pollution.

If utilities must have spinning reserve, can we predict the need for it? This question was the subject of a paper recently published by the National Bureau of Economic Research (NBER). The researchers found that a 1.0 percentage point increase in the share of fast-reacting fossil generation capacity in a country is associated, on average, with a 0.88 percentage point increase in the long-run share of renewable energy.

In other words: more wind and solar = more fossil fuel use. Oregon legislators rushed through the RPS law so quickly that they forgot about the law of unintended consequences.

PGE and PacifiCorp will both be turning to increased natural gas generation over the next 20 years because they don’t have a choice. Customers want their electricity 100% of the time, not 30% of the time. If environmental groups are offended by the use of more natural gas, they should admit that the 50% RPS requirement was a mistake and ask legislators to repeal it.


John A. Charles, Jr. is President and CEO of Cascade Policy Institute, Oregon’s free market public policy research organization. Lydia White is a Research Associate at Cascade. This article originally appeared in the Portland Business Journal on January 12, 2017.

Money

Will the PUC Make Oregon’s Solar Energy Incentives Equitable?

By Lydia White

In accordance with House Bill 2941, the Public Utilities Commission (PUC) is making recommendations to the Oregon State Legislature to ensure Oregon’s solar energy incentives are equitable, efficient, and effective.

One recommendation is to modify the compensation method for solar energy, net metering. Under net metering, solar owners consume energy their panels produce. When energy produced is insufficient, solar owners purchase additional energy from traditional sources. When excess energy is produced, solar owners sell energy. Solar owners are compensated at above-market rates and are exempt from paying their portion of incurred costs. Such costs include operation and maintenance of the grid and “spinning reserves,” the alternative power source utility companies run continuously in case solar produces less energy than projected. The state’s incentive structure shifts costs from solar owners to non-solar ratepayers. As the number of solar owners increases, ratepayers bear higher costs. The PUC is recommending these costs instead be shifted to taxpayers. While the PUC proposal’s efforts to alleviate inequity are commendable, their proposed recommendations still constrain Oregonians.

Although solar owners are double-dipping into the taxpayer pot—once when receiving heavily subsidized (and therefore low-cost) solar systems and again when receiving above-market compensation—the solar community is vehemently protesting. Despite the outcries, the PUC should pursue its recommendation to transition from net metering while also rejecting subsidies from ratepayers and taxpayers alike. By doing so, the PUC’s recommendations could relieve Oregon’s ratepayers from substantial burden.


Lydia White is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

Get Ready for High-Cost Electricity

In the recently concluded session of the Oregon legislature, the big environmental “win” was Senate Bill 1547, a bill that was hatched in secret by two large utilities and a group of environmental activists. The bill promises to rid the Oregon electricity grid of coal-fired power and to double the required levels of “renewable energy” from 25 percent to 50 percent by 2040.

When the legislature was debating SB 1547, members were calmly assured by proponents that the cost of these requirements would be minimal. They were reminded that the existing standard of 25 percent (by 2025) had always included an “off-ramp” if the cost of compliance reached 4 percent of utility revenue—and the costs had never come close to 4 percent.

Indeed, compliance costs for PGE in 2014 were only 0.24 percent of revenue (or $4.2 million in dollar terms). Obviously, ratepayers had nothing to worry about.

This storyline was especially soothing when it was repeated by Sen. Lee Beyer, former member and chair of the Oregon Public Utilities Commission. In his grandfatherly way, he told his colleagues that everything was under control.

The problem with this narrative was that it’s highly misleading. What the advocates didn’t say was that the reason the cost of compliance so far has been low is that utilities only needed to get 10 percent of their power from designated renewable energy sources through 2014. However, from 2015 to 2019, the requirement jumps to 15 percent, and rises steadily after 2020.

No one actually knows how much it will cost to get 50 percent of the power from “green energy” sources by 2040, but it’s going to be expensive.

We get a hint of this in the PGE forecast for 2017-2021. For those five years, PGE predicts that compliance costs will total $335 million, or 3.46 percent of revenue. Those costs will have to be paid for by ratepayers, and they will get nothing in return.

Under SB 1547, the highest costs are back-loaded. Advocates know that when the program blows up a decade from now, it will be someone else’s problem. Many of the legislators who voted for it will be sitting poolside collecting their PERS checks.

Senate Bill 1547 is a fraud. Virtually every claim made by proponents is false. Instead of increasing our “energy security” by making the Oregon grid “coal-free,” it will dramatically increase the risk of power failure by force-feeding huge amounts of intermittent sources like wind and solar into the grid. In engineering terms, the electrical distribution system requires stability; SB 1547 mandates volatility.

System costs have to rise because consumers will be paying twice for the same power—once for the subsidized wind farms and again for the adult power sources used to back up the wind farms that sit idle most of the time.

The advocates also claim that SB 1547 will get coal out of the system by 2030; but Oregon’s only coal-fired power plant will be shut down in 2020 anyway. The notion that this bill will affect coal used in other states is laughable.

In his floor speech, Rep. Cliff Bentz summarized his criticism of SB 1547 by saying it was “long on symbolism, short on results, and really expensive for ratepayers.” Nonetheless, a majority of legislators voted for it, and the governor signed it.

Ratepayers deserved so much better. In 2017, repealing SB 1547 should be at the top of the legislative “to-do” list.

Human Achievement Hour 2015

This Saturday you’ll have the opportunity to vote with your light switches. Either turn your lights off from 8:30 pm to 9:30 pm local time to “show your commitment to climate change action now” or turn your lights on to celebrate “human progress and our advancements in various fields of industry, including technology, medical, energy, and more.”

Turning your lights off makes you part of Earth Hour, a project of the World Wide Fund for Nature (WWF). Turning them on makes you a part of Human Achievement Hour 2015, a project of the Competitive Enterprise Institute (CEI).

Since this isn’t a secret ballot, I’ll tell you that I’m voting for Human Achievement. As CEI notes, “Earth Hour does little to protect the environment” and “completely ignores how modern technology allows societies around the world to develop new and more sustainable practices that help humans be more eco-friendly and better conserve our natural resources.”

You don’t have to wait until Saturday to see what a large-scale expression of the “dark ages” versus human achievement looks like. Just check out any NASA nighttime photo of North and South Korea from space: “North Korea is almost completely dark compared to neighboring South Korea….The darkened land appears as if it were a patch of water joining the Yellow Sea to the Sea of Japan.”

North Koreans may simply be celebrating Earth Hour every hour of every day, but somehow I doubt it.

Tide Goes Out on Ocean Energy

A new report released by Cascade Policy Institute concludes that the public-private partnership Oregon Wave Energy Trust has failed to achieve a return on public investment.

The Oregon Wave Energy Trust (OWET) is a nonprofit, public-private partnership established by the Oregon State Legislature that works to “responsibly develop ocean energy by connecting stakeholders, supporting research and development, and engaging in public outreach and policy work.” Since its inception in 2007, OWET has received nearly $12 million in public funding from the Oregon Innovation Council (Oregon InC), another government-sponsored entity. OregonInC claims its initiatives must earn a profit, but that is clearly not the case with OWET. None of the money spent to date by OWET has led to any profitability.

Cascade President and CEO John A. Charles, Jr. commented, “Electric utilities in Oregon, both public and private, are quite capable of generating and delivering power to their customers. If wave power is a good idea, utilities themselves will bring it to commercial scale. If it’s a bad idea, taxpayers should not be forced to bear all the risks of early-stage experiments.”

The Cascade paper, entitled Waiving Profitability, recommends that Oregon legislative leaders “should closely examine all state-sponsored venture capital funds to determine if grant recipients will ever become financially self-sufficient, as originally envisioned. OWET would be an excellent place to start.”

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.

Report Questions Legality of Renewable Energy Certificates

PORTLAND, Ore. – Cascade Policy Institute issued a report today, questioning the legality of renewable energy certificates (RECs) and calling for the state Attorney General to investigate possible violations of the Oregon Unfair Trade Practices Act.

RECs are tradable commodities purporting to represent the “environmental amenities” of producing electricity from a select list of renewable energy sources. A REC is created electronically for each megawatt-hour of electricity produced by qualifying sources, and a unique number is assigned to the REC. It can then be bought or sold as a product that is either bundled with the actual electrical output of the facility, or sold separately.

However, nowhere in the transaction process are the so-called “environmental amenities” associated with each REC verified. The REC market is shrouded in secrecy; relevant data about individual RECs such as the power facility it is associated with cannot be obtained from utilities, REC brokers, or the Oregon Public Utility Commission. This is the major finding in the Cascade report entitled “Renewable Energy Certificates: A Costly Illusion.”This lack of transparency is a problem because not all “renewable power” sources are benign. Intermittent sources such as wind and solar require back-up power at all times to ensure reliability of the regional grid, and most of those sources create environmental problems such as air pollution or fish mortality. It is impossible for any consumer to know where their purchased RECs came from, and therefore impossible to know if there are any net environmental benefits.

“We believe that statements made by REC producers and brokers violate the Oregon Unfair Trade Practices Act by representing that the purchased RECs have benefits and qualities that they do not have,” Cascade’s President and CEO John A. Charles, Jr. stated in the letter to Attorney General Ellen Rosenblum.

There is no direct link in time or location between the payments a customer makes for “renewable” energy and the production of that electricity or its delivery to the customer paying for it. According to Charles, “The REC market is a Trojan Horse. Purchasers of RECs such as universities and businesses are buying these certificates to provide a ‘green glow’ for themselves, yet the alleged environmental benefits probably do not exist.”

In 2007, the Oregon legislature approved a law that would require at least 5 percent of power generated by electricity utility companies to come from “renewable resources,” like solar and wind power. This required percentage increases to 15 percent by 2015, 20 percent by 2020, and 25 percent by 2025. Instead of having to actually produce this electricity themselves, the law allows electricity companies to purchase or produce RECs.

The Cascade report recommends that the Oregon Legislature amend the 2007 statute to prohibit the use of RECs for compliance purposes if they are associated with intermittent power sources.

Click here to read the report.

Energy-Efficiency Myths of Commuter Rail

Advocates of rail transit tend to argue that we need trains because they are more energy-efficient than buses or cars. Unfortunately, that’s only true in some cases.

According to a new report by the Federal Railroad Administration, the average energy consumed by all commuter rail systems in America during 2011 was 2,923 British Thermal Units (BTUs) per passenger-mile. But the commuter line operated by TriMet (WES) was close to the bottom: WES consumed 5,961 BTU per passenger-mile, more than twice the national average.

Not only is WES inefficient compared with its peer group, but it is wasteful compared with other modes of travel. The national average for all transit buses was 4,240 BTU per passenger-mile; for all light-duty cars, the average was 3,364.

Based on these numbers, the environment would be better off if WES were terminated and riders simply got in their cars.

Nonetheless, TriMet management is “all-in” on more commuter rail. In its proposed FY 15 budget, the agency plans to purchase two additional rail vehicles at a total cost of $8.5 million. None of those costs will be paid by the privileged few who ride WES; debt service will be paid by taxpayers for the next 20 years.

It’s a cliché but still true: In government, nothing succeeds like failure.

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

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