Colorado

Post image for Xcel Energy’s Versatile, Profitable Carbon Tax

To my knowledge, Colorado is the only state in which regulators allow utilities to incorporate a carbon tax into the economic models used to make resource acquisition decisions (see here and here). Ratepayers can’t see it in their monthly bill, but the tax is used in the models, and the models dictate spending. It’s the worst kind of virtual reality: The carbon tax leaps from computers to ratepayer wallets.

The Colorado Public Utilities Commission was authorized to allow for a carbon tax in 2008 with the passage of HB 1164 by the General Assembly. The legislation was advertised as an essential component of former Governor’s Bill Ritter’s environmentalist “New Energy Economy,” but, in practice, the carbon tax has served as an accounting loophole through which Xcel Energy, the largest investor-owned utility in the State, has awarded itself big time profits. In a previous post, I explained in some detail how Xcel uses the carbon tax. Here are a few examples:

  • One of Xcel’s priorities is winning market share from independent power producers on the wholesale electricity market. Older natural gas plants are Xcel’s fiercest competitors, because they have already paid off their capital costs, so they can bid electricity prices relatively low. The $20/ton carbon tax eliminates this advantage, because new plants are more efficient than older plants. It tilts the playing field to Xcel’s favor.
Post image for The Whole, Depressing Truth: Colorado’s Regional Haze Plan

I travelled to Denver twice in the last 7 days to testify before the Senate State Affairs Committee on HB 1291, Colorado’s State Implementation Plan to meet the Regional Haze provision of the federal Clean Air Act.

I told the Committee that HB 1291 is illegal. And I rebutted the distortions peddled by its proponents, who also testified. Illegality and disingenuousness are huge accusations, and I made them twice, in testimonies a week apart, so the bill’s proponents had time to conjure a response. But no one disputed my assertions. Because they were true.

Nonetheless, the Plan passed out of Committee, due to the fact that it enjoys the support of two of Colorado’s richest special interests, for which billions of dollars were at stake. Today, HB 1291 was enacted by the full Senate, by a 25-10 vote. Two weeks ago, by a 58-7 vote, it was passed by the House of Representatives. If there’s one thing a bipartisan, bicameral majority can agree on these days, it’s the importance of currying favor with the deepest pockets.

This is a long blog about the who, what, why, and when of Colorado’s Regional Haze State Implementation Plan, the most outrageous rip-off you’ve never heard of.

The Back Story

Colorado’s Regional Haze State Implementation Plan originated not in the Centennial  State, but in Oklahoma.  It owes its form to Aubrey McClendon, CEO of Chesapeake Energy, a natural gas company headquartered in Oklahoma City.

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Update on the States

by William Yeatman on March 7, 2011

in Blog

Post image for Update on the States

Maryland

Offshore wind energy is so expensive that even the Democratic-controlled State Legislature is balking at the price tag of Maryland Governor Martin O’Malley’s (D) proposed “Maryland Offshore Wind Energy Act.” The legislation would force the state’s investor owned utilities to minimum 20-year contracts for 400 megawatts to 600 megawatts of offshore wind power. Governor O’Malley’s office estimates that the legislation would cost ratepayers about $1.50 a month, but this projection is based on unrealistically optimistic assumptions. Independent analyses peg the costs at up to $9.00 a month. The disparity in estimates has elicited a negative response from O’Malley’s own party in the legislature: the Washington Post reported this week that two Democratic lawmakers key to the bill’s prospects have suggested they need more time to vet the legislation than is left in this year’s session.

Kentucky

By a bipartisan vote of 28 to 10, the Kentucky State Senate last week passed a resolution exempting the coal industry from EPA regulation, according to the AP. The non-binding resolution, which was introduced by Sen. Brandon Smith (R), is now before the House of Representatives.

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Post image for For Natural Gas, the Other Shoe Drops

For years, certain natural gas producers, led by Chesapeake Energy CEO Aubrey McClendon, have pursued a myopic strategy of demonizing coal in an effort to seize a larger share of the electricity generation market.

It started in 2008, when Chesapeake funded an unsigned “Dirty Coal” advertising campaign. It featured black and white photos of children, with coal smudged faces, looking sad. Having set the table with anti coal propaganda, McClendon then teamed up with the Sierra Club’s Carl Pope to implement a legislative strategy. The pair traveled around the country, pitching natural gas as the “bridge fuel” to a green energy future.

They scored one major success, in Colorado. There, ex-Governor Bill Ritter had made the “New Energy Economy,” the centerpiece of his administration. As such, he was receptive to fuel switching as a way to meet his Climate Action Plan, a non-binding mandate to reduce the state’s greenhouse gas emissions 20% below 2008 levels. As I’ve written about at length here, the Ritter Administration engaged in a number of deceptions to carry Chesapeake’s water.

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5.       New Jersey Governor Chris Christie
Christie’s skepticism of global warming alarmism is great. What’s not so great is his continued participation in a regional cap-and-trade energy rationing scheme. For whatever reason, the climate skeptic sounding governor has yet to pull his state out of the Regional Greenhouse Gas Initiative, the aforementioned energy tax.

4.       Florida Governor Charlie Crist (lame duck)
In 2007, Crist signed a series of environmentalist executive orders, which, thankfully, never came to fruition because they were spurned by the State Legislature. Crist earned his spot on this list for his invertebrate take on offshore drilling. When he campaigned for Governor, he opposed offshore drilling; when gas prices spiked in the summer of 2008, he supported drilling; and after the Gulf oil spill this past summer, he reverted back to opposing the practice.

3.       California Governor Arnold Schwarzenegger (lame-duck)
As I’ve explained here, here, and here, the Governator’s environmentalist pandering is empty blathering. For all the talk about California going green, the fact of the matter is that California’s environmentalist energy policies have been ineffectual at achieving anything other than higher energy prices. Rather than environmentalist accomplishments, Schwarzenegger’s only lasting legacy will be the almost-unlimited power he has bequeathed to his successor, Governor-elect Jerry “Moonbeam” Brown. Starting in 2011, the law accords the Governor amorphous, yet absolute, authority to mitigate climate change.

2.       New Mexico Governor Bill Richardson (lame duck)
Using authority derived from 1978 state law, New Mexico Governor Bill Richardson (D) last month imposed a cap-and-trade energy rationing scheme. The lame-duck Governor enacted the energy-rationing scheme administratively on November 2, the same day that voters indicated their displeasure with expensive energy climate policies by electing Susana Martinez (R) to succeed Richardson. She had campaigned against cap-and-trade. To be sure, Richardson’s energy policy is largely toothless; nonetheless, the executive power grab is disconcerting.

1.       Colorado Governor Bill Ritter (lame duck)
It will take a generation for Coloradans to undo the harm inflicted by the Governor Bill Ritter’s much-ballyhooed “New Energy Economy.” At Ritter’s behest: the General Assembly changed the mission of state utilities from providing “least cost” electricity, to fighting climate change; the Public Utilities Commission allowed the nation’s first carbon tax; and Department of Public Health and Environment exaggerated the threat of federal air quality regulations in order to justify legislation that picks winners and losers in the electricity industry.

According to the AP, an administrative judge last week capped at $45 million the cost-overruns of Xcel’s “Smart Grid City” demonstration project in Boulder, Colorado. I haven’t been following this particular project, but I have been tracking similar cases in other cities, and I assure you, smart grid is the biggest rip-off in contemporary energy policy (after ethanol).

Ask anyone what a “smart grid” is, and you’ll get a different answer every time. In Boulder, it’s a fiber optical network. In Baltimore, it’s a “ZigBee” local area network. In Oklahoma City, it’s GE Smart Meters. They all were spawned of the stimulus, which showered more than $3 billion to utilities across the country to subsidize any boondoggle that called itself “smart grid.”

This is the sort of social policy that makes regulated utilities salivate. It’s ill-defined and capital intensive. Moreover, it promises to grow, like the blob. Today, it’s scores of millions of dollars of cost overruns in Boulder; tomorrow, it’s hundreds of millions of dollars in Denver.

And for what? Smart grid is a means to an end–namely, “demand side management.” The idea is to “manage” energy demand by, say, remotely adjusting thermostats in the homes of hundreds of thousands of utility customers , so as to draw down demand and avoid taxing the electricity grid. With smart grid technologies, your local utility can become your Big Brother.

There is, of course, a much easier way to “manage” demand: Price electricity what it costs.  Energy consumers would voluntarily reduce consumption during periods of high demand, because they would have an incentive (higher prices) to do so.

Unfortunately, local politicians have every incentive to maintain control over the price of electricity. After all, energy is the “master-resource,” so controlling its cost is a powerful political chip. Hence, the allure of “demand side management.” It affords local politicians control over the price of electricity AND control over demand. That way, they can avoid the inimical effects of price controls by controlling demand (that is, by controlling your thermostat). The losers, naturally, are the consumers, who must shoulder the added costs and inefficiencies inherent to a “managed” market.

[originally published at the Independence Institute’s Energy Center]

When it comes to renewable energy, Colorado politicians are trying to have their cake and eat it, too. In February, the General Assembly passed HB 1001, a law requiring that Xcel use 30% renewable energy by 2020. To be sure, renewable energy is more expensive than conventional energy, but lawmakers promised that the costs would be held in check by a 2 % rate cap codified in the legislation. You see, Colorado politicians believed they could establish a Soviet-style renewable energy production quota AND Soviet-style price controls.

In early September, the Independence Institute‘s Amy Oliver Cooke and I took this silliness to task in a Denver Post oped. Specifically, we explained the regulatory machinations employed by the Ritter Administration to get around the rate cap.

Nearly a month later, Rep. Max Tyler, the lead sponsor of HB 1001, replied to our oped with a letter in the Post. Rep. Tyler’s missive ignored our arguments, and instead boasted of the ancillary benefits of government picking which energy sources Coloradans must use. Along these lines, he noted that wind power in Colorado:

  • Creates more than $2.5 million for farmers and ranchers who lease land for wind generation
  • Supports 1,700 construction jobs and 300 permanent jobs in rural areas;
  • Generates $4.6 million in annual property tax revenue for local schools, roads, etc.

Of course, Rep. Tyler missed the point: These “benefits” aren’t a net positive for the State. Rather, they are paid for by Xcel consumers, in the form of higher energy bills, which means that Xcel ratepayers (primarily in Denver, Grand Junction, and Boulder) are subsidizing the rural development showcased by Rep. Tyler. This is a classic case of robbing Peter to pay Paul.

In his letter, Rep. Max Tyler stated that, “Colorado currently generates 1,244 megawatts of wind power.” That sounds like a lot, but it’s not. Because the wind doesn’t always blow, Xcel can rely on only a fraction of its wind generation’s nameplate capacity. In practice, 1,244 MW of wind is only 124 MW of real power. That’s about half of the coal power capacity that Xcel agreed to shutter in its most recent electric resource plan.

The problem for Colorado is that this small amount of wind power costs a large amount of money. According to the Public Utilities Staff, Xcel “identified wind energy costs for 2009 of $147,431,000 and 2010 of $155,462,000.”[1] That’s about 5% of Xcel’s 2009 and 2010 sales-or more than double the 2 % rate cap that Rep. Tyler trumpets in his letter (he wrote, “Another important fact: When developing new energy resources, utilities have a 2 percent increase rate-cap on retail customer bills”).

By highlighting localized gains, Rep. Max Tyler missed the big picture. Forcing Xcel customers to pay more for less energy hurts the State’s economy. Period.


[1] February 4 2010, “Answer Testimony and Exhibits of William J Dalton, Staff of the Colorado Public Utilities Commission,” p 14-15, Docket No 9A-772E