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Home / Washington Business - April 2006 / Points of View: Don't Dictate Our Utilities' Generation Choices |
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Points of View: Don't Dictate Our Utilities' Generation Choices |
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Written On: April 2006 |
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Written By: by Michael B. Early |
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Initiative 937 mandates that a utility purchase 15 percent of its resources from renewable sources by 2020 or pay a penalty of $50 per mega watt hour. The Washington Legislature has repeatedly rejected creating a mandatory monopoly for renewables. I-937 should be similarly rejected.
Washington utilities have a duty to acquire generating resources at the lowest reasonable cost to meet consumer needs. The utility evaluates the costs and risks, including potential environmental costs and risks of resource types, such as natural gas, coal and renewables, which include wind, solar and biomass. Each utility is held accountable for its resource decisions. If an investor-owned utility acted imprudently in acquiring a particular resource, the Washington Utilities and Transportation Commission may disallow all or a portion of the resource costs. Publicly owned utilities are accountable to a board or a city council and ultimately to voters.
This Integrated Resource Planning process, which was strengthened by the 2006 Legislature, would be short-circuited by I-937. Utilities would be compelled to acquire an increasing percentage of renewable resources, reaching 15 percent of all resources needed to supply the utility's total electric load by 2020. In effect, I-937 would remove up to 15 percent of the utility's generation needs from the competitive market and would grant renewables a monopoly on this portion of the utility's needs.
The proponents of I-937, Washingtonians for Energy Security, fail to make any compelling argument mandating the renewable resource requirement.
First, they suggest that Washington's electricity supply is subject to foreign security risks. Very little electric generation in Washington, except stand-by generators at hospitals, runs on oil. The only major non-domestic fuel currently used for generation is Canadian natural gas. I am not aware of any security concerns with our Canadian neighbors.
Second, proponents suggest that it is "highly unlikely" that giving a monopoly to renewables for a market share of resources will require a rate increase. Of course, if these monopoly resources were competitive, there would be no reason to mandate their acquisition. In fact, I-937 acknowledges that this monopoly may cause rates to increase and, consequently, offers to cap the rate impact on customers. This cap, however, would still cost consumers tens of millions of dollars each year. It is far from clear that this goal is even achievable, which means the utilities and perhaps ratepayers will be on the hook for the stiff $50 per MWH penalty.
Third, proponents claim that I-937 will create new family-wage jobs and support broad economic development. I-937 credits all renewables that are built anywhere in the Pacific Northwest toward the 15 percent mandate or, under some circumstances, built elsewhere. There is no guarantee that the additional costs imposed by I-937 will produce new facilities or jobs in Washington. In fact, economic harm to existing business and communities caused by higher electric rates may result in the loss of family-wage jobs. The proponents have not done this analysis.
Fourth, proponents claim that a renewables mandate is necessary for Washington to do its part to reduce global warming. They acknowledge that two-thirds of Washington’s electric power is supplied by hydroelectric facilities and that hydroelectric power is a renewable resource, but only new small-scale or incremental hydroelectric generation is defined as "eligible" in meeting the 15 percent mandate.
Washington already, by any estimation, is doing more that its fair share to limit carbon emissions associated with power generation. It is illogical and unfair to Washington ratepayers and its existing industries that rely on low-cost power to not credit existing hydroelectric power as renewable.
As businesses, we compete in national and global markets. Low-cost power has allowed us to remain competitive while paying good family wages and meeting stringent environmental regulations. That power advantage has been eroded and will further erode if we allow a portion of the market for generation resources to be removed from competitive pressures. I-937 is simply bad public policy and bad for Washington business.
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