RPS Repeal Efforts Are Fueled by False Claims

By Nick Lawton, Staff Attorney

Efforts to repeal Renewable Portfolio Standards (RPSs) are underway in several states. In Kansas, where the legislature voted down two separate RPS repeal measures in 2013, the addition of five Republicans to the legislature has reinvigorated the RPS repeal effort. The West Virginia legislature is also considering a repeal of its RPS—even though West Virginia’s law does not actually require renewable energy development, instead allowing compliance through “alternative energy resources” including coal and natural gas. In Colorado, two bills have been proposed to either reduce the required amount of renewable energy development or to push back compliance deadlines. In North Carolina, repealing the RPS is the first item on Americans for Prosperity’s (a very conservative advocacy organization funded by the Koch brothers) legislative agenda for 2015. And finally in Connecticut, a report by the Yankee Institute, a conservative think tank, argues for repeal of the state’s RPS.

The repeal efforts in various states are all based on a common strain of misinformation. Calls for repeal frequently repeat the assertion that RPSs cost states money and jobs. For example, the Yankee Institute claims that Connecticut’s RPS adds roughly $1.6 billion to the state’s electricity prices over the next five years, costing each resident roughly $450. That same study also claims that the RPS will cost the state 2,660 jobs and $283 million in lost income during the same period. Opponents of Kansas’s RPS play the same tune, claiming that the RPS will lead to increases in electricity rates. The Colorado lawmaker leading the charge against that state’s RPS, Republican Senator Ray Scott, makes essentially the same argument that the policy has burdened consumers with higher energy bills.

However, the argument that Renewable Portfolio Standards raise rates, as compared with the business-as-usual course of reliance on fossil fuels, is simply—and demonstrably—wrong. For example, the U.S. Energy Information Administration (EIA) reports that the average residential electricity price increased by 3.2% between 2013 and 2014. More specifically, in the Southeast, where every state except South Carolina lacks an RPS, average prices rose by 3.1% in the same period. Meanwhile, an empirical study by Lawrence Berkeley National Laboratory has revealed that Renewable Portfolio Standards in deregulated states have increased electricity rates by 2% or less (except in Massachusetts, which saw a roughly 2.5% increase), while RPSs in regulated states have increased rates by roughly 3% or less. In short, electricity rates have not increased more quickly in states with Renewable Portfolio Standards.

In fact, reliance on fossil fuels seems to be the primary driver for electricity rate increases. EIA reports that states in New England that saw an 11.8% increase in electricity prices can attribute those rate increases not to RPSs, but to volatility in the price of natural gas as a result of high energy demand in a cold winter. Similarly, as of 2012, Kansas’s RPS had increased electricity rates by less than 1%, but a single rate increase to pay for a single environmental upgrade to a coal-fired power plant would have raised rates by 2.3%, more than twice as much.

A similar pattern of debunking is easy to provide for the claims that RPSs kill jobs. For example, the Montana Department of Commerce reported in 2013 that wind energy development in that state had provided $1.5 billion in capital investment and had yielded nearly 20,000 jobs—more than the Keystone XL pipeline. Similarly, there are now twice as many workers nationwide in the solar industry than in coal mines.

Oregon provides the clearest example of the disparity between the claims about RPSs and the truth about RPSs. In 2011, the Beacon Hill Institute & Cascade Policy Institute released a report entitled “Economic Impact of Oregon’s Renewable Portfolio Standard.” That report projected that Oregon’s RPS would cost the state $992 million in 2025, would raise electricity rates by 24%, and would lead to the loss of 24,630 jobs. In fact, none of these predictions have come to pass. In reality, Oregon added 3,067 renewable energy jobs in the second quarter of 2013. More dramatically, LBNL reports that compliance with the RPS has actually saved money: “In Oregon, average utility estimates of incremental compliance costs were actually slightly negative (-$4/MWh); that is, RPS resources were determined to cost less, on a statewide average basis, than the proxy non-renewable resources that would have otherwise been procured.” In short, Oregon’s RPS is actually saving the state money while creating jobs and providing carbon-free energy.

RPS opponents seem to remain blinkered to the fact that Renewable Portfolio Standards work, instead making demonstrably false claims about these policies while refusing to inquire into their actual effects. Republicans in the West Virginia legislature are epitomizing this head-in-the-sand approach to policy-making, opposing economic analysis of the proposed RPS repeal—despite the fact that a local utility believes it could comply with the RPS without increased costs or job losses.

My personal favorite flavor of RPS-related misinformation comes from Colorado. In that state, average electricity rates are well below the national average, but state Senator Ray Scott still claims the RPS is harming ratepayers. Scott laments that the state’s RPS “is being paid for by the ratepayers, not the utilities.” He continues: “And, quite frankly, if it’s such a great idea, the companies should build these systems. It shouldn’t be done on the backs of the ratepayers.” This claim sounds like a populist objection to high electricity prices, but is in fact meaningless. Utilities make money by recovering costs from ratepayers. Thus, utility investments—whether made to comply with an RPS or not—are ultimately paid for by ratepayers. Senator Scott’s objection ignores this fundamental principal of energy markets in an attempt to score political points with a lofty-sounding but vapid sound bite. No one should be fooled.

Renewable Portfolio Standards are good energy policy. They work; the vast majority of states are on track to meet RPS goals. They do not raise electricity rates more than business as usual. They create jobs. And they help transition the nation to a carbon-free energy economy. Claims to the contrary are simply and demonstrably wrong. Hopefully, the latest efforts to repeal RPSs will face the same failure as they did last year.

Xcel’s Upper Midwest Resource Plan Illustrates the Difficulties of Creating a Long-term Energy Plan for Multiple States with Divergent Energy Policies

by Amelia Schlusser, Staff Attorney

Last week, my blog post discussed Xcel’s Upper Midwest Resource Plan and the utility’s proposed renewable energy additions over the 2016–2030 planning period. As that post explained, Xcel’s Plan takes a proactive approach to long-term resource planning during a time of significant change in the energy sector. The utility’s Plan deserves recognition for its proposals to dramatically increase the utility’s renewable energy mix and reduce its greenhouse gas emissions. However, it also sheds light onto a considerable, and growing, challenge that utilities face in adapting to the evolving needs and circumstances of the 21^st Century electricity industry: How can a multi-jurisdictional utility create a long-term energy plan that complies with the energy policies of each state it serves? More importantly, how should such a utility respond if one state’s policies directly conflict with another state’s policies?

Divergent Policies

Xcel had to confront this issue when it developed its 2016–2030 Upper Midwest Preferred Resource Plan. Xcel’s integrated Northern States Power (NSP) System serves more than 1.8 million electricity customers in Michigan, Minnesota, North Dakota, South Dakota, and Wisconsin. These five states have adopted very different energy policies and goals that influence or guide the utility resource planning process. For example, Michigan, Minnesota, and Wisconsin have all enacted Renewable Portfolio Standards (RPSs) or Renewable Energy Standards (RESs) requiring that utilities operating in these states procure a percentage of their electricity from renewable sources by a certain date. While these three RESs all impose mandatory compliance obligations, they vary in scope. For example, both Michigan’s RES and Wisconsin’s RPS direct the states’ utilities to provide 10% renewable energy by 2015, while Minnesota’s RES mandates that 30% of Xcel’s retail electricity sales come from renewable sources by 2020. North Dakota and South Dakota, on the other hand, have only adopted voluntary objectives that 10% of electricity sales come from either renewable sources or “recycled energy” (i.e. combined heat and power) by 2015. In addition to these renewable energy standards and objectives, Minnesota’s Next Generation Energy Act includes a statewide goal to reduce greenhouse gas (GHG) emissions by at least 80% below 2005 levels by 2050, and utility resource plans must describe the company’s progress in meeting this goal.

In creating its 2016–2030 resource plan, Xcel followed a logical approach to confronting these diverging policy requirements and goals. The utility recognized that Minnesota’s policies were more stringent than those in its neighboring states, so Xcel’s Plan focused on achieving compliance with Minnesota’s RES requirements and GHG reduction goals. In Xcel’s view, this approach would allow all of its customers to benefit from a more diverse, sustainable energy mix in a cost-effective manner. However, the utility also acknowledged that some of the states it serves do not share Minnesota’s energy and environmental priorities, and that it must balance the needs and goals of all the states within its operating area. Xcel realized that it would be increasingly difficult to achieve this balance in the face of “irreconcilable differences” between state policy objectives, as is currently the case between Minnesota and North Dakota.

North Dakota’s Conservative Policy Objectives

According to Xcel’s resource plan, North Dakota adheres to a very conservative, least-cost approach to utility resource planning and procurement. As the largest electric utility operating in North Dakota, Xcel is obligated to comply with the state’s energy policies. In recent years, however, this obligation has become increasingly burdensome for the utility. The North Dakota Public Service Commission (PSC) only permits a utility to recover the value of prudent, cost-effective resource investments that are consistent with the state’s energy policies. And in Xcel’s recent North Dakota rate cases, the PSC has repeatedly indicated that renewable energy investments are potentially inconsistent with North Dakota’s policies.

In 2012, the North Dakota PSC denied Xcel cost recovery for the utility’s Power Purchase Agreement (PPA) in the Prairie Rose Wind Project. According to Xcel’s 2016–2030 resource plan, the PSC had determined that the primary purpose of Xcel’s investment in the wind farm was to comply with Minnesota’s RES, and concluded that Xcel had not demonstrated a need for the farm within North Dakota. In 2013, the PSC determined that Xcel’s investments in the Odell Wind and Pleasant Valley Wind projects—both located in Minnesota—were imprudent and inconsistent with North Dakota’s energy policies. However, the PSC found that Xcel’s investments in the Courtenay Wind and Border Winds projects, which are both located in North Dakota, were prudent.

Xcel’s Attempt to Reconcile Conflicting Policy Directives

When Xcel invests in generating resources and supporting infrastructure, it allocates the costs of these investments between all of its customers. If North Dakota denies Xcel cost recovery for investments in renewable resources, the utility would be forced to disproportionately allocate these costs between its remaining customers. Xcel’s resource plan must therefore consider and attempt to mitigate potential cost allocation conflicts that may emerge during the planning period. In an attempt to comply with North Dakota and Minnesota’s conflicting energy policies, Xcel agreed to a series of procedural changes requested by the North Dakota PSC. Xcel agreed to seek an Advanced Determination of Prudence for investments in resources larger than 50 megawatts. The utility also agreed to undergo a “System Restack,” in which resources determined to be imprudent by the PSC would be replaced with an alternative financial “proxy resource” that meets North Dakota’s policy goals. Finally, Xcel agreed to create a resource plan that would be consistent with North Dakota’s energy policies.

In accordance with this agreement, Xcel’s Upper Midwest Resource Plan includes a North Dakota Plan (NDP), which is designed to identify a resource portfolio that would be compatible with the state’s policies. The NDP assessed portfolio performance under a North Dakota-specific scenario in which carbon emissions were not valuated or constrained, coal was an available resource option, no renewable energy standards or goals were imposed, and it was assumed that small-scale solar development would not increase during the planning period. The resulting resource mix relied predominantly on natural gas generation and did not include future renewable energy additions.

A Sustainable Compromise?

Xcel’s compromises with the North Dakota PSC have enabled the utility to achieve a tentative balance between Minnesota’s and North Dakota’s divergent policy objectives. However, the utility acknowledges that these procedural changes will likely not remain sustainable over the long term. While the procedural changes address the impacts of out-of-state policies on North Dakota energy consumers, they do not address the impact that North Dakota’s policies may have on Xcel’s customers in Minnesota, Wisconsin, and Michigan. “Nor does it address,” according to Xcel’s resource plan, “how the integrated NSP System can develop under fundamentally different policy views.”

Xcel is currently exploring potential long-term solutions to these challenges, including the feasibility of splitting its North Dakota operations off from the remaining NSP System. Under this approach, Xcel would effectively operate as two distinct utilities, one focused on developing and maintaining a more sustainable, diverse energy supply, and the other devoted to conventional, fossil fuel-based generating resources. The problem with this approach is that it would force a portion of the utility’s operations to remain mired in the past, and prevent the utility from swiftly responding to changing circumstances. On the other hand, Xcel’s remaining operations would be free to adapt and respond to the realities of today’s energy landscape.

This proposed approach exposes an additional dilemma for vertically integrated investor-owned utilities in today’s market. Utilities that are best able to adapt and respond to fundamental changes in the energy sector are more likely to remain profitable over the long-term than their static counterparts. However, how should a forward-looking utility respond when their customer base is reluctant to respond to change? Xcel appears poised to evolve into the utility of the future, yet North Dakota seems to believe that it can effectively insulate itself from the shifting conditions of the 21^st Century. Xcel is essentially being forced to choose between sustainable and non-sustainable business models, and the choice it makes today will impact its investors and ratepayers for years to come.  

A Trade War Over Cheap Chinese Solar Panels: Protecting American Ingenuity or Needlessly Raising Prices?

By Nick Lawton, Staff Attorney

On December 31, 2014, the U.S. Department of Commerce issued a preliminary finding that some Chinese solar panel manufacturers would become eligible for a reduction in trade tariffs. This finding is the latest volley in a trade war between the American and Chinese solar industries that began in 2011. SolarWorld Americas, the largest U.S. solar panel manufacturer, filed a trade case with the U.S. International Trade Administration, alleging that Chinese subsidies of solar panels were giving imported solar panels an unfair advantage and threatening the viability of the U.S. solar industry. SolarWorld won that round of the trade dispute. In May 2012, the Commerce Department initially imposed “anti-dumping” tariffs on imported Chinese solar panels. These “anti-dumping” tariffs aimed to offset the effect of Chinese subsidies that allowed the sale of Chinese solar panels in the United States at prices below actual manufacturing costs.

The next round of the dispute involved international industrial espionage, which led to the indictment of five Chinese military hackers and ignited a diplomatic conflict between the United States and China. According to the U.S. Department of Justice, at “about the same time” the Commerce Department imposed anti-dumping tariffs, a Chinese hacker stole “thousands of files” from SolarWorld, including confidential technical information and privileged attorney-client communications about the ongoing trade litigation. A spokesperson for the Chinese Foreign Ministry argued that the charges were “purely ungrounded and absurd” and based on “fabricated facts.” Additionally, the Washington Post reports that China noted similar NSA spying on Chinese companies, as revealed by leaks from Edward Snowden.

It is difficult to quantify the impacts of either espionage or allegedly unfair subsidies. A spokesperson for SolarWorld stated in May 2014 that there were “too many unknowables” preventing an exact estimate of the company’s financial losses from espionage. The New York Times quoted the president of a security technology and services company as stating that the value to Chinese companies “from these thefts of intellectual property is in the billions of dollars.”

As for the anti-dumping tariffs, the Commerce Department has attempted to impose different tariff rates on different manufacturers’ products to account for their actual behavior. Those tariff rates ranged as high as 165%, but the Commerce Department has lowered tariff rates for different manufacturers several times. For example, in July 2014, the tariff rate for Motech Industries was 44.18%, but the Commerce Department lowered that rate to 20.86% a month later. The latest reduction in tariff rates reflects a finding that actual solar panel “dumping,” or sale at prices below manufacturing costs, occurred at significantly lower rates than the Commerce Department had initially thought. The Commerce Department recommended lowering the tariff rate from 31% to roughly 18%. The President of SolarWorld, Mukesh Dulani, argues that the Commerce Department erred by failing to account for the behavior of the largest Chinese solar manufacturers. As a result, he argues that the proposed tariff rates “do not reflect the actual amount of dumping by Chinese producers.”

The trade dispute and its consequent tariffs have divided renewable energy advocates in the United States. Critics of the tariffs claim that they will result in higher prices for solar power, which runs counter to the U.S. goal of cost-competitive solar power and deters solar installations. Jigar Shah, president of the Coalition for Affordable Solar Energy, argues that the tariffs are “unproductive” and “will undercut the growth of American solar jobs and hurt our domestic solar industry.” The Solar Energy Industries Association (SEIA) contends that “the worsening solar dispute … threatens the future progress of solar energy in America.” SEIA’s opposition to the trade dispute led PetersenDean, a roofing and solar power company, to call for the resignation of SEIA’s president and entire board. Meanwhile, U.S. officials seem to side with SolarWorld. For example, U.S. Representative Rock Nolan (D.-MN) has stated that “the U.S. solar manufacturing industry has been devastated by China’s buildup of massive amounts of state-sponsored solar activity.” Senator Ron Wyden (D.-OR) has backed SolarWorld’s trade case since 2013 and testified in support of tariffs in December 2014. SolarWorld has won nine out of ten trade cases in this ongoing dispute.

The trade dispute over solar panels is almost certain to continue as both the United States and China seek to expand their solar industries. Both nations offer significant subsidies for solar power, including significant tax credits and grants for technological research and development. China has recently become one of the largest consumers of solar power and hosts many of the largest manufacturers of solar panels. The United States, meanwhile, is poised to become the world’s largest solar market, according to Jigar Shah. Because solar panels and other electrical components of solar arrays are globally traded commodities, the pace of the solar industry’s growth is likely to be influenced by ongoing trade disputes.

Xcel’s Proactive Resource Plan: Moving Towards a Clean Energy Future

By Amelia Schlusser, Staff Attorney

On January 2, 2015, Xcel Energy submitted its 2016–2030 Upper Midwest Resource Plan to the Minnesota PUC. Xcel’s Preferred Plan aims to reduce the utility’s carbon emissions 40% below 2005 levels by 2030, primarily through increased deployment of renewable energy resources. The utility’s proposed renewable additions are impressive: the Preferred Plan would add approximately 1,800 MW of new wind resources by 2027, nearly 1,900 MW of utility-scale solar by 2030, and approximately 500 MW of distributed solar power by 2030. These additions would more than double the company’s current renewable energy portfolio.

Responding to a Changing Energy Landscape

Xcel’s Resource Plan represents a forward-looking response to fundamental changes in the electricity sector. The utility recognized that technological advancements, evolving public policies, and shifting customer preferences created both challenges and opportunities for utility resource planning. In response, Xcel chose to take a proactive approach and adapt to the evolving electricity sector of the 21^st Century.

While the utility acknowledged that the form of future federal environmental regulations, most notably EPA’s proposed Clean Power Plan, were highly uncertain, the utility’s planning process followed a balanced approach to manage this uncertainty. Under this approach, Xcel’s Plan focused on investing in clean energy sources while maintaining the utility’s ability to comply with a range of potential environmental regulations.

Xcel also recognized that the needs and preferences of their customer base had shifted in recent years. Consumers expressed growing interest in managing and customizing their energy mixes, and increases in distributed generation forced the utility industry to adapt its business model. In response to these considerations and to existing federal and state energy policies, Xcel chose to dramatically expand its distributed solar program. The utility also predicted that energy technologies would continue to advance over the planning horizon, and that these advancements would create new opportunities for modernizing the electricity grid.

Finally, Xcel determined that due to planned retirements and contract expirations, it would lose significant baseload capacity over the planning horizon. The utility concluded that its Preferred Plan must include sufficient resource additions to meet consumer demand, reduce carbon emissions, and maintain flexibility and fuel diversity. Xcel determined that a mix of renewables and natural gas combined cycle units was the best option for replacing its retiring baseload energy and capacity.

Shifting Objectives Promote Renewable Energy

Xcel’s proactive planning approach was motivated in large part by the utility’s shifting planning objectives. According to Xcel’s Resource Plan, the utility’s traditional planning objective was “to identify the least-cost approach to provide reliable service and meet growing demand.” In the 2016–2030 Plan, however, Xcel began to move beyond this narrow focus and incorporate additional considerations into the planning process. To better position the company to respond to evolving future conditions, Xcel developed its Plan around a series of key considerations. These considerations included increasing the utility’s deployment of renewable resources to reduce emissions, maintain flexibility, and achieve policy objectives. While Xcel was already on track to meet its Renewable Energy Standard (RES) obligations, it concluded that additional renewable resources would help it minimize its reliance on natural gas and position itself to meet future greenhouse gas requirements.

Xcel’s Preferred Plan proposes to add approximately 4,200 MW of new renewable resources by 2030, while maintaining a reliable, flexible energy system. These resource additions would enable the utility to reduce its carbon dioxide emissions by 40% below 2005 levels. Furthermore, these renewable additions would reduce the utility’s need to invest in additional fossil fuel resources, and thus mitigate ratepayer exposure to risks associated with fuel price volatility and emissions regulations. And perhaps most significantly, Xcel estimated that it could implement the Preferred Plan at a reasonable cost to its customers.

Xcel’s Resource Plan is indicative of changing tides within the electric utility sector. Advancements in renewable energy technologies and increased demand for clean, sustainable energy supplies are driving public policy shifts around the country. Minnesota is at the forefront of these regulatory advancements; the state’s RPS mandates that utilities procure a minimum of 25% of their electricity from renewable sources by 2025, and Xcel is required to procure 31.5% of its electricity from renewables by 2020. In addition, Minnesota has set a goal of reducing carbon emissions 80% below 2005 levels by 2050. Rather than reject or challenge these policies, Xcel’s Preferred Plan meets these goals head-on. In doing so, the utility appears prepared to adapt to a wide variety of future scenarios, and the company’s customers will be the ultimate beneficiaries of Xcel’s proactive planning.