The green machine; Industrial customers say proposed new renewable energy requirements are a rip-off for all of us 

The goal of making Oregon’s utilities more environmentally friendly has got the state’s largest electricity buyers saying Gov. Ted Kulongoski, legislators and enviros are selling out all ratepayers in an ill-conceived green-wash.

At issue is SB 838, which would require utilities to derive 25 percent of sales from renewable sources by 2025.

The bill, sponsored by state Sen. Brad Avakian (D-Beaverton), fulfills a campaign promise Kulongoski made while struggling to regain support of his disaffected base in last year’s re-election campaign. The measure now also has become one of the issues the governor hopes to build into his legacy.

In addition to traditional enviros, consumer groups such as OSPIRG, the Citizens’ Utility Board and even the watchdog Utility Reform Project which usually look askance at anything that might raise rates, are on board with the legislation. Also supporting the measure, still in the Senate Environmental and Natural Resources Committee, are Oregon’s largest utilities–Portland General Electric and PacifiCorp.

But the Industrial Customers of Northwest Utilities says the bill, while well-intentioned, amounts to a wholesale transfer of wealth from ratepayers to the developers of renewable energy and the utilities.

“This is the most anti-ratepayer legislation we’ve seen in many years,” says Melinda Davison, an attorney for ICNU, which includes such companies as Intel, Boeing and Oregon Steel.

ICNU raises three concerns about how the bill could soak customers under the guise of going green.

The first deals with an “automatic adjustment clause” in the bill. That would let utilities add the cost of acquiring renewable energy automatically to their rate bases. (A utility’s rate base is the sum of its capital investments and the basis for determining rates and profits; the bigger the rate base, the higher the rates and larger the profits.)

Typically, all new utility capital investments must go through a rigorous evaluation by the state Public Utility Commission before rates can be raised.

The proposed change to an automatic adjustment is important, Davison says, because it could allow recovery of a wide variety of costs, including transmission and backup generation (to compensate for the unreliability of wind power, for instance).

“They get a much easier mechanism for them to recover their costs and a much bigger rate base,” Davison says. “That means higher rates.”

Lee Sparling, director of the PUC’s electric utility program, agrees that those automatic cost adjustments wouldn’t require contested case hearings. But Sparling says customers could still raise objections, and that the three-member utility commission could still demand that investments be “prudent.” Davison says those two safeguards aren’t enough.

Proponents of the legislation say utilities can already pass along fuel cost increases without rate cases.

“Automatic adjustments are not really a significant change,” says OSPIRG’s Jeremiah Baumann.

ICNU’s second concern deals with the way utility rate-making works and depreciation of energy investments.

For instance, if a utility invests $100 million in wind energy, the entire project cost would go into rates the first year. But because the utility depreciates that wind investment over 20 years, the “cost” calculated for the first year would only be about one-twentieth of the initial investment.

“ICNU does have some reasonable concerns about rate impacts,”

Sparling says.

Sparling adds that rate increases due to the acquisition of renewable energy will have a disproportionate impact on industrial customers because they currently enjoy the lowest rates. If costs are passed through the proposed automatic adjustment clause, he says, everybody’s rates will go up the same amount. But that would mean a larger percentage increase on those paying the lowest rates.

Davison raises a third concern. She says the 2025 mandate creates a license for wind farm developers, such as Pacific Power Marketing and the investment bank Goldman Sachs (which recently se

nt former U.S. House Majority Leader and Democratic presidential hopeful Richard Gephardt to lobby Kulongoski) to print money.

“If this legislation passes, all the developers know who has to buy what and by when,” Davison says. “It’s a license to steal.”

The Citizens Utility Board’s Bob Jenks disagrees. “Texas and Colorado have added tremendous amounts of renewables without such effects,” Jenks says. “ICNU is vastly overstating the risks.”

While proponents say the bill will propel Oregon to the forefront of developing green energy, Davison’s group thinks it’s just too expensive.

“Nobody knows how much this will cost,” she says.

By Nigel Jaquiss

wweek.com

28 March 2007