Costly Unfulfilled Government Promises

January 6, 2011 Newsletter by Oregon Senator Doug Whitsett

(KBC NOTE: The Klamath Herald and News would not print this unless it was a "paid ad", so Whitsett paid to run his newsletter in the H&N for his constituents.)

Oregon Governors Kitzhaber and Kulongoski have promoted a green energy based economy for the past sixteen years. They have consistently promised Oregonians that future job growth and prosperity depends upon developing a new green economy. They exerted every effort to convince the Legislature to spend hundreds of millions of taxpayer dollars on subsidies, tax incentives and tax credits to encourage private sector investment in green projects. They worked tirelessly to develop, and implement, a Renewable Portfolio Standard (RPS) that forces utilities to purchase and distribute renewable green energy no matter what the cost to their ratepayers. They promised that all this investment in green energy would stimulate Oregon’s economy, accelerate job growth, and lead Oregonians into prosperity.

So how well are the promises being kept? This month about 1,800,000 Oregonians have jobs. Only 1.9% of those jobs are identifiable as green jobs by the Oregon Department of Employment. About 51,000 of 1.8 million Oregon jobs are green meaning that more than 98% of Oregon jobs are not green.

It actually is even worse than it sounds. Most of the green sector jobs are heavily subsidized. According to the Oregon Employment Department, three of the larger green jobs employers are the U.S Forest Service, the U.S. Army Corp of Engineers, and the U.S. Bureau of Land Management. All of those green job employees’ salaries are paid with tax dollars. The Bonneville Power Administration and PacifiCorp are identified as two more major green job employers. Virtually all of their green job employees’ salaries are paid by electric utility ratepayers. The common denominator is that taxpayer or ratepayer dollars are paying for, or subsidizing, virtually all of those green jobs.

The direct result is a net equation that shifts enormous amounts of tax and utility-rate dollars from the non-green business sector that provides jobs to 98% of Oregonians to the green business sector that provides jobs to less than 2% of the state workforce. The consequence is that businesses that are required to pay these higher taxes and utility rates have less money to grow their firms and to create jobs.  According to the Department of Employment, Oregon lost more than 100,000 private sector jobs in 2009 and has lost nearly 20,000 more jobs in 2010. Combined unemployment and underemployment exceeds 30% in many Oregon communities. The small businesses that create and maintain nearly three out of every four Oregon jobs are hurt worst.

The RPS requires a progressively higher percentage of electricity to be generated from renewable sources. It mandates that 25% of all electricity distributed by PacifiCorp and PGE, enough to serve more than one million residential customers, must be generated from renewable sources by 2025. To achieve this mandate it would require about 3,700 megawatts of intermittent wind power generation capacity calling for the construction of 1,230 wind turbines costing more than $8 billion.

A grand example of this process is outlined in a recent eight page memo written to President Obama by White House advisors Larry Summers, Carol Browner and Ron Klain. The “White House memo on Renewable Energy Loan Guarantees and Grants” describes and summarizes the financing for the Shepherds Flat wind farm to be located on thirty square miles of private land adjacent to the Columbia River Gorge near Arlington. The immense $1.9 billion project will consist of 338 General Electric wind turbines capable of maximum generation of 845 megawatts.  It will employ about 400 workers during construction and will add about $16 million to Oregon’s annual economy in the form of property taxes and land owner royalties.

Big government is using taxpayer and ratepayer dollars to subsidize big business profits

According to the White House memo, the rest of the story is less encouraging. After construction, the project will provide about 35 green jobs. The average generation capacity will be about one third of the projected 845 megawatt hours because wind generation ceases when the wind stops blowing. Therefore, all wind generation must be backed-up with an equal amount of reliable sources such as hydro and thermal generation held in reserve.

The electricity to be generated by the Shepherds Flat project will not directly benefit Oregonians because it has already been contracted to Southern California Edison.

The project owners will invest a maximum of about $200 million into the project. They expect to earn an annual return of 30 percent on that equity investment calculating to about $60 million of profit each year. The White House memo explains in some detail how taxpayers and ratepayers will be paying one billion two hundred thirty eight million dollars of the project construction and generation costs in the form of grants, tax credits, accelerated depreciation, loan guarantees, and in the premiums paid for the renewable wind power.

The federal 1603 Grant provides about $500 million to the Shepherds Flat project from federal tax revenue. The subsidy is calculated to equal the value of a 30 percent investment tax credit and is provided as a grant at the start of the project. The Oregon Business Energy Tax Credit provides a separate $18 million dollars from Oregon tax revenue. The project will be allowed to accelerate the depreciation of the project assets thereby increasing the income tax deduction saving the project another $200 million dollars. The federal government will guarantee that the project loans are repaid in a timely manner. The cost of that one billion three hundred million dollar loan guarantee is estimated to be $300 million dollars. This total of more than one billion dollars of grants, tax credits, accelerated depreciation and loan guarantees will all be paid by taxpaying citizens.

 Moreover, according to the memo, the Oregon Renewable Portfolio Standard premium to be paid for wind power generated at Shepherds Flat will cost ratepayers $220 million dollars. That subsidy is necessary because the project cannot and will not generate electricity at a competitive cost; therefore, it requires cost adjustment in order to be sold on the open utility market. Project owners and utilities are immune from these costs because the RPS mandates that the costs be transferred to the utility ratepayers. Taxpayers and utility ratepayers will continue to bear the excess costs while the company reaps an estimated $60 million per year profit on its $200 million equity investment.

The project is expected to reduce carbon dioxide emissions by about eighteen million tons through the year 2033. Some people may believe that the project’s cost is worth the alleged environmental benefits. However, the White House memo points out that the carbon reduction would have to be valued at nearly $130 per ton of CO2 for the alleged climate benefits to equal the cost to taxpayers and ratepayers. That $130 dollars per ton is more than six times the $20 dollar U.S. government estimated maximum value of the CO2 climate-reduction-benefit.

The Shepherds Flat project alone will suck more than one and a quarter billion dollars out of the private sector economy. The incredible number of private sector non-green jobs that will never be created as a direct result of this project, and its thirty five green jobs, is an exercise for an economist to calculate. Similar projects are being built all across Oregon and the nation.

Hydropower generation is by far the cheapest source of electricity. The blended rate for hydro, thermal and other renewable sources is significantly more expensive. The costs of power generation for all non-hydro sources of renewable electricity are orders of magnitude more expensive and uncompetitive than the current blended rates. The RPS mandated renewable energy generation will not be constructed without continued tax incentives and subsidized utility rates. No well informed private sector firm will invest in proven noncompetitive technology without government guarantees that allow them to recover their investment costs

             The utilities are monopolies regulated by the Oregon Public Utility Commission. They are allowed to recover their prudently incurred costs that are attributed to their compliance with the RPS. Therefore, it is not the utilities and their stockholders that will bear the costs of the government guarantees. It is the utility ratepayers that will be required to bear the burden of the greatly accelerated RPS driven increased generation costs. PacifiCorp is expected to be granted yet another 14.6 percent residential customer rate increase this year. The PacifiCorp industrial rate will go up more than 17 percent!

The RPS states that hydropower generation facilities built before 1995 do not generate renewable power. So according to Oregon law, the removal or destruction of hydroelectric dams technically does not reduce the availability of renewable power. This feature was inserted into the 2007 act to facilitate the efforts of Governor Kulongoski and the other interests who promote the destruction of Northwest hydropower dams. Many of us battled long and hard against adopting the RPS. We fought especially hard against that Orwellian definition that brands existing hydropower as non-renewable because we knew that it was designed to open the door for dam removal. Unfortunately, Governor Kulongoski and his legislator supporters had the majority and they prevailed in the vote to adopt both the Standard and the ridiculous definition. The direct result is the current effort to destroy the PacifiCorp hydroelectric dams on the Klamath River as well as the impending assault on the Lower Snake River Dams. The Bonneville Power Administration is currently charging its utility ratepayers more than $975 million each year for salmon mitigation. The total amount of environmental charges on your BPA utility bill exceeds 40%.

In summary, the Governors’ unfulfilled promises are driving Oregon’s economy in the wrong direction. Sixteen years of green energy promotion has netted less than two percent green jobs, has drained billions of dollars and innumerable family wage jobs out of our private sector economy, has insured exponentially higher utility rates into the future, and has created the pathway for the destruction of the hydropower infrastructure that is the economic engine of the Northwest. The cornerstone of John Kitzhaber’s plan to restore Oregon’s economy appears to be to expand these failed green energy policies that without a doubt will continue to stifle Oregon’s economic growth into the future?

Best regards,

Doug