March 8, 2008

Cost of Living Seek and Find

Justin Katz

There may be a bit of the old chicken and egg between the push for renewable energy and the Rhode Island government's lust for power. Whatever the case, when one sees Senate President Joseph Montalbano's name attached to a legislative initiative claiming to "spur economic development" by "sparking" environmentally friendly energy development, a game of cost-increase seek-and-find is surely available. Most obviously, the culprits are the second and fourth bills in the package:

The second bill resulted from a collaborative effort with environmental advocacy groups, renewable energy developers, and National Grid. The bill would help to promote private financing of large renewable energy projects through a long-term commitment that the energy output would be purchased by National Grid. It would be privately managed, through National Grid, with state oversight by the Public Utilities Commission to ensure ratepayer protection.

The program would work as follows: National Grid would issue requests for proposals to purchase electricity for at least five percent of their overall load from large renewable energy projects for terms of 10 to 15 years. Their project selections would have to be approved by the PUC.

Energy developers would build their projects, using private investment, and sell their output to National Grid, which in turn would sell the output on the energy market.

So, in the final analysis, what is going to spur the private investment? The presigned long-term contracts from National Grid to purchase the energy harvested. Intelligent readers will wonder what would lead the energy giant to take these 10–15 year risks; according to the Providence Journal:

National Grid has opposed such a provision in the past because it saw these commitments as risky. If the market price of electricity fell below the cost it agreed to pay a renewable-energy developer, customers might opt to buy power from another supplier. That would leave National Grid stuck with a commitment to buy power but fewer customers to sell it to.

"There've been instances in the past where we have been burned," said Michael F. Ryan, president of Rhode Island distribution for National Grid.

The bill essentially shifts that risk to ratepayers by allowing National Grid to spread out any extra cost to buy the renewable energy among all its customers through a distribution rate surcharge. Conversely, National Grid would have to credit customers if the market price rises above the renewable-energy contract price.

So the general public, via electric bills, is the guarantor. It's almost like a renewable-energy tax. Of course, that's not the most explicit way in which our tax dollars will be dedicated to this initiative. The legislation's text doesn't appear to be online, yet, but it wouldn't be surprising if the "renewable energy grant funds" that bill number one places under the purview of the Economic Development Corporation are to be dedicated to enhancing (so to speak) the vaunted "private investment."

The fourth bill, meanwhile, seems intended to guarantee to National Grid that at least one sizable market won't go looking elsewhere if the price keeps climbing:

The final bill in the package would require existing state buildings to purchase a percentage of their energy from renewable sources at a rate that directly coincides with the state’s current renewable energy standards. Like the rate of renewable energy required to be produced in the state, the rate at which state buildings would be required to utilize renewable energy would gradually increase to 16 percent by 2019.

Senate Minority Leader Dennis Algiere (R, Westerly-Charlestown) is correct that "our economy and the environment are interrelated," but he stops short of looking to the laws of economics for guidance in managing the two. If it were profitable to create a green energy market, somebody would do it. The government's appropriate methods of expediting that process would be to seek out and eliminate regulatory obstacles and to offer seed money, preferably in the form of tax incentives.

Trying to guarantee a market, on the other hand, is a typically Rhode Islandish way of introducing the opportunity for corruption and further incompetent government meddling.