Electric Choice Working in Texas and Michigan

Natural gas is at a 7 year low and consumers who have electric choice are cashing in. In Texas, consumers can shop for rates 25-40% lower than what they paid last summer.

The President of the Association of Electric Companies of Texas remarked:

The rates are "pretty competitive" in the deregulated market. Many of the rates are either comparable to, or lower than, rates charged by city-owned electric utilities, electric cooperatives or investor-owned utilities in traditional regulated markets.

In Michigan, the Chamber of Commerce in Grand Rapids points out the success of the state's limited electricity market and the need to remove competitive quotas that place 90% of businesses in each of the utility regions under monopoly control.

As expected, Chamber members are being negatively impacted by changes to PA 141, the Electric Choice and Reliability Act, that was repealed to re-regulate the electric energy market in 2008. The 10 percent cap enacted in the 2009 legislation limits the amount of business alternative energy suppliers can claim from Consumers Energy’s region. The 10 percent cap was reached last week [in the span of 10 months]. This means that any customer wishing to switch to a supplier other than Consumers will be put on a waiting list until another customer drops service from an alternative energy supplier. Many West Michigan commercial and industrial customers will be excluded from purchasing energy from alternative suppliers now that the cap is reached. Since Consumers’ rates are higher than the prevailing long term rates in the choice, this hurts their ability to compete.

Meanwhile, Citizens’ Electric Co. (whose rate caps have expired) has requested a rate decrease from the PUC. The rate adjustment will mean that a monthly bill for a residential customer using 500 kWh of electricity will decrease by $6.90 or 11.81 percent.

HB 80 Will Increase Energy Costs

Clean energy proponents are attempting to reignite the fire under HB 80, which would increase the amount of electricity utilities must produce from alternative energy sources. In a letter to the Inquirer, PennFuture claims that solar energy is free, while ignoring the cost of intermediate power sources when the sun doesn't shine.

Last week DEP Secretary John Hanger published a laundry list of alternative energy projects as proof that HB 80 would be beneficial, but if people and businesses are already investing in alternative energies, why do we need a mandate to force electric companies to use more alternative power sources?

Here is my response:

Mr. Hanger believes that mandating an increase in the amount of electricity produced from certain alternative energy sources Pennsylvania will attract more private investments and produce green jobs, creating a more competitive energy economy. These claims fail to distinguish between market competition, which responds to consumer demand, and competition for a growing pot of taxpayer funds.

More specifically, it is almost impossible to verify the promise of green jobs because there is no concrete definition of this widely used term. The phrase can be used for any position that is remotely related to alternative energy, including administrators in the DEP itself. In reality, jobs will be destroyed by increasing regulations on disfavored energy sources.

Passing House Bill 80 will cause either a reduction of the current energy supply, given that alternative energy produced only 5.7% of Pennsylvania's power in 2007, or dramatically raise the costs needed to fund new infrastructure and alternative energy sources that are expensive to produce. As a result, energy rates will increase just as consumers are bracing for the expiration of PA's energy rate caps.

The only way to ensure that clean technology is affordable is to keep the market flexible and open to innovation. Propping up the alternative energy industry with a plethora of government handouts and mandates is not sustainable, even if it does provide advantages over traditional energy producers.

Rendell Retreats from Natural Gas Tax

Yesterday, Governor Rendell took another of his proposed taxes off the negotiating table. His announcement perfectly demonstrates the points made in my new commentary on Rendell's mixed energy policy.

Governor Rendell's retreat is a good sign as the budget battle continues, but the his statement, "We should have a severance tax, but not at the beginning" foreshadows a similar showdown next year and implies that industries do not grow when they are taxed . . . interesting observation Governor.

Meanwhile the left wing PennFuture defends the tax saying it will hit big (evil) corporations. But the left-wing Pennsylvania Budget and Policy Center defends the tax saying that it will not hit corporations subject to the 2^nd highest corporate income tax rate in the nation, but mostly small businesses.

In reality the natural gas severance tax would have crippled an emerging industry inhibiting thousands of potential jobs and income for rural families in northern PA.

Make Drill Here, Drill Now a Reality

Remember Drill Here Drill Now campaign? It's one approval away from becoming a reality.

As of October 1, 2008 no moratoriums exist on offshore oil and gas development, however, no new areas may be leased or developed unless they are included in a 5 Year Program. The Minerals Management Service is in charge of developing this five year plan and their 2010-2015 proposal includes leasing in the Atlantic and expanded leasing in the Gulf of Mexico, the Pacific, and Alaska. But the plan still has to be approved.

The Consumer Eneregy Alliance is asking for your help to make sure this plan passes. They are collecting thousands of comments from the citizens of PA and letters from both elected officials and business leaders until September 21, 2009. (this is when the comment period closes)

You can support the expansion of offshore drilling here. And if you'd like to help CEA collect comments at events around the state click here.

Energy Conservation Myth is a Vicious Cycle

Studies from the McKinsey group and National Research Council released this week claim that we can substantially reduce the country's energy usage (15-32% by 2020) by replacing inefficient appliances and building materials. The good news: it will only take an investment of $520 billion to produce $1.2 trillion in energy savings. The bad news: the study ignores past experiences and basic economics.

Ironically, conservation is actually encouraging more energy usage. The Manhattan Institute explains, “efficiency increases consumption. It makes what we ultimately consume cheaper, and lower prices almost always increases consumption. To curb energy consumption, you have to lower efficiency, not raise it.”

Unfortunately, the same flawed logic is behind Act 129 of 2008, which requires utilities to lower electricity consumption by 1% come May 2011, and 3% come 2013. So how will PA utilities will lower usage? Most likely by raising the price of electricity as rate caps expire.

Penn State Study Reveals Devastating Effects of Gas Severance Tax

A recent study conducted by researchers at Penn State revealed the negative effects of Gov. Rendell’s proposed “severance tax” on natural gas extraction in Pennsylvania. The northern tier of the state, home to the Marcellus shale formation, is said to yield over 500 trillion cubic feet of natural gas, enough to put Pennsylvania near the forefront of our nation’s gas production.

The study finds that the with the severance tax, “drilling activity would decline by more than 30 percent and result in an estimated $880 million net loss in the present value of tax revenue between now and 2020”.  The authors conclude that the severance tax (at this stage in development) would inhibit the growth of the natural gas industry in the Marcellus shale, which they estimate could generate 175,000 jobs in 10 years.

PennFuture, a climate change alarmist group, criticized what they described as “fuzzy logic” and “even fuzzier math” in the Penn State study.  Unfortunately PennFuture seems to have not read the study, alleging that the study’s main finding is "that a severance tax will drive up the cost of the gas, causing Pennsylvania drillers to lose customers to cheaper gas providers".  That is of course, not the main finding of the study, or a finding at all. 

Rather the finding is that the tax would increase the cost to companies that drill, a cost they can't pass on to costumers, as natural gas prices are set by international markets, and thus they would be less likely to invest in drilling in Pennsylvania.   It should come as no surprise, however, to see PennFuture defending a new tax, part of which is supposed to go to "combat climate change" - in other words, would help fund PennFuture.

Stop the PA Rip-off: End Rate Caps

Democratic candidate for Governor Tom Knox just launched a website to promote the extension of electric rate caps. The site, stoptheparipoff.com, ignores the cost of extending rate caps and is full of misleading stats. For example, Knox's site claims, "Experts predict deregulation will increase electricity rates up to 65%, with consumer advocates arguing the increase will be closer to 100%."

In reality, PPL customers will see a 30.4% increase according to the utility and PUC estimates after rates capes expire (which is only slightly higher than the price before rate caps, adjusted for inflation). And PECO customers in Philadelphia could see a decrease in electric rates if current market trends continue.

Knox's Recommendations:

• Extend caps electric rates increase for 3 years, limiting increases to the cost of inflation plus 1.5%. [This would continue to stunt competition and push inevitable rate hikes further down the road. In the long-term phase-in plans do little to mitigate the cost to consumers, and could produce legal action from utilities who have made critical decisions based on the current timeline.]
• Create a state Power Purchase Authority that will obtain electric generation for all residential customers, leveraging the state’s significant buying power for lower rates and pass the cost savings onto customers. [Businesses are already pooling their buying power to obtain more reasonable rates, why get the government invovled?]
  

Tony Phyrillas has his take here.

Climate Change Alarmists Seek to “Educate” NEPA Taxpayers

The Mertz-Gilmore Foundation, a self-described “sustainable environment” grant making institution based out of New York City, recently announced its plan to give a $50,000 grant to PennFuture, to “support outreach and education in northeastern Pennsylvania to build public support for a state-wide cap on global warming pollution”.

Being the nation’s 4^th largest provider of coal, the effects of cap-and-trade legislation would be devastating to Pennsylvania’s already-fragile economy. Not only is PennFuture hungry for your tax dollars, but even the EPA is questioning the evidence behind global warming.

Thanks but no thanks PennFuture; we feel the hardworking people of northeastern Pennsylvania can do without your “education”.

EPA Internal Report Skeptical of ‘Global Warming’

The Competitive Enterprise Institute has revealed private emails they had obtained from the EPA skeptical of the science behind the global warming phenomena. In the emails, Alan Carlin and John Davidson, two researchers with the agency, express their discontent, citing a need for more independent scientific research on exactly how much of the climate change is attributed to humans. This skepticism is simply the latest in quickly-growing population of scientists and weather experts concerned over the lack of concrete data pointing to human influence over the climate.

In January, Weather Channel founder Jim Coleman, wrote a scathing commentary calling the global warming movement “bad science” and a “hijacking of public policy”. We see the epitome of policy hijacking in H.R. 2454, the cap and trade bill that recently passed the House by a razor-thin margin. Should the taxpayers really be responsible for up to $3,900 in tax increases if even the EPA is questioning the science?

How Legislators Are Increasing Your Electricity Bill

Pennsylvania electricity consumers are in danger of a triple whammy. Three separate energy policies are likely to increase your electric bill (not even counting federal Cap and Trade legislation, which President Obama has already noted, "will necessarily cause the price of electricity to skyrocket).

• Rate Cap Extensions: In less than a year, customers in central Pennsylvania will probably see an increase in their electricity bills as rate caps expire and consumers pay the actual price of electricity. If the General Assembly successfully passes rate cap extensions it will only cost consumers more in the long run.

• Conservation Mandates: In 2008, legislators passed Act 128, which requires utilities to cut electricity consumption to a level that is almost impossible to obtain without manipulating consumer behavior (most likely through rate increases).

• HB80: Now the General Assembly is considering a third mandate that will increase the cost of electricity by increasing the Alternative Energy Portfolio Standards for companies producing electricity, and implement a carbon sequestration network in PA. The requirements would force investments in expensive solar and wind generation, while cheaper coal energy (one tenth the cost of a solar PV unit) would be discouraged. Of course, wind and solar are intermediate power sources, meaning they require back up generation, often in the form of natural gas or coal power.
  

HB 80 would require 33% of electricity produced in Pennsylvania to come from alternative sources by 2021 (including 3% from solar power), this is an 83% increase over what the standards that have barely begun being implemented call for. Today only about 6% of energy comes from those defined as alternative sources by the state, and about 0.01% from solar.

It’s not just the rising cost of electricity in the short term that is a concern. Deregulation efforts designed to give consumers more choice and spark competition have been stunted through regulations like HB 80 because they work against market forces and skew the playing field in favor of more expensive technologies regardless of consumer demand. Policymakers cannot accurately predict what technologies will exist or be economically viable in 20 years.

Cap and Trade is a Rip-off

“The science is beyond dispute and the facts are clear”, said President Obama, speaking definitively on the issue of climate change, as he usually does with other issues he wants passed. But politicians have always had an agenda and have always presented the “facts” to prove their point The only thing that is beyond dispute is that the American Clean Energy and Security Act is a generational bill. It will not only affect us and our sons and daughters but generations after them.

Leading consulting firm CRA International released a study with the Center of Data Analysis at Heritage, projecting that by 2030, Waxman-Markey would reduce GDP by roughly $350 billion below the baseline level, cut net employment by 2.5 million jobs (even after accounting for new "green" jobs), and reduce an average household's annual purchasing power by $830.

A New York Times editorial said that Henry Waxman of California and Ed Markey of Massachusetts, the politicians who have proposed this bill, have insisted on provisions that would mandate more efficient buildings, require cleaner energy sources like wind power and provide subsidies for new technologies.

However, with only the United States looking to pass this legislation, there is little evidence that countries such as China and India will be on board. David Kreutzer, senior policy analyst with Energy Economics and Climate Change, says that countries such as China and India will not let economic development suffer by imposing such a law on its citizenry. Also, there is little evidence that scientists, at large, are supporting this bill. There are over 31,478 American scientists, including 9,029 PhDs that have signed the global warming petition saying that there is no evidence that human release of carbon dioxide, methane or other greenhouse gases is causing or will, in the foreseeable future cause catastrophic heating to Earth's atmosphere and adversely affect its climate.

Moreover, the question that begs to be asked is who is going to pay? Ben Lieberman, a specialist in energy and environmental issues, is a Senior Policy Analyst at The Heritage Foundation's Roe Institute for Economic Policy, says that green technology costs more than the benefits it will bring in the future, and the people bearing these costs will be ordinary citizens.

The economic impact of this bill will damage growth. Here are a few things that we might want to consider. It will:

• Reduce aggregate gross domestic product (GDP) by $9.4 trillion;
• Destroy 1,145,000 jobs on average, with peak years seeing unemployment rise by over 2,479,000 jobs;
• Raise electricity rates 90 percent after adjusting for inflation;
• Raise inflation-adjusted gasoline prices by 58 percent;
• Raise residential natural gas prices by 55 percent;
• Raise an average family's annual energy bill by $1,241; and
• Result in an increase of $28,728 in additional federal debt per person, again after adjusting for inflation.

More Mandates=More Expensive Electricity

On Wednesday the Housed passed a bill to reestablish the State Energy Office, terminated in 1995. HB 287 would resurrect the office to preform vague duties like:

• Promote development of the state's natural and renewable energy resources.
• Be in charge of energy policy development and implementation and heating assistance.
• Monitor energy prices and supplies and develop responses to emergencies.
• Encourage the development of a strategic heating oil and diesel fuel reserve in the mid-Atlantic region to counter price spikes and fuel shortages.
  

Since 1996, the year after the office was terminated, wholesale electricity prices have dropped 23% when controlling for the increased cost of natural resources. Looks like the energy supply and prices are doing just fine without the SEO. If the government wants to promote the state's renewable energy resources they should refrain from placing more standards and regulations on energy companies . . . which leads me to my next point.

HB 80, recommitted to appropriations this week, extends the 2004 Alternative Energy Portfolio Standards and requires the capture and sequestration of carbon, and ultimately a carbon sequestration network in Pennsylvania. The bill increases the amount of expensive solar energy electricity companies must utilize from 8% to 20%. Currently the commonwealth derives less than 1% of its energy from solar power. This isn't just a question of cost, it's an issue of reliability.

Just what we need when the federal government is very close to passing energy regulations that could void AEPS.

Frankly, I don't understand how legislators can claim to be so concerned about the rising cost of electricity and the expiration of rate caps, while simultaneously supporting further regulations to increase the price of electricity.

A Cap and Trade Call to Action

Although originally planned for debate after the 4th of July, Congressional Leaders met late Monday night to place H.R. 2454, also known as the “cap and trade” initiative, on the House voting schedule for this Friday! NTU has a call to action on Cap-and-Trade for citizens to get involved.

Cap and trade is essentially an energy tax on carbon emissions, threatening to cost Americans, especially in states like Pennsylvanian, and estimated $800 dollars a year in economic losses and over $3,100 per household a year in new taxes. President Barack Obama, said himself in a January 2008 interview that under his cap and trade proposal, “electricity rates would necessarily skyrocket”.

In a May 7th letter to the state Legislature, the Pennsylvania Public Utilities Commission called for all state legislators to carefully consider the impact cap and trade would have on our state’s economy. With Pennsylvania being the 4th largest provider of coal in the United States, cap and trade could cost Pennsylvania 66,000 jobs, a hike in residential electricity bills, increases in the price of natural gas and increased pressure on our gross state product.

Here is a coalition letter opposing Cap and Trade sent to Pennsylvania members of Congress, which the Commonwealth Foundation signed on to.

Not only is cap and trade a dangerous idea for our economy, this bill is not available for public debate. H.R. 2454 has no public hearing scheduled within its presiding committees and has not even been posted on THOMAS, Congress’ public legislative database. So much for Obama’s promise of transparent government…

States Lose Jobs Due to Severance Tax

Florida’s legislature just passed new legislation to ease the severance tax burden on small oil and gas producers in the state. Drilling companies in the state have been forced to reduce their workforce with some suspending all drilling operations due in part to the state’s severance tax.

While states such as Florida, Louisiana, and Texas are taking measures to reduce their severance tax to keep the industry and its thousands of jobs in their states, Governor Rendell seems determined to force more jobs and revenue out of Pennsylvania to more business-friendly states. Environmental group Penn Future seeks to assist the industry’s exodus by requesting Pennsylvanians to pay $1,000 to increase their taxes.

The Pennsylvania Oil and Gas Association ran data on the past 12 years, finding Rendell’s severance tax rate will cost the industry on average 6.26%. The tax is also highly regressive, taking a larger share of revenue from the smallest producers. To earn Rendell’s estimated $107 million in severance tax collections, drilling companies must drill over 750 new wells in 2009. However, the industry is expected to drill only 300-400 new wells. (Many of the current wells are exploratory, not the developed, producing wells the governor seeks to tax).

If Governor Rendell is allowed to succeed in passing his proposed severance tax, not only will he fail to reach his estimated tax collections but he will force up to 26,000 current jobs sustained by the natural gas industry to other states. Rendell will tax the industry and the state to death.

Cap and Trade: An Energy Tax

Pretty good video from American Solutions on Cap and Trade. They also have a place on their site to take action.

Proposed Power Authority Would Manipulate the Market

The House Environmental Resources and Energy Committee last week held a hearing to discuss legislation proposed in 2008 to create a Pennsylvania Power Authority to oversee the state’s electricity market. This new government agency would have broad and expansive power to manipulate the market.

The proposed authority would have the power of eminent domain over existing facilities and could force the construction of new power plants and transmission lines. The authority would also have the ability to tax private power plants.

The current restructured market places investment risks where risk belongs, in the private sector – not on taxpayers. Additionally, competitive electricity markets have improved power plant efficiency, and reduced prices. Controlling for the increased cost of natural resources, wholesale electricity prices dropped over 23% since deregulation.

The Pennsylvania Power Authority proposal would create a new taxpayer-funded bureaucracy to further increase regulation and ultimately electricity rates for all Pennsylvanian energy consumers. Other states experienced similar results.

Department of Defense Saves Money with Electricity Deregulation

Last month, the Defense Energy Support Center (DESC) signed a five-year deal with the Hess Corporation to supply electricity for its 21 agencies in Pennsylvania, New Jersey, and Maryland. Due to deregulation in these states, the DESC is able to purchase blocks of electricity each quarter, locking prices for periods of one to three years.

This new plan allows the DESC to hedge against expected price increases by purchasing 70 percent of expected power in blocks for three years when prices are low and purchasing smaller blocks when the price increases. The other 30 percent will be purchased on the open market, to allow for fluctuations in consumption and to benefit from decreased market prices.

Currently under contract for 10.5 cents per kilowatt hour, Fort Monmouth will save approximately $1.5 million through this restructured contract, taking advantage of the 8.5 cent rate delivered through the restructured market.

While some states like Montana are forcing residents to pay higher electric bills due to state regulated electricity markets, the Department of Defense is seeking to expand this pilot program to all of the 14 states and District of Colombia with deregulated electricity markets.

Louisiana Adds 33,000 Natural Gas Jobs

Through increasingly stringent environmental regulations and the desire for a new severance tax, Governor Rendell has undermined Pennsylvania’s budding natural gas industry. Drilling companies are beginning to leave Pennsylvania due to higher than expected costs.

Contrast that with Louisiana, where drilling in Louisiana’s Haynesville Shale did not begin until 2008, long after many companies began investing in Pennsylvania’s Marcellus Shale. The Louisiana Natural Resources Department estimates that the increased investment from natural gas production has created $3.9 billion in household earnings, $3.2 billion in lease and royalty payments to landowners, 32,742 jobs, and increased state and local tax revenue by greater than $153 million – all in one year, largely insulating Louisiana from the economic recession.

The difference: in Louisiana, a drilling company can submit a one-page application and begin drilling the next day. Industry experts find Pennsylvania's drilling requirements "confusing and inconsistent" with a slow approval process.

While some groups claim that a severance tax and heavy environmental regulations will “protect Pennsylvania taxpayers,” Governor Rendell will not receive the expected tax collections to fund next year’s budget as his policies are sending the thousands of jobs and billions of dollars in investments to states with more favorabe business climates.

Click here for my recent commentary on taxing Pennsylvania’s natural gas industry to death.

High Costs of State Regulated Electricity

Like many states, Montana experimented with restructured electricity markets. However, at the bidding of Public Service Commissioner Ken Toole, the state re-regulated the industry. Now, the Commission is expected to approve the construction of a new natural gas power plant, despite the fact that it will increase electricity rates by up to $50 per year for the average homeowner. The Commission did not accept competing bids, which might have provided a lower cost to consumers.

Admitting that the power is more expensive than market prices, the commissioners believe it is still better to have a regulated industry. According to Toole:

This is what all of our decisions are like. You end up saying, 'I know this is expensive as hell. But, what about the market? You don't know what it will be.'

There are many legislators in Pennsylvania who agree with Toole, preferring to pass on above market costs to consumers from political handout contracts and unfunded mandates.

Legislators cannot ensure low electricity prices through either restructuring or government regulation. However, it can create a more competitive environment and educate consumers as to why electricity choice is important.

Click here for a related commentary on electricity deregulation.

PUC Commissioners Oppose Cap and Trade

The Vice Chairman and two other Commissioners of the Pennsylvania Utility Commission sent a letter to the PA Congressional Delegation in opposition to proposed cap and trade legislation.  

Their critique is that "this policy will have a profound adverse impact on the Commonwealth of Pennsylvania", especially given that Pennsylvania is a large coal-producing state. 

Like Obama, they believe Cap and Trade will necessarily increase electricity rates.  

The cost estimates are staggering ... By 2013, this would result in an annual PJB-wide market impact of nearly $36 billion in higher energy prices and rate increases of over $400 annually for resident ratepayers.