Electricity is confusing...

I learned that when I was a project manager for a general contractor in Chicago. Electrical contractors used it to their advantage. If they said an expensive change order was required, they usually won, because electricity is confusing. Of course, that was Chicago, where corruption permeates every level of society. That wouldn’t happen here in Colorado, would it?

Electricity is also political.  Governor Hickenlooper recently signed Senate Bill 252, which increases the amount of renewable energy produced for Colorado. Seems like a good idea. After all, once you build a wind tower or solar panel, the electricity is free, right? Why should there even be a question? Is there something more to it?

Let’s try to unpack some of the mystery and reduce the confusion.

Renewable Portfolio Standards (RPS)

Colorado’s investor-owned utilities (Xcel Energy and Black Hills Energy) are required, by 2020, to produce 30% (the Renewable Portfolio Standard or RPS) of their electricity by renewable means. Renewable energy, as a political matter, means wind and solar. As a practical matter, it should also include nuclear and hydroelectric. But as I said, electricity is political.

To meet the RPS, Xcel Energy has been installing lots of wind towers. They have 17 wind farms and are preparing to build another one. Because of federal subsidies, improving manufacturing processes, and an abundant supply of wind towers, the next wind farm is going to be relatively inexpensive to build. The federal subsidy is a major factor in wind’s affordability, reducing the cost by almost half. But the federal government doesn’t have any of its own money. It gets it from taxpayers. Us. We Coloradans send a portion of our earnings to Washington, and the politicians send it back to Colorado as a subsidy for wind towers. Do we get a fair share of it back? Perhaps. Xcel Energy has been very aggressive at getting those subsidies. Do you, as a ratepayer benefit? Not a chance.

Legislation generally caps rate increases for renewable energy at 2%. If renewable energy were actually cheaper, there would be no rate increase for it.  Your electric bills are increasing because of the RPS. Further complicating the matter, not all of the costs for renewable energy are included in that 2% cap.

Selling your old car

Let’s say that you wanted to get a new car. When you do that, you might want to sell your old car. After all, if it’s not the one you prefer to drive, why keep it?

When the legislature demanded that Xcel build new renewable energy sources, they didn’t take into account that we didn’t need enough new electricity production to account for the new wind towers and solar panels. In other words, we’ve got a bunch of new plants and can’t get rid of the old ones. Xcel still pays for the old ones, running or not. The cost to build them is amortized over several years, and ratepayers continue to pay that cost. It’s in a part of your bill that isn’t capped at 2%. In fact, in 2011, Xcel requested a $53 million rate increase to cover the carrying costs of 300 megawatts that it couldn’t use. You’re paying for idle plants. And Xcel is about to build 550 megawatts more. Xcel will do the math for us, but I’m willing to bet that it costs more to idle 550 megawatts than 300 megawatts.

You and I, the ratepayers, end up paying to build the new wind farms, and for the old plants. It’s like having old cars that work, but that you aren’t allowed to sell or drive, but you still have to pay off the loans, taxes and insurance. Great, if you’re a car collector. I’m not a power plant collector.

Limited options and excess capacity

The Renewable Portfolio Standard (RPS) limits the other kinds of electricity production available to us. Once the RPS is fully implemented at 30%, barring a hoped-for advancement in electricity storage technology, about 2/3 of our electricity will come from natural gas. Nuclear and coal will not be an option. Here’s why:

There is no technology available to store huge amounts of electricity. Once those electrons start moving, they gotta go somewhere and get to work.

The output of coal and nuclear plants can’t be varied quickly. It takes a while to ramp up, or back off. Nuclear and coal are typically used for baseload electricity demands, the level at which demand never goes lower. Demand above that level must come from sources that can be turned on and off quickly. That’s natural gas.

Now here’s where it gets a bit tricky.

Wind and solar sources produce roughly 1/3 of their rated capacity over time, because the wind don’t always blow, and the sun don’t always shine (see US Energy Information Administration, 2013 Early Release Overview.)  So a wind farm rated at 100 megawatts only produces 33 megawatts. To produce 30% of our electricity from wind and solar, Xcel will need to have renewable capacity at 90% of anticipated demand. That means they must also build a complementary 90% capacity in natural gas. And that’s all stuff they’re gonna build, and you’re gonna pay for.

But isn’t it cheaper?

Cost comparisons between various types of electricity generation can be misleading, because they don’t take into account the money that was already paid or committed (sunk costs) for a facility that has already been built. To compare new wind power to existing coal powered plants, one should subtract the amortized capital cost of the existing power plant. According to the US Energy Information Administration, wind power costs $86.60 per megawatt hour. Traditional coal costs $100.10. But consider, for example, a coal plant that is halfway through its economic life. When you subtract half of the amortized capital cost, the cost is $67.25. (Capital costs, or the cost to build the plant, are amortized in all figures.)

It’s like buying a pair of practical shoes. You probably only need one pair, because they are just practical shoes – not your party shoes or Sunday go-to-meetin’ shoes. You can buy a new pair for $86.60, or keep using your half worn but serviceable shoes that originally cost $100.10. If you’ve got a budget, you’ll just keep using the old pair that you’ve already paid for.

Don’t forget the profit

I like profit. I think it’s a great way to encourage efficiency in free markets. But it isn’t necessarily good in a monopolized market, where the consumer is forced to pay what the producer demands. Xcel Energy commands a monopolized market, and makes 10% on everything they do. Everyone benefits - except most people. Xcel stockholders benefit, and politicians benefit because they spin this as something they are doing that’ s good for us. And because electricity is confusing, they get away with it. Keep in mind, that Xcel is not to blame – seeking profits is their obligation to their stockholders. The blame lies with the legislature.

Other ways we pay

“Anything that requires a subsidy probably doesn’t deserve it.” I’m not sure who first said that. I wish it had been me.

I already mentioned the federal wind production tax credit, without which the wind industry probably wouldn’t survive. Even with it, they’ve been having their fair share of troubles. Subsidization often spells disaster for a company.

A business succeeds and grows because it creates some kind of efficiency that makes it more valuable than its competitors or alternatives. But a company that needs a subsidy obviously lacks that efficiency in the first place. Then the subsidy reduces the urgent need to become more efficient.

Let’s also look at whence the subsidies come. As mentioned earlier, you and I pay for it. Government and businesses merely handle the transaction. Xcel Energy lists 36 categories of subsidies available through them. THIRTY SIX! These subsidies (rebates) are not complete giveaways – you have to spend more money than the rebate provides. For instance, a $120 rebate is available for installing a high efficiency furnace in your home. Such a furnace will cost several thousand dollars. Ratepayers that can’t afford that pay more on their utility bills to provide a subsidy to those who can afford it.  Even though it’s not called a tax, it functions very much like a regressive tax, a tax that creates a larger burden on those who can least afford it. And with the legislature’s support, Xcel makes 10% profit on it.

Subsidies can lead to waste

Xcel’s subsidy program is meant to encourage energy conservation.  However, that high efficiency furnace means homeowners can get more heat for the same utility bill. It does not necessarily follow that they will use less gas or electricity – they might just decide to be more comfortable in cold weather. Conservation may not happen if giveaways encourage greater consumption.

Reliability is at risk

The electrical grid has a sort of “shock absorber” built into it. As long as electrical production matches demand within a certain range, the system works. If a production facility shuts down suddenly, immediate action is required to ramp up other systems to prevent overloads that can cause blackouts. I’ve toured the “command center” where a staff monitors the output and demand, watching numbers to make sure the system stays within that narrow band. Unfortunately, renewable energy is unreliable. Winds can die quickly. Solar panels don’t work when it’s cloudy or at night time.  As more of our electricity comes from these unreliable sources, our entire system is at risk.

So to recap:

We pay for renewable production capacity we don’t need. We pay for more production capacity we don’t need to complement the renewable production capacity we don’t need. We lose the ability to use less expensive clean sources of electricity. Poor ratepayers subsidize wealthier ratepayers through Xcel’s subsidy program. We send our tax money to Washington so they can send it back to us as wind towers we don’t need. And your appliances and air conditioner don’t care where those electrons came from.  They just want them to keep coming. If the grid becomes less reliable because of its dependence on unreliable renewable sources, those electrons may not move when they are most needed.

Still confused?

Electricity, Unemployment, and...

This is my final column for Metro North Newspapers. On Thursday, January 5, I became a candidate for State Representative, and can no longer be a columnist.

How many times do we pay for renewable electricity?

Xcel Energy is asking for another rate hike which will add 6% to your electric bill. The rate hike is to pay for electricity they aren’t generating.

Xcel used to sell 300 megawatts of electricity to Black Hills Energy, a utility that serves southeastern Colorado. In 2004 Xcel forecasted that they would need that electricity and would no longer sell it to Black Hills. Now Xcel says it doesn’t need those megawatts because demand isn’t as high as they forecasted. It costs money to own an idle power plant, hence the requested rate hike.

Coincidentally in 2004, Colorado voted to require 10% of Xcel’s electricity to come from renewable sources. That’s a reasonable and worthy goal. As the economy grew and need for electricity rose, new renewable generation could fulfill the requirement. But then our legislators got carried away with it. They increased the requirement to 30% by 2020. 

Xcel has 328 megawatts of renewable energy, slightly more than the excess capacity. So let’s see how many times we pay for electricity:

1. We pay for power plants.
2. We pay for renewable power plants.
3. We pay for subsidies for renewable energy.
4. We pay for more gas power plants, because coal power plants can’t respond quickly enough if the wind quits blowing.
5. We pay for subsidies for energy saving washers, dryers, furnaces, even window shades, which reduce demand.
6. We pay to upgrade power plants so that they will cause less pollution.
7. Then we pay for idle upgraded power plants.

Who is responsible for this mess? Legislators who believe they know best how to run an economy. Friederich Hayek called this the “Fatal Conceit.”

Misclassified

It’s personal now.

The Colorado Department of Labor and Employment (CDLE) intends to end the practice of “misclassifying” employees as independent contractors. They claim that one in seven Colorado workers is misclassified. The club where I coach swimmers has decided that rather than risk the possibility of a CDLE audit I have to be an employee instead of an independent business owner. Even though I carry my own insurance, market my services, and set my hours, nobody can defeat the power of a CDLE auditor. Employees cost more than contractors, so the club reduced what they are willing to pay for my services.

As a “new hire” my loss of a business counts as a created job in labor statistics. In the very near future, Colorado may see an increase in jobs when many employers reclassify their independent contractors. At the same time, real unemployment will increase. Some independent contractors will lose work because of the extra cost to their employers. Some employers will go out of business because they can’t afford the cost of reclassifying workers. Think about that - one in seven workers (small business owners) is at risk, but the state will claim better hiring.

Farewell?

This will be my last column for Metro North Newspapers. Tomorrow I’ll be filing paperwork and standing for office (That’s how they say it in Australia, and I like the idea of standing for office rather than running.) As a candidate for State Representative, I’ll have to forfeit my job as a columnist.

My column is called “Wake Up Call.” I hope I’ve made my case that government has run amok, and we need to limit what it does. That doesn’t make me an anarchist. Government provides some very important functions. However, the opposite of limited government is unlimited government, and we don’t want to go there. It’s time that we wake up and enforce limits.

Undoubtedly, what I’ve written will be twisted and used against me. But if I wrote nothing, they will just make stuff up anyway. I hope, despite what they say about me, you will remember this: I believe that the aggregated wisdom of millions of free people living under the rule of law beats the heck out of legislators and bureaucrats. As I stand for office, I stand with you for your rights.

Xcel Energy “Breaks Wind” Records for Rate-Payers

The Denver Post reports: 

Early on Oct. 6, Xcel Energy set a world record for electricity from wind power. Between 4 and 5 a.m. that day, 55.6 percent of the electricity consumed by Xcel’s 1 million customers in Colorado came from wind farms dotting the state. 

“We’re proud of that and believe it shows that wind is an important part of the portolio,” said Michelle Aguayo, an Xcel spokeswoman. 

While that seems like a tremendous accomplishment, let’s take a look at what was accomplished, and what it means for Xcel customers.

The record itself is not that impressive. In a recession at 4:00 in the morning, overall electric usage is pretty low. When the economy is humming along at full steam, manufacturers that require lots of electricity often add night shifts, because electricity often costs less at night, and it’s cheaper than building more production capacity. This creates more jobs. But in this economy, it’s a safe bet there ain’t much happening.  

October 6 was a high wind day. Portions of I-70 were closed that day from winds. In Denver, the wind uprooted power a light pole, which landed on a light-rail power line, delaying the trains. Lots of wind combined with a recession produced the record.

Wind energy costs up to 80% more than conventional power production. When Xcel brags that they broke a record for wind power generation, they are really saying that at 4 a.m. they produced high cost energy at a time that was once considered to be the least expensive time of day to buy electricity.

Let’s go a bit deeper in our analysis. Colorado has a 30% Renewable Portfolio Standard (RPS), meaning 30% of our electricity must come from renewable resources by 2020. The citizens voted in 2004 for a 10% standard, but a “too eager to please” legislature has since raised it twice. Solar and wind devices provide roughly one third of their rated capacities, because the wind doesn’t always blow and the sun doesn’t always shine. A wind farm rated at 100 megawatts will only deliver 33 megawatts. Because they mandated the 30% RPS, we must overbuild renewable generation by nearly three times.

That sounds great, right? Except that there is no way to store the power produced when the wind is blowing for use when it isn’t. Therefore we must have stand-by generation capacity that can meet all our electricity needs.

Coal power can’t easily or efficiently be “cycled”, meaning you can’t turn it off and on to complement wind speeds or sunshine. Some clean coal plants violate clean air standards because solar and wind are too variable. When they are cycled, their clean status is compromised.

Nuclear power, which has no carbon or other bad emissions, can’t be cycled at all. It can only be used for “baseline generation”, the lowest amount of electricity that gets used during a day. As we approach that 30% standard, nuclear can not be part of the mix, because sometimes all our power must come from renewables. The stand-by generation will all have to be quick cycling sources, such as oil or gas.

In recent years, technology has rapidly advanced to make coal a much cleaner fuel for electricity generation. Now that Colorado and President Obama have decided that coal will be eliminated or minimized as a fuel, there will be no incentive for further advancements in clean coal technology. Meanwhile, advancements in wind, solar, and storage technology are creeping along at a snail’s pace. Government interference is misdirecting research and resources.

Colorado’s Renewable Energy Standard is raising electricity costs when families and businesses are struggling, costing hardships and preventing job creation. The environmental savings, if there are any, are negligible. Readily available, clean burning fuels are being ignored, or shipped to China where they burn without the benefit of our clean technology, creating global pollution. It’s time to eliminate the arbitrary Renewable Portfolio Standard and let market forces, guided by sensible restrictions on pollution, determine how we will generate electricity for families and the businesses that create jobs.