Co-ops, municipally-owned utilities next to prop up Colorado’s “new energy economy”

For years Colorado’s renewable energy industry and its advocates have tried to figure out how to force electric cooperatives and municipally-owned utilities (MOU) into providing more electricity from renewable sources such as wind and solar. Through a combination of voter approval and legislative mandate, investor-owned utilities (IOU) such as Xcel Energy must provide 30 percent of their electricity from renewable sources by 2020.  Because MOUs and co-ops have dramatically different models, they have modestly increased renewable energy exposure while resisting legislative fiat for capital investment.

Now, some state lawmakers are using House Bill 1216 to change the way co-ops and MOUs do business and increase their investments in renewable energy production. The proposal’s heavy incentives for distributed generation and net-metering favor the renewable industry at an extremely high cost to co-op members and MOU ratepayers.

Distributed generation and net-metering are the means by which consumers can produce, consume, and sell their own electricity. Installing solar panels on a house is the most common example of distributed generation, and net-metering is the process of selling excess energy back to utilities. Both practices already are incentivized at the co-operative and MOU level, just not to the extent prescribed by the excessive mandates of HB 1216.icon_op_ed

The distributed generation portion of HB 1216 dictates that 0.5 percent of retail electricity sales between 2016 and 2019 come from distributed generation, increasing to 1 percent by 2020. Although advocates claim the legislation is environmentally progressive, it actually directs the quantity and flow of money while cannibalizing existing sustainability programs

The Brighton-based electric co-op United Power, currently has 125 members with distributed generation and net-metering capabilities. In 2012 the co-op spent $64,000 to supplement these operations. Yet, if HB 1216 were passed, that cost would skyrocket to $19 million, according to United Power’s energy expert Jerry Marizza. That equates to $271 per ratepayer for a program in which only a handful can afford to participate.

A relatively large investment is needed to get involved in distributed generation and net-metering. According to the National Renewable Energy Laboratory (NREL), between January 2011 and December 2012, the average initial investment for the installation of residential solar panels in Colorado was $5.66 per watt. A small residential solar operation requires at least a 3,000-watt capacity, which comes to $17,000 in initial costs. Therefore, the median Colorado household would have to spend 30 percent of its annual gross income to benefit from HB 1216.

The high cost will prevent many members and ratepayers from participating.  Instead, a relatively small group of wealthy members will receive the majority of the benefits, similar to the stockholders of investor-owned utilities.

Because United Power cannot increase rates by $271, the co-op will have to cut other expenditures, such as the energy efficiency program. As Marizza explained, energy efficiency programs not only have the same environmental impact as renewable energy production, but also have the added benefit of being universally accessible, unlike HB 1216.

Colorado’s largest IOU Xcel Energy, on the other hand, is governed by the Public Utilities Commission (PUC) and is responsible for increasing stockholder equity while maintaining “reasonable” prices for consumers. Shareholders are a priority, and the PUC allows for a guaranteed return on equity in the energy prices they set. In 2012 the Colorado PUC set a 9.9 percent return on equity for Xcel, as reported by Public Utilities Fortnightly’s. During that year, Xcel ratepayers’ annual cost increased by an average of $345.

Electric cooperatives and municipally-owned utilities are different than investor-owned utilities because they attempt to pass the dollar-for-dollar costs on to consumers. If a profit is realized at the end of the year, the money is redistributed, used to increase the future quality of service, or both. If funds are not being spent wisely, or the service is unacceptable, consumers have the ability to vote and change the board of directors.

House Bill 1216 will take the decision-making power from local communities and co-op members and give it to politicians in Denver. It seems to be the desired direction, based on lawmakers’ and renewable advocates’ tone at the recent Alliance for a Sustainable Colorado’s 9th Annual Legislative Briefing.

While HB 1216 supporters claim the legislation is designed to help save the environment, the reality is that it’s simply a way to transfer benefits to the wealthy and inflate the green energy industry. With these motivations dictating legislation, lawmakers will push the energy sector into insolvency.

Brandon Ratterman is an intern with the Energy Policy Center at the Independence Institute, a free market think tank in Denver


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