Nearly two decades of unfulfilled promises

Sen. Doug Whitsett

Sen. Doug Whitsett

Oregon governors have promoted a green energy based economy for two decades. The governors have consistently promised taxpayers that Oregon’s future job growth and prosperity depends upon developing a new green economy.

Former Governor Kitzhaber followed by Governor Kulongoski heavily invested Oregon taxpayer dollars into green energy projects. 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 that forces utilities to purchase and distribute renewable green energy no matter what the cost to the 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 percent of those jobs are identifiable as green jobs by the Oregon Department of Employment. Another way to state the statistic is that only 51,000 of 1.8 million Oregon jobs are green. Obviously, this means that more than 98 percent of Oregon jobs are not green. It actually is even worse than it sounds.

Most of the green sector jobs are heavily subsidized with tax dollars. 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 these green jobs.

The vast sums of tax and utility rate dollars that are being taken from the private sector is driving up their costs of doing business. The net equation is the shift of enormous amounts of tax and utility rate dollars from the non-green business sector that provides jobs to 98 percent of Oregonians to the green business sector that provides jobs to less than 2 percent of the state workforce. The direct result is that businesses that must pay these higher taxes and utility rates have less money to grow their firms and to create jobs. Oregon’s small business community that creates and maintains nearly three out of every four Oregon jobs is hurt the worst. Oregon lost more than 100,000 private sector jobs in 2009. According to the Oregon Department of Employment, the state is on track to lose nearly 20,000 more jobs in 2010. Combined unemployment and underemployment exceeds 17 percent in the Oregon workforce.

Clearly, the governors’ unfulfilled promises are driving Oregon’s economy in the wrong direction. Our economy will continue to suffer until these failed policies are reversed.

The Renewable Portfolio Standard requires a progressively higher percentage of electricity to be generated from renewable sources. In fact, it requires that 25 percent of all electricity used by PacifiCorp and PGE ratepayers must be generated from renewable sources within 15 years. However, less than 5 percent of non-hydroelectric power is currently being generated from renewable sources, even after two decades of green energy promotion, generous tax subsidies and the forced integration of renewable energy sources.

The Renewable Portfolio Standard mandates that enough renewable power to serve more than one million residential customers must be on line by 2025. The requirement equals more than 1,200 megawatts and is equivalent to about 3,700 megawatts of intermittent wind power generation capacity. It will require construction of 1,230 wind turbines at a cost of more than $8 billion.

A grand example of this process is outlined in a recent “White House Memo on Renewable Energy Loan Guarantees and Grants” written by White House advisors Larry Summers, Carol Browner and Ron Klain. The eight-page memo to President Obama describes, and summarizes, the financing for the Shepherds Flat wind farm to be located on 30 square miles of private land adjacent to the Columbia River Gorge near Arlington.

The immense Shepherds Flat project will consist of 338 General Electric wind turbines, capable of maximum generation of 845 megawatts. The project is estimated to cost about $1.9 billion. It will employ about 400 workers during construction. When completed, it will add about $16 million to Oregon’s annual economy in the form of property taxes and land owner royalties.

The rest of the story is less encouraging.

After construction, the entire project will provide only about 35 green jobs. The average generation capacity will be about one third of the projected 845 megawatt hours because the wind is a variable resource. Wind generation ceases when the wind stops blowing and must be replaced with back-up generation sources such as hydro and thermal generation.

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

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.

At the same time, taxpayers and ratepayers will pay about $1.2 billion of the project’s 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 White House memo explains these costs in some detail.

The federal 1603 Grant provides 30 percent of the project construction cost. It 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. That grant is equal to $500 million from federal tax revenue for the Shepherds Flat project. The Oregon Business Energy Tax Credit provides a separate $18 million dollars to the project from Oregon tax revenue. The project will be allowed to accelerate the depreciation of the project assets thereby immediately increasing their tax deductions. That accelerated depreciation will save 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 $1.3 billion loan guarantee is estimated to be $300 million dollars. The total of more than $1 billion worth of grants, tax credits, accelerated depreciation and loan guarantees will all be paid by taxpaying citizens.

The Oregon Renewable Portfolio Standard requires utilities to purchase electricity from renewable energy generation sources. According to the memo, the 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 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 Renewable Portfolio Standard mandates the costs to be transferred to the ratepayers.

The estimated $60 million dollar per year, 30 percent return on equity investment expected by the project owner is made possible only because of the tax credits, grants, guarantees and subsidies that will be paid by taxpayers and utility ratepayers. The project cannot, and will not, produce electricity at competitive rates. Taxpayers and utility ratepayers will continue to bear the excess costs while the company is profiting.

The Shepherds Flat project alone will suck more than $1.25 billion 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 35 green jobs, is an exercise for an economist to calculate.

The project is expected to reduce carbon dioxide emissions by about 18 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 amount is more than 6 times the current value of the maximum carbon dioxide reduction-climate-benefit estimated by the U.S. government.

In this instance, it certainly appears that big government is paying big business to build and operate uncompetitive energy generation facilities using taxpayer and ratepayer funding to insure that big business profits.

The White House memo is available online at: “Summers renewable energy memo.” It should be downloaded and studied by every citizen because it clearly states the economic absurdity of some of these renewable energy investments in its own words.

Hydropower generation is currently by far the cheapest source of electricity. The current blended rate for hydro, thermal and other renewable sources is significantly more expensive. Moreover, the current cost of generation for all non-hydro sources of renewable electricity are orders of magnitude more expensive than the current blended rates.

The mandated renewable energy generation will not be constructed without continued tax incentives and subsidized utility rates. The cost of non-hydro renewable energy generation is not competitive by an order of magnitude. No well informed private sector firm will invest in proven noncompetitive technology without government guarantees that they will be allowed to recover their investment costs. Those guarantees will be paid by tax incentives, tax credits and higher utility rates.

Oregon utility ratepayers have experienced rapid cost increases over the past several years. Those rate increases will accelerate as the utilities are forced to bring more non-hydro noncompetitive renewable generation on line.

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 Renewable Portfolio Standard. Therefore, it is not the utilities and their stockholders that will bear the costs. It is the utility ratepayers who will be required to bear the burden of these greatly increased expenses. 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 Renewable Portfolio Standard 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 the governor and the other interests who promote the destruction of Northwest hydropower dams.

Many of us battled long and hard against adopting the Renewable Portfolio Standard. We fought especially hard against that Orwellian definition that brands existing hydropower non-renewable because we knew that it was designed to open the door for dam removal. Unfortunately, Gov. 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.

In summary, 16 years of green energy promotion has netted less than 2 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 green energy policies.

Why would anyone seriously want to continue policies that so obviously have failed to create jobs, have failed to create economic growth, and that without a doubt will continue to stifle Oregon’s economic growth into the future?

Please remember that if we do not stand up for rural Oregon no one will.

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