Written by IER
Residents of Pueblo, Colorado are concerned about their skyrocketing electricity prices because the state’s Clean Air-Clean Jobs Act is forcing the closure of inexpensive coal plants. Pueblo has a poverty rate of 18.1 percent; family incomes are far below the state average; and a third of the population is on public assistance.[i] Making matters worse for the residents of Pueblo, the residential rate per kilowatt hour increased 26 percent since 2010, and on a per-household basis, is now among the highest in the state.
The new local utility company in Pueblo replaced nearly all its inherited cheap coal capacity with wind and natural gas generation. The utility is sticking its customers with large infrastructure bills to pay for these changes. Further, the state’s Clean Air-Clean Jobs Act requires 30 percent of the utility’s capacity to come from renewable sources by 2020. And, the most cost-effective way to meet that requirement is by constructing wind turbines, which the utility did.
Many people start out supporting these sorts of regulations from the states or federal government, until they see the cost. As a new survey from the American Energy Alliance shows, the public does not support this type of regulation when they understand the cost. This may explain why typically, advocates suggest there are few costs, in order to mislead the public when such policies are adopted.
In 2010, after the local utility got its first rate increase for constructing new natural gas and wind units, the number of ratepayers getting their power shut off increased dramatically. A nonprofit that helps homeowners get their power restored paid out $390,000 between 2010 and 2014 ($97,500 on average per year) to make up the difference in what people owed and what they could pay compared to only $20,000 in 2009. Further, residents getting their power shut off faced other consequences, including restoration fees, the risk of having county welfare officials take their children away, being locked out of the utility’s “budget billing” program that helps people manage their payments, and losing housing because of lack of electricity. Another local nonprofit that aids the indigent found that 35 percent of newly homeless people it worked with in 2013 lost housing because their electricity service had been cut off.
One Pueblo home owner has sticky notes on her light switches informing her 5 children to turn them off because lights are expensive–her monthly household electric bill equates to almost 25 percent of her rent. This home owner’s power was shut off in 2010, and ever since she has conserved electricity. She does not use her oven in the summer because it heats up the house; she uses only one small air conditioner, washes her dishes by hand, and orders the family to unplug the toaster and microwave after each use so that they do not continue drawing energy from the sockets.
Due to environmental red tape and the discontinuation of electricity that had been supplied by a neighboring utility, Black Hills Energy, the local utility company, had to take actions to provide power for its 93,000 customers. Black Hills shuttered its older coal plant and two natural gas plants that were too expensive to refurbish to satisfy the requirements in Colorado’s 2010 Clean Air-Clean Jobs Act. That meant the utility had to find new sources for that power and the power no longer available from a neighboring utility in order to keep the lights on for its customers. Black Hills built a wind farm and natural gas turbines that utility regulators authorized.
Black Hills received rate increases of 12.6 percent in 2010 and 4.9 percent in 2012 to pay for two new natural gas turbines and other infrastructure upgrades. This past spring, Black Hills requested a two-cent-per-kilowatt hour increase to cover the rising cost of natural gas, adding another $11.40 to the average cost of a residential customer’s monthly bill.[ii] At the same time, Black Hills also filed for another 3.7 percent increase to pay for a $50 million wind plant. At the end of 2013, the Public Utility Commission approved a plan to build a $50 million turbine that would be used as a “peaking” plant during high demand, which will require an additional rate increase.
These electricity rate increases came about due to existing federal and state laws that require retrofitting fossil fuel plants with environmental equipment and constructing wind farms to meet Colorado’s requirement for renewable energy. They did not include the proposed power plant rule that the Environmental Protection Agency (EPA) announced in early June, which is supposed to reduce the carbon dioxide emissions from the nation’s power plants by at least 30 percent below 2005 levels by 2030 (the reality is that the decreases caused by the rule will be higher than 30 percent). Note that if this rule takes effect next year, it would require massive coal plant shut downs over a period of 15 years. Those closures would need to be replaced with new generating plants—most likely natural gas and wind power units that will increase electricity rates since the cost of constructing new plants is more than the cost of operating existing plants whose capital costs have been fully paid.
The Chamber of Commerce looked at a larger 40 percent reduction in carbon dioxide emissions and found the impact to be large:
224,000 jobs lost on average each year through 2030,
more than $50 billion in average annual GDP loss through 2030, with a peak GDP loss of almost $104 billion in the year 2025,
$289 billion in additional cumulative electricity payments by consumers from 2014 through 2030,
a cumulative reduction of $586 billion in disposable income from 2014 through 2030,
$480 billion in cumulative compliance costs by electricity providers through 2030, and
an average undiscounted economic cost of $143 per ton of carbon dioxide reduced.
Australia’s carbon tax of $21.50 that the country just voted to revoke was about 15 percent of what the Chamber estimated would provide a 40 percent reduction in U.S. carbon dioxide emissions from power plants.[iii] That much smaller carbon tax raised electricity prices 15 percent in just its first year and made the country uncompetitive in the global market place.
Public opinion polls have found that Americans overwhelming do not support higher energy costs that result from implementing policies for reducing greenhouse gas emissions. In California, for example, 68 percent of the 1,705 adults surveyed back a law for lowering greenhouse gas emissions in California to 1990 levels by 2020. However, if lower carbon fuel standards meant that gasoline prices would increase, the survey found approval dropped to 39 percent, and at income levels less than $40,000 a year, it dropped to less than a third.[iv]
Another poll was conducted that asked about support for EPA’s power plant rule. That survey consisted of 500 respondents in 5 states (Arkansas, Colorado, Iowa, Montana and North Carolina) that were asked first about their support for the rule without an impact analysis provided and then their support after hearing the results of the Chamber study mentioned above. Without the impact analysis, support ranged from 57 to 64 percent, depending on the state. Once the impact analysis was presented, support dropped to between 39 and 44 percent, again depending on the state.[v]
European energy poverty is not far away for Americans if further greenhouse gas reduction requirements are bestowed upon us by our politicians. EPA’s power plant rule will only reduce global temperatures by 0.018 degrees Centigrade by 2100[vi] if their models are correct, and yet that negligible temperature reduction means that electricity consumers in this country will have to pay higher rates for an energy necessity that cannot be shopped around. Residents in the Northeast do not have the luxury to pay power rates that are half their costs in the states that generate electricity from coal. Nor do the residents of Pueblo have the luxury to buy power from those coal generating states. Public opinion polls clearly show that Americans do not want higher energy costs to reduce greenhouse gas emissions. Politicians need to listen.
[i] Washington Post, How not to shut down coal plants, July 24, 2014, http://www.washingtonpost.com/news/storyline/wp/2014/07/24/how-not-to-shut-down-coal-plants/?tid=hpModule_79c38dfc-8691-11e2-9d71-f0feafdd1394
[ii] The Pueblo Chieftain, Public urged to oppose rate hike, June 10, 2014, http://www.chieftain.com/news/pueblo/2629902-120/black-hills-pueblo-cost
[iii] Roll Call, Lessons Congress Can Learn From Australia’s Carbon Tax Debacle, July 25, 2014, http://www.rollcall.com/news/lessons_congress_can_learn_from_australias_carbon_tax_debacle_commentary-235232-1.html
[iv] Yahoo, For Californians, higher costs dampen support for clean energy, July 24, 2014, http://news.yahoo.com/californians-higher-costs-dampen-support-clean-energy-103057702.html
[v] American Energy Alliance, Survey Summary, http://americanenergyalliance.org/wp-content/uploads/2014/07/EPA-Message-summary.pdf
[vi] CATO Institute, The Vital Number Missing From EPA’s “By the Numbers” Fact Sheet, June 11 , 2014, http://www.cato.org/blog/002degc-temperature-rise-averted-vital-number-missing-epas-numbers-fact-sheet
Tags Black Hills Energy, Chamber of Commerce, Coal, Colorado, EPA, power plant, Pueblo