A Fax From Al Gore

Nobody's neutral on renewable energy, especially the vice president.

I've been getting an earful from readers during the last month, ever since we published the piece by Shimon Awerbuch on how renewable energy can dampen the risk of fluctuating fuel costs, just like treasury bills can cut risk for a stock market investor. (See "Getting It Right: The Cost Impacts of a Renewables Portfolio Standard," Feb. 15, p. 44.)

One note came from consultant Glenn R. Schleede, president of Energy Market & Policy Analysis Inc. of Reston, Va. Schleede sent me a copy of a memo he had prepared for clients and colleagues, in which he described any national portfolio standard for renewable energy as a "backdoor Btu tax." He wrote that many in the "traditional" energy industries still "relish the recollection" of the "stinging defeat" in 1993 of the "hated" Clinton-Gore "Btu Tax," and suggested that the administration's proposed federal bill for electricity restructuring would only repeat that mistake by attempting to mandate the use of renewables.

According to Schleede, the 7.5 percent minimum share for renewable energy required in the Clinton-Gore restructuring bill would impose about a tenth of a penny ($0.0012) per kilowatt-hour on the cost of energy, or roughly $0.12 million per Btu. (That's assuming that energy producers would take the easy way out and buy renewable energy credits from the U.S. Department of Energy, priced at $0.015 per kilowatt-hour, rather than take the more radical step and actually use renewable energy to generate electricity.)

ARE RENEWABLES REALLY RISKLESS? Many readers can't believe it, but Shimon doesn't back down. He does suggest the phrase "zero-beta" as perhaps a more accurate term, however. Nothing is totally without risk of any sort, he concedes. But Awerbuch still maintains that a portfolio of renewables would impose no true systematic risk of the sort that cannot be diversified or hedged.

Here's another way to look at it. Electricity prices can gyrate up and down like crazy, but that doesn't mean that prices are volatile. Volatility means something more - that no pattern of that variation can be anticipated or predicted. Thus, if it's perfectly predictable that power prices will spike upward at 2-4 p.m. on a summer afternoon, there's no real risk.

Back in 1993, the failed Clinton-Gore tax would have imposed a levy ranging from $0.257 to $0.599 per million Btu on the use of coal, oil, natural gas, nuclear energy, and hydropower for electric generation. Consumers would have paid the tax in retail prices. Today, Glenn Schleede estimates that the administration's 7.5 percent portfolio standard would still cost consumers, no matter what Awerbuch says. In this case, the tab is a little less than half as much as the Btu tax ($0.12 million vs. $0.257 million per Btu). In this way, Schleede warns that the administration would get the Btu tax in through the backdoor.

WHICH BRINGS US AROUND TO AL GORE. You'll recall that in our issue of Feb. 1, when senior editor Richard Stavros examined chances for federal legislation on electric restructuring, we