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 published an exclusive interview with Texas Gov. George W. Bush, the likely Republican candidate for president, but not for Al Gore, the likely candidate for the Democrats, though we did our best to line up an interview with the vice president to run with that story.
So you can imagine our delight when, just as we were putting this issue to bed, in comes a fax from Al Gore's campaign headquarters, with a letter addressed to the from the vice president himself.
In that letter (abbreviated here for publication) the vice president cites the Kyoto Protocol is an historic accomplishment, and sees his task (if elected president) to come forward with "sensible ideas of my own" to secure its ratification and to design the policies necessary for its implementation.
He also makes sure readers will know where he stands on that dreaded portfolio standard.
Editorial in the Balance
We give equal time to the Democratic candidate.
Thank you for this opportunity to address the symposium on energy policy. (See "Energy Legislation in 2000? The Pros Place Their Bets," Feb. 1, p. 26.)
As you know, electric utility restructuring is a complicated issue. Electric utility customers are interested in electricity services that are reliable, clean, and affordable. The Department of Energy estimates that retail electricity competition could save consumers $20 billion per year on their electricity bills. Carefully designed legislation would also provide many environmental benefits by facilitating investments in clean technologies, such as energy efficiency, renewable energy, and natural gas. Finally, competition would help unleash a wave of innovation in the electricity industry, creating new jobs, products, and services.
I believe that proper electric utility restructuring legislation should be built around certain key principles. I will mention a few.
First, there should be a flexible mandate requiring all utilities to allow their retail customers to purchase power from a supplier of their choice, but it should permit states or non-regulated utilities to opt out of the mandate if their customers would be better served through an alternative policy.
Second, environmental objectives should be achieved through the adoption of a fund to finance energy efficiency and other public benefits, a renewable portfolio standard to ensure a certain level of electricity from renewable sources (subject to a cost cap), and a labeling mechanism that will help consumers identify environmentally friendly sources of power.
Third, utilities should be able to recover prudently incurred, legitimate, and verifiable retail stranded costs that cannot be reasonably mitigated, although states should continue to determine the recovery of these investments under their own laws.
The Clinton-Gore administration has proposed legislation on these issues that I believe best embodies these key principles. As president, however, I would be willing to work with members of Congress, as long as the key principles for electricity restructuring legislation that I have outlined were still clearly achieved.
I fully support the administration's plan for a 7.5 percent target for renewable energy in electricity restructuring legislation as the best approach for the nation. As negotiations on electricity restructuring legislation proceed in Congress, I will support efforts to obtain a target for renewable energy that is as close to this target as possible.
I do not support an increased reliance on nuclear power for electricity generation. Given the current economics of power generation, I also do not expect that utilities would select nuclear power as the most attractive and profitable course of action.
Finally, I believe we need to find a permanent solution for the disposal of high-level nuclear waste, but one that is based on sound science, not politics. Accordingly, I strongly support moving forward to complete the scientific analysis of the Yucca Mountain site as a waste repository, but will wait for the completion of that review before making any determination about its use as a disposal site.
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