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Misleading report fails to hide N.C. renewable mandate costs

Posted Friday, June 5, 2015

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Raleigh, NC - A report from a renewable energy industry group fails in its goal of deflecting attention away from costs generated by North Carolina's renewable energy mandate. That's the assessment of a new John Locke Foundation Spotlight report.

The JLF report dissects questionable assumptions and omissions, "discredited methodology," and misused statistics within material the N.C. Sustainable Energy Association is circulating among state lawmakers. Those lawmakers will decide this summer whether to cap North Carolina's current renewable energy mandate, including an existing cost cap for consumers. That cost cap nearly triples this year without legislative action.

"State leaders should cut through the noise of slanted, rent-seeking, tailored industry reports aimed at influencing them to produce public policies favorable to the renewable energy industry, at the expense of taxpayers and electric ratepayers," said report author Jon Sanders, JLF Director of Regulatory Studies. "Instead of this flawed industry report, lawmakers need a thorough, comprehensive study of North Carolina energy policy. This study should bear in mind that the state's top stakeholders are ratepayers whose chief interest is low-cost, reliable power at the flip of a switch."

Sanders details major flaws in the NCSEA report, titled "Understanding the Impact of Electric Choices on North Carolina Residential Electricity Rates and Bills."

Among the flaws: NCSEA downplays the role of renewable mandates in three of the four "drivers" of higher N.C. electricity costs; dilutes the mandate's negative impact by measuring electricity prices during years before the mandate took effect; ignores another critical, government-induced driver of electricity costs since 2002; fails to note that the renewable mandate is slated to become more stringent and costly in the coming years; relies on faulty analysis that was discredited publicly two years ago; misleads readers about relative costs of renewable and traditional energy sources; and avoids the impact of shale gas in lowering energy costs in recent years.

First, NCSEA emphasizes that renewable energy mandates have not been the "primary" driver of state electricity rate increases since 2001. Instead the industry report labels utility investments in conventional energy sources as the primary cost driver.

The renewable energy mandate took effect in 2008, so one might question why the industry starts its timeline in 2001, Sanders said. "Adding in data from previous years waters down the mandate's actual effects," he said. "A March 2015 report from the N.C. Department of Environment and Natural Resources indicates North Carolina's rates have increased by more than 2.5 times the national average increase since 2008."

Starting the energy cost timeline in 2001 presents another problem for NCSEA, Sanders said. "The industry study takes no account of the state's 2002 Clean Smokestacks Bill, an earlier government mandate that has helped drive up utility costs linked to conventional energy sources," he said. "Costs of that state legislation have been projected to top $3.2 billion, over seven times the initial estimates. The NCSEA report makes no attempt to determine how much this government mandate has raised state electricity costs."

Also lost in the NCSEA study is the fact that North Carolina's renewable energy mandate becomes more stringent over time, Sanders said. When the mandate first took effect, the state required utility companies to provide at least 3 percent of energy from renewable sources or energy-efficiency measures. That number climbs to 6 percent in 2015. Without action from the General Assembly, the number will jump to 12.5 percent within the next six years.

"This creates multiple problems for the industry report," Sanders said. "First, the report captures rates when the mandate was at its smallest: 3 percent. Even with that smaller mandate, costs through 2014 totaled $276 million."

"NCSEA also takes no account of the mandate's growing impact in future years," he said. "The Beacon Hill Institute projected in 2009 that full implementation of the renewable energy mandate would cost the state almost 3,600 jobs, $57 million in real disposable income, $43 million in investment, and $140 million in real state gross domestic product."

Those numbers will look even worse if the General Assembly scraps cost caps for consumers as the mandate becomes more stringent, Sanders said. "The worst-case scenario involves more than 15,000 lost jobs and a $600 million hit to the state's GDP."

Sanders describes as "sleight-of-stat" the industry report's attempt to claim that electricity rates would be even higher in North Carolina without renewables and energy efficiency measures. "This is based on an update of a 2013 report that has been thoroughly discredited by economists, thanks to absurd and mismeasured benefits, arbitrary calculations, and other fatal flaws."

The JLF analysis challenges the industry report's implications that renewable energy sources are cost-competitive with traditional sources. "Until the sun and wind can be summoned to produce on an immediate, as-needed basis, these energy sources require traditional resources on standby to back them up," Sanders said. "Thus it is practically impossible for the renewable resources to be cheaper than traditional sources."

A key problem with the state's renewable energy mandate stems from the fact that North Carolina electricity consumers have no choice in their electricity provider, Sanders said.

"In return for a guaranteed consumer base, a utility company is expected to provide reliable power," he said. "Until the renewable energy mandate took effect, the utility also was expected to provide the least-cost reliable power. State leaders should return North Carolina to this standard -- least-cost reliable power. They should not use the absence of a free market in electricity as an excuse to enrich special interests at the expense of captive ratepayers."

Jon Sanders' Spotlight report, "Renewable Energy: Lobby's report more fog than light," is available at the JLF website.

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Misleading report fails to hide N.C. renewable mandate costs
North Carolina's rates have increased by more than 2.5 times the national average increase since 2008