TESTIMONY OF MYRON EBELL DIRECTOR, CENTER FOR ENERGY AND ENVIRONMENT COMPETITIVE ENTERPRISE INSTITUTE TO THE OHIO SENATE

PUBLIC UTILITIES COMMITTEE ON SENATE BILL 34 COLUMBUS, OHIO, 12TH FEBRUARY 2014

Chairman Seitz and Ranking Member Kearney, thank you for inviting me to testify before your committee today on Senate Bill 34, which would repeal the requirement that electric distribution utilities and electric services companies provide 25% of their retail power supplies from advanced and renewable energy resources by 2025. My name is Myron Ebell. I am director of the Center for Energy and Environment at the Competitive Enterprise Institute (or CEI) in Washington, DC. CEI is a non-profit, non-partisan public policy institute, which operates as a section 501(c)(3) tax-exempt organization of the Internal Revenue Code. CEI accepts no government grants and relies entirely on contributions from individuals, charitable foundations, and companies to fund its approximately $6 million annual budget. CEI specializes in regulatory policies from a free market perspective. I have worked on environmental policies in a variety of roles since the late 1980s and have concentrated on energy and climate policies since joining CEI in 1999. CEI opposes mandates and subsidies for renewable energy, but not because we oppose renewable energy sources such as wind and solar power. We oppose mandates and subsidies for all types of energy, including nuclear, coal, natural gas, oil, and hydroelectric, as well as wind,

solar, biomass, geothermal, and biofuels. We oppose all mandates and subsidies because they distort markets, damage the economy, and corrupt our political system. Ohio is one of 29 States, by my count, that have enacted some form of Renewable Portfolio Standard for electric generation. These Renewable Portfolio Standards, taken together with the federal subsidies for wind and solar power, constitute a colossal reverse Robin Hood scheme that takes money from the poor and middle class and redistributes it to the rich. Not all the rich, but those who have join this shameful racket and use their political influence to commandeer the government to force consumers to buy their products. Energy producers seek mandates and subsidies when their products cost too much and cannot compete in the marketplace. The wind and solar industries have claimed since the 1970s that they just need a small assist from government to gain market entry and scale up. After just a few years, they promise that they will become competitive. It is true that the cost of producing electricity from wind turbines and solar panels has gone down, but four decades later wind and solar are still more expensive than electricity from coal- and gas-fired power plants. And Big Wind and Big Solar are still claiming that just a few more years of mandates and subsidies will make them competitive. One reason that wind and solar have not caught up is that the cost of electricity generation from burning coal and natural gas has also gone down. Coal is mined more efficiently, transported more cheaply, and combusted more completely than in the 1970s. Gas turbine technology has improved significantly, and since Ohios Renewable Portfolio Standard went into effect in 2008 the price of natural gas has dropped dramatically as a result of the shale gas revolution. Coal has made technological improvements and natural gas production has undergone a technological revolution with only minor government subsidies and without government mandates. I think another reason that wind and solar are still more expensive than conventional fuels is because most wind and solar companies have become corporate welfare dependents. Their executives concentrate on lobbying in Washington and state capitols to retain and if possible expand their mandates and subsidies. They might be much closer to becoming competitive if they devoted their talents to making technological improvements and developing business plans that would make them profitable without mandates and subsidies. I have heard of very few wind and solar companies that have ever even considered developing a business plan that didnt include federal subsidies and state mandates for as far as the eye can see, let alone developed one. Ohios Renewable Portfolio Standard gradually increases until it reaches 12.5% in 2024. (I make a brief comment below on the other part of SB 221, the Advanced Energy Portfolio Standard that kicks in suddenly at 12.5% in 2025.) Twelve-and-a-half percent seems rather a modest goal compared to the RPS enacted by some other States. For example, California has

increased its RPS to 33% by 2020. However, California does have many windy areas and southern California gets lots of sunshine. Ohio, on the other hand, has major coal and shale gas reserves, but little wind and even less solar potential. This means that to reach 12.5% renewables by 2025, Ohios electric utilities are either going to buy wind power from the Great Plains or will simply pay the $45 per megawatt hour penalty. The idea that half the 12.5% mandate will be produced in Ohio, as required by SB 221, is fantasy, as well as clearly unconstitutional. A more significant difference between California and Ohio is that California has spent the last three decades or more making electricity more expensive. As a consequence, California already has among the highest electric rates in the country. According to the Department of Energys Energy Information Administration, in November 2013, Californias average residential rate was 16.80 cents per kilowatt hour and its average industrial rate was 11.40 cents. In Ohio, the residential rate averaged 11.88 cents and the industrial rate 6.05 cents. Californias high electric rates have pushed poor and middle class people into smaller and smaller residences and have contributed to driving most energy-intensive manufacturing out of California. When Californias economy led the country, the State had a steel mill and an iron mine, major aircraft manufacturing, a major armaments industry, and large-scale auto assembly plants. All that is gonesome of it overseas and some of it to States like Ohio that still have affordable electricity. The fact that California already has very high electric rates means that requiring even more renewable energy wont actually increase their rates that much. By contrast, Ohios electric rates will jump dramatically as the RPS escalates. I have noticed that the law contains a cap on annual cost increases, but 3% compounded annually adds up. And if the actual increases exceed the cap, will utilities be able to absorb the losses? California has led the way in this country to the glorious future of expensive and increasingly unaffordable energy, but some countries in the European Union have jumped ahead of California. President Obama early in his first term pointed to Spain as the model the U. S. should follow. Spains economy has since collapsed, its government is bankrupt, and the huge renewable subsidies have been ended. As a consequence, Spains wind and solar producers are going out of business. When Spain ceased to be a model, the promoters of renewable energy pointed instead to Denmark and Germany. Denmark has the highest electric rates in the EU and balances its huge wind production by selling excess wind power to Sweden for peanuts and buying nuclear power from Sweden when the wind isnt blowing. Electric rates in Germany have skyrocketed and are undermining its enormous auto and chemical industries. Having decided to close Germanys nuclear plants, the German government has recently embarked on a massive crash program to build new coal-fired power plants.

In 2008 when Ohio enacted its RPS, it looked like electricity generated from burning coal and gas was going to become more expensive. U. S. natural gas supplies were shrinking and prices were going up. Large investments were being made in new shipping terminals to land expensive LNG from abroad. The Congress was likely to pass a cap-and-trade scheme to limit carbon dioxide emissions in the next few years. And another UN global warming treaty to succeed the 1997 Kyoto Protocol (which the U. S. Senate never ratified) was on the horizon. But the Waxman-Markey cap-and-trade bill, passed narrowly by the House in 2009, died in the Senate in 2010 after the American public reacted overwhelmingly against it. Republicans gained a majority in the House of Representatives in the 2010 elections because roughly two dozen Democrats were defeated partly or mostly because they had voted for Waxman-Markey. The negotiations on a new global warming treaty collapsed in Copenhagen in December 2010. The House and the Senate both took votes last year that indicate overwhelming opposition to a carbon tax. The combination of hydraulic fracturing, horizontal drilling, and new smart drilling technology has opened up vast reserves of natural gas and oil in shale formations in Ohio and many other States. Yet, those who are counting on federal government action to raise the price of electricity produced from coal and natural gas have not given up hope. The Environmental Protection Agency has proposed a Clean Air Act rule to reduce carbon dioxide emissions that will make it impossible to build new coal-fired power plants. Another rule is due in June to regulate carbon dioxide from existing coal and gas plants. But legal hurdles and congressional opposition still stand in the way of finalizing either of these rules. If these new rules do not go into effect, then coal will remain the dominant fuel in electric generation. If the rules do go into effect, then natural gas will become the dominant fuel. Whether gas prices will rise when coal no longer provides any competition is uncertain. Thus the bet taken in 2008 that a Renewable Portfolio Standard will not have devastating economic effects on Ohio because federal policies or an international treaty will have wider devastating effects is very much in doubt. In addition, Ohios RPS becomes much more expensive if federal wind and solar subsidies end. The 2.3 cents per kilowatt hour tax subsidy for the first ten years of production by a wind installation in fact lapsed at the end of 2013. Congress may renew it for another year later this year, but that is uncertain. And even if it is renewed, opposition in Congress has been growing, and at some point it is quite possible that Congress will say no to any more handouts to Big Wind. The Advanced Energy Standard that starts in 2025 is also dependent on huge increases in the cost of conventional power generation. If coal and gas do become very expensive, then the Advanced Energy Standard is superfluous because electric utilities will be forced to make huge investments in nuclear power and perhaps even in carbon capture and sequestration technologies

in order to meet demand. If burning coal and gas in conventional plants doesnt become prohibitively expensive, then the Advanced Energy Standard will never be met. But what about all the jobs that will be created in the wind and solar industries by Ohios RPS? Of course, many jobs will be created. However, it is inescapable that the net result of raising energy costs for consumers and producers will result in lower economic activity and fewer jobs overall. Energy costs are a major component of most manufactured goods and many services. If the cost of energy goes up significantly, then producers will either have to lower costs of labor or capital or move their production to another State or nation that has less expensive energy. As I remarked earlier, California has already exported its energy-intensive industries. For consumers, higher electric bills mean less money in their pockets to spend on other thingseducation, remodeling the house, vacations, going out to dine, recreation, shopping for clothes and electronics, buying a new car. Higher energy prices reverberate through the economy and reduce spending even on services and activities that use little energy. More costly energy means less money to spend, which means job losses across the board. That is a high price to pay for creating new jobs in renewable energy that will disappear without continuing federal subsidies and state mandates. I began by calling Renewable Portfolio Standards plus federal subsidies for renewables a reverse Robin Hood scheme that takes money in the form of higher energy prices from the poor and middle class and redistributes it to very wealthy crony capitalists who have figured out how to game the system. On top of that, higher energy prices have a much greater impact on poorer people than they do on wealthier people. The costs of electricity, heating, and gasoline typically take a much higher percentage of poor peoples incomes than of wealthier peoples incomes. A family of four with a net after tax income of $24,000 might spend $200 a month on their electric bill (including hot water heating and some air conditioning). Thats $2,400 a year or ten percent of their income. A family with a net income of $72,000 might spend $300 a month on the electric bill. Thats $3,600 a year or five percent of their income. A family with a net income of $144,000 might spend $360 a month. Thats $4,320 a year or three percent of their income. A twenty percent increase in electric rates wont bother my upper income example. It would be only $864 per year or 0.6% of their income. But for the family with $24,000 a year, a twenty percent increase in the electric bill would cost them $480 or two percent of their income. That hurts. Finally, Id like to say a word about the argument made with great seriousness and good intentions that we must have a Renewable Portfolio Standard because we have an obligation to save our planet and our posterity from the ravages of global warming. We can debate whether global warming is a crisis or just a potential problem. But if we decide that action must be taken to limit greenhouse gas emissions, which are primarily carbon dioxide emissions from burning coal, oil, and natural gas, then there is little evidence that a Renewable Portfolio Standard, no

matter how well designed, will do much to reduce total emissions. Solar and wind are intermittent sources that require backup from conventional power plants. Ramping up and then down coal-fired power plants is prohibitively expensive and would use much more energy than is produced by the wind or solar it is covering for. Ramping up and then ramping down modern highly efficient combined cycle gas turbines uses as much as or perhaps even more energy than is produced by wind turbines that are producing electricity 25% of the time. Ramping up and down a conventional gas turbine uses less energy, but conventional gas turbines are much less efficient than combined cycle gas turbines and therefore have higher emissions per unit of energy produced. Whichever conventional source used when the wind isnt blowing or the sun isnt shining is going to produce significantly more carbon dioxide emissions than the same plant that is left to run constantly. If global warming is a crisis, then Ohios RPS is an extremely expensive and ineffective way to solve it. Modern industrial societies are much less vulnerable to extreme weather events or to a changing climate than societies that lack access to modern technology and modern energy. Raising energy prices through a Renewable Portfolio Standard will significantly reduce access to energy to the poorer members of our society. People who cant afford to heat their houses in the winter or cool them in the summer are much more susceptible to extreme cold or extreme heat. I have studied and debated these arguments for over a decade, and I am strongly convinced that energyrationing policies that create energy poverty pose a much greater threat to our society than do the potential impacts of potential global warming. Mr. Chairman, this concludes my testimony. I will be happy to answer questions that you or members of the committee may have.

Contact information: Myron Ebell Director, Center for Energy and Environment Competitive Enterprise Institute 1899 L Street, N. W., Twelfth Floor Washington, DC 20036 (202) 331-2256 mebell@cei.org