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Conservatives Should Say No To Proposed Fuel Switching Provisions of Conservation Improvement Program Bill

As this legislative session draws to a close, Minnesota lawmakers will be considering changes to the state’s Conservation Improvement Program (CIP). Among the changes considered are provisions that would allow the CIP program to fund fuel switching, which would allow utility companies to subsidize the switch from using natural gas to electricity in the case of home heating, or to subsidize the switch from conventional cars to electric cars.

However, these changes will amount to government picking losers and increasing the cost of energy for Minnesota families and businesses who have already been battered by the economic fallout of the Coronavirus lockdowns.

What is the Conservation Improvement Program?

The Conservation Improvement Program is a program that seeks to reduce energy consumption in Minnesota by providing subsidies for households and businesses to buy energy efficient appliances such as furnaces, water heaters, and even light bulbs. Because there is no such thing as a free lunch, the subsidies are paid by all of the utility’s customers in the form of higher monthly energy bills.

Although energy efficiency is often talked about as a way for customers to save money, that isn’t how it works with electricity as the grid increasingly shifts toward wind and solar.

When It Comes to Electricity, Energy Efficiency and Conservation Cannot Save You Money

Energy efficiency is often touted as a way to reduce the amount of money Minnesota families must pay for their energy bills.

However, when it comes to electricity, this is simply not how the world works because government-approved monopolies like Xcel Energy have a government guarantee to make a certain amount of money. If you try to save money on your electric bill by using less energy, Xcel will simply raise the cost of your power.

We see this in the real world. The graph below shows electricity use and bills for Xcel Energy customers over time. As you can see, the amount of energy used by Xcel customers (shown in the black line) has fallen by about 10 percent since 2007 but Minnesota families pay $60 more per year despite their efforts to save money.

This is largely because wind and solar have no fuel costs. While promoters of wind and solar often argue this is one of their good qualities, it actually means that energy efficiency is less able to save money over the course of time.

The graph below shows the true “all-in” cost of coal, wind, and solar. As you can see, it costs $33.43 per megawatt hour to generate electricity from the Sherburne County coal plant (Sherco), and $22 of this cost is fuel, and the remaining $11.43 is a fixed cost to maintain the plant, pay employees, and to pay off any of the plant’s mortgage.

If we reduce our electricity demand by one megawatt hour due to energy efficiency, we will save $22 in the fuel cost, but we will not save the $11.43 in fixed costs that must be paid whether the plant is operating or not.

When it comes to wind and solar, there are no potential fuel savings for reducing energy consumption because almost all of their costs are fixed costs. This means that even if we don’t use the electricity, Xcel Energy will incur costs for having the wind and solar on the system (plus their guaranteed profits if they own the generation) and they will raise your electric bill to make sure they have enough money to pay for it.

You should read this article if you’re interested in learning more about how energy efficiency won’t save you money on your electric bill.

This reality is what makes the fuel switching provision of the CIP bill so concerning, because switching home heating from natural gas to electricity, or incentivizing switching from conventional cars to electric cars will mean higher costs for consumers.

Fuel switching

The biggest problem with this CIP bill is that it allows utilities to incentivize fuel switching to meet their energy conservation goals. These provisions will pick winners and losers and increase the cost of home heating for Minnesotans who switch from natural gas to electricity.

Data from the U.S. Energy Information Administration show that, in Minnesota, electricity is five times more expensive than natural gas on an energy equivalent basis. It is also worthy to note that natural gas prices have fallen by 38 percent since peaking in 2008 due to the revolution in hydraulic fracturing, or “fracking,” which has made the United States the largest producer of natural gas in the world. In that same time, Minnesota electricity prices have skyrocketed due to renewable energy mandates.

Using subsidies to incentivize Minnesotans to switch from low-cost natural gas to high cost electricity, is bad for their long-term finances. As natural gas prices are forecast to remain low, and electricity prices in our state continue their upward trajectory, fuel switching will continue to make less sense, not more.

Conclusion

The biggest problem with subsidies is that they incentive smart people to do things that would otherwise not make sense.

If legislators want to make changes to the CIP program that change it from a spending bill that requires utilities to spend more money, to an energy conservation bill these measures should have our full support, but there should not be support for the fuel switching provisions contained in the proposed legislation because it will harm Minnesota families and businesses by increasing their energy costs.

Also, a quick look at fuel switching proponents should give conservative legislators pause on this bill because these backers include MN350, which has been involved with pipeline eco-terrorism cases in Northern Minnesota, the group is also run by Carolyn Ham, who has her own checkered history regarding childcare fraud.

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