Minnesota Senate begins to recognize the need for affordable energy

A close reading of the omnibus energy bills in the Minnesota House and the Senate reveals that a welcome, albeit slight, policy shift may be underway in the Senate.  After years of pursuing energy efficiency and renewable energy at all costs, some lawmakers are finally becoming alert to the importance of keeping energy affordable.

No doubt the current recession and massive budget shortfall has helped remind lawmakers that affordable energy matters.  Indeed, keeping energy affordable relieves stress on family budgets, creates jobs, and increases Minnesota’s global competitiveness.

Unfortunately, this renewed awareness appears limited to the Senate.  In fact, on each substantive policy where the House and the Senate bills differ, the House bill risks (or guarantees) higher energy costs.

Where the Senate and House Differ

The Senate and House bills differ in at least five key ways.

First, the Senate repeals the moratorium on building a new nuclear energy facility. Now there’s no guarantee that nuclear energy will deliver a least-cost solution in the future, but, it’s certainly possible and even probable if Congress passes an expensive carbon dioxide cap-and-tax program.  By repealing the nuclear moratorium, the Senate creates an opportunity for utilities to pursue nuclear energy if they find that it is an affordable alternative.

Opponents of nuclear energy cite safety and storage as continued problems.  But, it’s hard to believe that safety and storage remain serious obstacles when nearly all of Europe is stepping toward nuclear technology.  Even Sweden ended their ban on new nuclear facilities this year, leaving Germany as the only European country with a policy to phase out nuclear energy.

Second, the House increases energy conservation incentives and makes them mandatory.  Right now utilities receive incentives to encourage them to expand their energy conservation programs beyond a baseline required by law.   For Xcel Energy—Minnesota’s largest utility—these incentives currently equal about $6 million and are capped at $17 million.  The House bill slips in a small paragraph that makes this incentive mandatory, removes the cap on the incentive, and requires that the incentive be large enough to make energy conservation more profitable than any other resource choice, such as coal or nuclear.

The incentive necessary to make energy conservation the most profitable resource would be enormous.  According to an analysis by the Minnesota Office of Energy Security, Xcel would be eligible for an additional annual incentive worth $80 to $275 million.  To put this in perspective, Xcel will spend about $56 million on conservation in 2009.  So, a few extra lines of legislation might expand the cost of the program to customers fivefold.  Incredibly, this dramatic expansion was passed by the House without analyzing how much energy the incentive might save.

Third, the Senate limits the amount of solar energy that can apply to Xcel’s 30 percent renewable energy mandate to no more than one percent.  This provision will mitigate the cost of the renewable energy mandate by protecting customers against the high cost of solar energy.

Fourth, the Senate increases the Public Utility Commission’s (PUC) oversight of new renewable energy proposals, while the House reduces oversight.  As the PUC’s main purpose is to protect utility customers, this oversight is incredibly important to keeping energy affordable.  Currently certain wind facilities are exempt from certificate-of-need review by the PUC.  The Senate eliminates this exemption; the House broadens it.  In addition, another House provision would water down the PUC’s responsibility to review the reasonableness and prudence of renewable energy projects, including a project’s impact on customers’ rates.

Finally, the House bill includes a number of additional provisions that favor high-cost renewables.  For instance, the House bill extends renewable energy production incentives another three years, annually allocates $5 million to the University of Minnesota to study renewable energy, and requires utilities to buy 200 megawatts from small renewable energy projects.

Senate bill is not a substantial policy shift

The Senate energy bill is by no means an about face on energy policy.  Yes, repealing the nuclear moratorium garnered some headlines, but the moratorium is at odds with nearly the entire developed world.  The Senate simply recognized how far Minnesota’s moratorium veers from the norm.  (The real headline should be that the House continues to be swayed by environmental extremists.)

The Senate bill mostly reflects a commitment to maintain the status quo as it resists the temptation to pile on more regulations.  Considering the status quo—Minnesota already has the most aggressive green energy policy in the country—this bill does not represent a substantial commitment to keeping energy affordable.  The Senate just seems to understand that at some point it’s time to stop and see how all these green energy policies are working.

Nonetheless, the Senate bill is certainly a step in the right direction and represents a middle ground between the extremist environmental views in the House and more conservative agendas that urge lawmakers to repeal recently enacted green energy regulations.

As the middle ground, Governor Tim Pawlenty should accept nothing less than the Senate version of the omnibus energy bill.  Most importantly, the governor should veto any bill that fails to repeal the nuclear moratorium or that increases incentives—i.e., subsidies—paid to utilities for energy conservation.

[Editor’s note: This article originally stated that Minnesota is the only state with a nuclear moratorium.  This is not an accurate statement.  More accurately, Minnesota is the only state that completely prohibits nuclear power plants.  The term moratorium is also used to reference state laws that restrict building new nuclear facilities until certain conditions are met, usually related to the storage of nuclear waste.  At least eleven other states place these sorts of restrictions on building new nuclear facilities.]

— Peter Nelson is an attorney and Policy Fellow with Center of the American Experiment

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