FERC Denied Brown's Green Tax Hike

OCT. 25, 2010


Back on July 15, in a story mainly reported in only trade journals and Web sites, the Federal Energy Regulatory Commission (FERC) denied Attorney General Jerry Brown’s appeal to put the cost of renewable power directly on the backs of California’s electricity ratepayers through what are called “Feed-In Tariffs.”

A tariff is a rate paid, not a tax.  A Feed-In Tariff is a state requirement imposed on a utility to buy wholesale renewable power at an above market price under a fixed-price long-term contract. A Feed-In Tariff is like the rate you get paid by your local electrical company to “feed” the excess power generated from rooftop solar panels on your roof into the electric lines serving your home. If a premium is added to the rate your local utility will credit you for your excess power as a subsidy.

FERC didn’t rule out that other mechanisms could be used to subsidize green power such as tradable Renewable Energy Certificates, tax credits, grants, loans, subsidies, etc.

Previous to FERC’s ruling, Jerry Brown’s Attorney General’s Office had filed a legal brief supporting electricity rate premiums for co-generation power plants as provided in California Assembly Bill 1613 – the Energy Waste Heat Carbon Reduction Act – which had passed through the state Legislature and was signed by the governor on Oct. 14, 2007.  Although co-generating heat-energy plants are technically not renewable power, AB1613 would have allowed states to solely set wholesale electricity rates. This would have eventually compelled regulated public utilities such as Edison and PG&E to pay above-market prices for renewable power and pass the added cost on to the ratepayers.

Renewable power companies only sell wholesale energy to retail electrical utilities, not directly to customers. But only FERC, not the CPUC, can set wholesale power rates to prevent energy wholesalers from setting their own price for the power they produce.

FERC seems to prefer direct subsidies for green power that are open, clear, and undisguised to ratepayers rather than mandated premiums for selling wholesale power that are buried within the price per kilowatt hour on electricity bills.

In California, the California Public Utilities Commission (CPUC) regulates retail electricity rates, while wholesale rates are regulated by FERC. The California Energy Commission issues permits for new power plants. Wholesale electricity is delivered to the grid for resale to other utility purveyors, not directly to customers. Retail power is electricity distributed for use by on-site customers.

Support for above-market prices for green power under AB1613 came from the state Attorney General’s Office, the Division of Rate Payer Advocates of the California Public Utilities Commission (CPUC), the California Energy Commission and various environmental and renewable energy special interest groups. The union-controlled The Utility Reform Network (TURN) of California, a consumer group partly funded by electricity ratepayer funds through the CPUC, filed a brief in support of the rate hike

Opposing the rate hike for green power were the California Municipal Utilities Association and the Edison Electric Institute.

Jerry Brown’s attempt to make green wind and solar power economically feasible by shifting price premiums onto ratepayers is reminiscent of his “green legacy” when he previously served as governor in the 1970s. Brown built the Bottle Rock Geothermal Power Plant in northern California that ended up economically infeasible and was eventually mothballed (but since re-opened with generous subsidies).  The $283 million in bonds on the plant were assumed by The Metropolitan Water District of Southern California in 1990.  Water ratepayers in Southern California are still paying off the bonds for a geothermal power plant that serves those in Northern California.

It remains to be seen if “green power” mandated under AB32 – The Global Warming Solutions Act – in California will work. While huge wind farm and solar projects are being rolled out California oddly still doesn’t seem to fully know the financing package for them yet. But FERC has put a stop to paying for green power with covert premiums in customer’s electricity bills.

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