Unintended Consequences

Renewable portfolio standards could cost Oregon jobs

David Markham | May 30, 2012


When the Oregon legislature passed the renewable portfolio standard in 2007, it didn't foresee that large, energy-hungry data centers would soon become the state's newest industry. Their development is booming in the state - thanks to attractive tax breaks, some of the lowest electricity rates in the country and climato-logic conditions that help reduce energy use. These factors present a highly attractive environment for facilities costing up to $1 billion each. This promising development, however, is combining with the 5-year-old RPS to create a conflict born of unintended consequences.

Central Electric Cooperative is working with several data centers seeking to build facilities near Prineville in Crook County. With an unemployment rate hovering around 15 percent, this offers the welcome promise of hundreds of construction jobs and dozens of permanent positions paying family wages. But the data centers also could dramatically - and disproportionately - increase rates for consumers of the state's small, consumer-owned utilities.

Oregon's RPS draws clear distinctions between the state's large, investor-owned utilities and the smaller, consumer-owned cooperatives like Central Electric. Pacific Power and Portland General Electric serve nearly 74 percent of the state's 1.9 million electric meters and must obtain 25 percent of their power from renewable resources by 2025. Central Electric, with only 32,000 meters spread across 5,300 square miles, is categorized as a small utility and its renewable requirement for the same period is set at 5 percent. That is the same level for all small Oregon co-ops, provided their electricity sales remain proportional to the total of all electricity sold in the state.

The emergence of the data center industry is changing several cooperatives' profiles, including Central Electric's. With a potential combined load of 180 megawatts, the Crook County data centers could quickly triple the cooperative's average system load of 80 megawatts, which has seen a decline over the past four years. These data centers would push the cooperative into the same RPS classification as the state's two largest investor-owned utilities. Central Electric would then have to begin compliance with the RPS well ahead of its current schedule, creating millions of dollars in additional power costs.

The co-op has been preparing since 2007 to comply with the 5 percent RPS requirement. Through a partnership with 11 other cooperatives, Central Electric owns a landfill gas-to-electricity generating facility and is invested in a pilot program that soon will launch the Northwest's first wave-power project. In today's economic climate, these actions are viewed as a hardship by many cooperative members, especially because almost all of Central Electric's electricity is carbon-free hydroelectricity from the Bonneville Power Administration, which curiously does not count as renewable energy in Oregon's RPS.

Under today's applications, we do not have reasonableness of law because the large utilities have much bigger consumer bases over which to spread renewable energy's additional and substantially higher costs. The original RPS categories reflected cooperatives' much smaller percentage of the state's total energy load. Also, co-ops do not have the benefit of tax exemptions and deferrals or the other financial management tools at the disposal of large investor-owned utilities to help them meet the mandates.

Without a change in the RPS, Central Electric and other similarly affected cooperatives face two alternatives: Pass millions of dollars of additional power costs on to the existing consumers or pass them on to the data centers. Either way, the end result is significantly higher electric rates for someone.

Oregon has conflicting policies that could wipe out its aggressive efforts to attract these data centers to the state. With jobs evaporating, homes being lost and companies going bankrupt, the Oregon legislature needs to correct this inequity. If not, there are 18 states that don't have an RPS and their electricity rates could give them a competitive advantage that leaves Oregon still searching for an economic recovery and those much needed jobs in a state that has one of the highest unemployment rates in the nation.

Published In: EnergyBiz Magazine May/June 2012

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With challenge comes opportunity

It seems that, without question, those new customers that are accountable for such major changes in demand should also be responsible for the bulk of the costs.  That said, I'm not suggesting that there is an easy solution.

I would note, however, that one of the largest owners of data centers is none other than Google who also happens to be one of the largest private investors in renewable energy... as much so, I suspect, to help bring the costs down as to simply offset their use.  Hence, it seems that requiring large new users to supply at least a portion of their own clean energy demand is one approach to look at.  Some may balk and go elsewhere but others may follow the lead and act to mitigate their own impact.  Those are the companies I would want in my back yard anyway.

Rich Mignogna, Golden, Colorado

Was this an article or an op-ed piece?

Is it me or did this article seem kind of slanted?  Not that I don't accept that sometimes even laws with the best intentions don't have unintended consequences, but this article just seemed like a slam against renewable energy portfolio standards for the sake of slamming them!

Now that the issue has been raised, I'm sure that some adjustments to the law can be made to ease the burden on these small coops.  But simply because they hit a rough patch isn't enough reason to slam RPS.

Bob "The Clean Energy Guy" Mitchell


Interesting Rate Design Issue

The new data centers are putting an increased demand on the system which, under traditional ratemaking principles, should be reflected in their rates (as well as any other high-demand users). The novelty here is that the new demand also requires a change in the generation mix which must also be reflected, but it also causes an increase in energy cost in addition to demand cost. Marginal cost pricing requires pricing the cost of the marginal production not the cost of serving the marginal customer.