October 4, 2010

Senator Bingaman’s Insidious National “Renewable Electricity Standards” bill, S. 3813

On September 21, 2010, US Senator Bingaman (D-NM) introduced a bill1 that would create an insidious
national “Renewable Electricity Standard” (RES). Bingaman now has 32 cosponsors but expects 60.

The bill would result in higher monthly bills for millions of home owners and renters, farms, businesses,
industries, hospitals, educational institutions, and any other organization that uses electricity.

Despite the intense citizen displeasure with Congress, Bingaman’s RES bill shows that both Democrats
and Republicans, while in Washington, are eager to favor special interests and their lobbyists while
ignoring the adverse impact of their actions on the nation’s ordinary citizens, consumers and taxpayers.
The bill belies Republican claims that they favor less federal government intrusion, control, and damage.

Key provisions of Bingaman’s RES bill.

The bill would require that, by 2013, 15% of the electricity sold by an electric utility must be generated
from wind or certain other “renewable” energy sources, or from energy efficiency. The bill would create
a new US Department of Energy (DOE) bureaucracy to oversee and enforce the new federal demands.
Under the bill, up to 4 of the mandated 15% could, theoretically, be achieved by actions that improve
energy efficiency but the measures that qualify are tightly defined so utilities may have to use electricity
from renewables instead of energy efficiency to meet the bill’s requirements.

As demonstrated by states and European countries that have imposed similar “renewable” energy
requirements, higher electric bills are a direct result. Electric bills will increase because it is much more
costly to produce electricity from wind and other “renewables” favored by Bingaman’s bill than from
existing, reliable generating units. Electricity from wind is especially high in true cost and low in value.2

Special interests pushing the Bingaman bill should not be underestimated

During the past decade, the wind and other renewable energy industries have been incredibly successful
in getting federal and state government officials to grant them generous tax breaks and subsidies,
including state Renewable Portfolio Standards. The lobbying effort mounted during the past few weeks
suggests that they are intent on gaining another subsidy in the form of Bingaman’s proposed RES.

The wind industry, which has received nearly $4.5 billion in “stimulus” program3 cash grants during the
past year from the Obama Administration apparently has plenty of cash to finance its intense lobbying.

Many senators and representatives are vulnerable since they (a) wish to have campaign contributions, (b)
don’t yet understand the adverse impacts of wind energy, and (c) may not yet realize the extent of their
generosity to owners of “wind farms” and other renewable facilities or the extent to which they are
enriching these owners and their financial partners at the expense of taxpayers.4

Insidious impacts of tax breaks and subsidies for wind, including Bingaman’s RES bill

Tax breaks and subsidies, including “Renewable Electricity Standards” such as those proposed by Senator
Bingaman are insidious because they hide from public view the high true cost of electricity from “wind
farms” and other favored “renewable” facilities.

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Much of the true cost of these facilities is covered by federal and state tax breaks and subsidies. These
generous benefits flow directly to facility owners and are separate from and in addition to the revenue
facility owners receive from the sale of electricity. Of course the cost of the government subsidies and
tax breaks do show up in tax bills. So, tax burden escaped by owners of “wind farms” and other facilities
is shifted from the owners to ordinary taxpayers who don’t have the benefit of generous tax shelters.

Wind and other “renewable” energy industries have secured another subsidy in some states in the form of
state “Renewable Portfolio Standards” (RPS) that are similar in effect to Bingaman’s proposed national
RES. Like the proposed RES, state RPS require that significant shares of the electricity sold by utilities
come from wind and certain other “renewable” energy sources.

State RPS and the proposed national RES, in effect, create artificially high priced markets available only
to owners of “wind farms” and other renewable energy facilities. These markets are not available to
owners of electric generating units using traditional energy sources that produce electricity at lower cost.

Under Bingaman’s proposed national RES, utilities selling electricity to customers would be forced to
either (a) produce electricity from renewable electric generating facilities they own, (b) buy electricity at
high, above market cost from others who own such facilities, or (c) buy “renewable energy credits”
(RECs) or “energy efficiency credits” (EEC) under the complex new national certificate trading system
“managed” by DOE.

Utilities that are forced to produce or buy electricity from renewable energy facilities pass along the
higher costs to their customers via their monthly bills. When electric bills go up, customers typically
blame their local electric utility – not the legislators who have created the additional costs. Thus, RPS
and RES are ways legislators are able to satisfy the wind and other renewable industry lobbyists and
campaign contributors while not “having their fingerprints” on the higher electric bills.

The harsh negative economic impacts of tax breaks, subsidies, and renewable standards

Tax breaks and subsidies have already become so generous that they – not the alleged environmental and
energy benefits -- have become the primary reason “wind farms” have been built in the US. In fact, it is
now clear that wind energy advocates have overestimated environmental benefits while understating
adverse environmental, ecological, economic, scenic, and property value impacts of “wind farms.”

In fact, there are three major adverse economic impacts of government tax breaks, subsidies and
renewable standards that should not be overlooked:

 First, wealth is transferred -- hundreds of millions of dollars annually – from the pockets of ordinary
taxpayers and electric customers to the pockets of the owners of “wind farms” and other renewable
facilities and to the financial partners.

 Second, billions of capital investment dollars are being misdirected to the construction of energy
facilities – particularly high cost “wind farms” that produce only small amounts of electricity – which
electricity is intermittent, volatile, unreliable, and low in real value. It is low in real value because it
is unreliable and tends to be produced at night and in colder months and not during periods of high
electricity demand when electricity has high real value.

 Third, other resources – including human talent – are diverted. Those in the private sector with
resources to invest have learned that they can obtain larger returns with less risk by “mining”
generous government tax breaks and subsidies than they can by investing in potentially productive
and innovative endeavors in the private sector where risks are higher and returns not guaranteed.
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Understanding the fallacious assumptions underlying proposals such as the Bingaman RES bill.

As indicated, Bingaman’s proposed RES would be costly to millions of Americans, but it should be
recognized as merely the latest in federal and state government “energy technology forcing” proposals
that contribute little toward the objective of providing the energy required for the US economy at
reasonable economic and environmental cost.

When addressing energy issues, legislators tend to start with the correct assumption that technological
advances will eventually be the key to US energy challenges, but they go “off-track” when they turn to
demonstrably false assumptions when coming up with specific energy policy proposals.

The three most common false assumptions that underlie proposals that mandate the use of particular
energy sources and technologies are the following:

 False Assumption #1: Planners and political leaders assume they are capable of picking energy
sources and technologies that will be successful in the private competitive economy. However,
experience in the US and other countries during the past 40 years has demonstrated clearly that
neither Republicans nor Democrats, whether in Congress, state legislatures, governorships, or the
presidency, are successful in picking energy technology “winners.”

During the past four decades, dozens and dozens of “new” or “alternative” energy technologies have
been advocated by presidents, governors, legislators, and regulators as having the potential to make a
major contribution towards supplying US energy requirements at a reasonable cost if only they are
supported by more tax dollars for R&D, or “helped” by state RPS, a national RES, or other mandate.

But something happens along the way to these government attempts to force selected technology
“winners” into the economy. Instead of achieving the great benefits claimed by the promoters of the
various technologies and their government supporters, the highly touted “winner” technologies turn
out to (a) face insurmountable technical hurdles, (b) cost far more than claimed, (c) take far longer
than claimed to develop, and/or (d) have unacceptable environmental effects.

Note that the US Department of Energy (DOE) and its predecessor agencies have spent about $175
billion (2009$) on “energy R&D” focused on a long list of government-selected energy technology
“winners” and have very little in benefits to show for those tax dollars.

 False Assumption #2: Embedded in the above is another false assumption; i.e., that spending more
money on R&D will inevitably overcome all obstacles to the development and acceptance of a
potentially useful energy technology.5 While R&D is critically important to the country’s future, not
all energy technologies promoted to government officials will be proven successful by more R&D.

The unfortunate truth is that government officials are ill-equipped to select energy technologies that
deserve taxpayer supported R&D. They simply don’t have the ability to discern the difference
between facts and exaggerated claims made by promoters of new energy technologies and their
lobbyists. The unfortunate result is that a promoter’s lobbying prowess can be more important than
technological merit when government officials try to pick “winning” energy technologies.

 False Assumption #3. The third false assumption underlying most government proposals to
encourage or force acceptance of government-selected energy technologies is that “economies of
scale” (i.e., producing more copies) will inevitably bring down the cost of the technology.

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 This false assumption underlies state Renewable Portfolio Standards, the Bingaman RES proposal,
tax breaks, subsidies, and mandates that federal and state agencies spend tax dollars to buy products
using government selected technologies. The thought behind this assumption is that an artificially
created market will lead to enough demand to give the selected technology a “foothold.”

While “economies of scale” worked for Henry Ford and dozens of other consumer products
developed in the private sector, it does not necessarily work for technologies selected by officials in
Washington DC or state capitals.

Wind industry officials and lobbyists and their supporters in government have long claimed that the
industry needed tax breaks and subsidies only initially so that wind turbine technology could gain a
market foothold and be competitive with other energy sources used to produce electricity. In fact,
however, there are now a number of large wind turbine manufacturers competing in the global
government created market for wind turbines but the true cost of electricity from wind remains much
higher than the cost from traditional sources.

Outlook for the Bingaman RES bill, S. 3813.

Wind industry officials, through their massive lobbying for continuation and expansion of tax breaks and
subsidies for “wind farms” – including Bingaman’s RES proposal -- have made it clear that they have no
realistic expectation that electricity from wind will become commercially viable.

As indicated earlier, Senator Bingaman has more than 30 Democrat and Republican cosponsors for his
bill and has indicated that he expects to have at least 60 favorable votes when the bill is taken up in a
November 2010 lame duck session or early in 2011. Since bills with similar provisions have passed the
House in 2009-2010 with support from both Republicans and Democrats, Bingaman and the interests he
favors are confident that Bingaman’s bill would also pass the House in 2011.

Whether the bill will pass will depend heavily on the actions taken by citizens who express their views on
the bill to their senators and representatives. Decisions by members of Congress from states that have
few potential wind or other “renewable” energy resources will be especially important. Bingaman’s
proposed RES and other subsidies and tax breaks for wind and renewables will continue or increase the
outflow of wealth from their states to those states with greater “renewable” energy sources.

Glenn R. Schleede
18220 Turnberry Drive
Round Hill, VA 20141-2574
540-338-9958

1
S.3813. http://thomas.loc.gov/cgi-bin/bdquery/D?d111:79:./temp/~bdSPOG::|/bss/|
2
http://www.windaction.org/documents/25496 & http://www.wind-watch.org/documents/?p=1671
3
Section 1603 of the American Recovery and Reinvestment Act, commonly referred to as the “Stimulus bill.”
4
See, for example, http://www.masterresource.org/2010/07/dear-virginia-windpower/
5
A partial defense for politicians who rely on this assumption is that in times of a perceived energy “crisis” or rapid
increase in energy prices, they are pressured to do “something” to relieve citizens’ economic pain. In such
situations, officials often decide to “do something even if it is wrong” to appear responsive to constituents.
Spending more money on “energy R&D” is a convenient “answer” since the general public may recognize that it is
unreasonable to expect immediate results from R&D. This provides time for the “crisis” to resolve itself, for the
constituent to turn to different concerns, or for the government official to move on.