Forcing you to buy what you don’t want

Governor pushes for higher, hidden energy tax

By Geoffrey Lawrence
  • Friday, April 3, 2009

Gov. Gibbons went before the Senate Committee on Energy, Infrastructure and Transportation on Tuesday to testify on behalf of his administration's bill, SB 395. The bill would, among other things, expand the scope of renewable-energy projects within the state that qualify for tax abatements. It would also increase the state's renewable-energy portfolio standard to 25 percent by 2025. This means that 25 percent of all energy produced by the state's regulated utility industry would have to be derived from "renewable" energy sources such as biomass, geothermal, solar, wind or hydropower resources.

There is a great deal of misconception and misinformation regarding renewable energy, constituting a de facto campaign. From all appearances, the governor has fallen victim to it. In his testimony Tuesday, Gibbons pointed out that New Mexico and Arizona are offering "aggressive tax incentives" and argued that Nevada would lose its competitive advantage in drawing renewable-energy companies to the state if it did not offer comparable tax breaks for those companies. While this approach would amount to a corporate welfare scheme for a particular industry, Gibbons asserts that renewable-energy companies would create new "green" jobs for Nevadans and turn Nevada into "the fastest-growing state, like we were two years ago."

The problem with Gibbons' vision is that these "new jobs" would only exist because of government subsidies and would depend on continued government subsidies to continue in existence. As such, they would not really be "new jobs" at all, but instead merely a new category of government entitlement program. The abatements from sales and property taxes that the renewable-energy companies would receive would only compel a heavier burden onto industries that do not receive tax abatements leading to the destruction of jobs in those industries.

The abatements to state and local taxes that Gibbons would bestow upon renewable-energy companies would be added to the tax benefits that renewable energy companies already receive from the federal government. Those subsidies for electricity generation from solar and wind resources, for example, amount to more than $23 per megawatt hour produced, according to a study released by the U.S. Department of Energy last year. Coal, natural gas and hydropower, by contrast, all receive less than $1 per megawatt hour in federal support. 

Despite all of these direct subsidies, plus decades of taxpayer-subsidized research, electricity from renewable sources continues to lag significantly behind traditional sources in both reliability and cost-competitiveness. What's more, this disparity is not expected to disappear any time soon.

While individuals may support the development of renewable energy sources in principle, they have never supported the idea of paying more for renewable energy sources. Many states have implemented voluntary renewable-energy pricing programs that allow utility customers to elect to pay more in order to receive a portion of their electricity from renewable-energy-generating facilities. Participation rates for these voluntary programs average about 1 percent nationally, according to a report (see page 7) from a leading renewable-energy consulting firm, La Capra Associates.

This is why that firm, Gibbons and other advocates of renewable energy boondoggles have acknowledged that tax subsidies are not enough to accomplish what they see as the "social goal" of relying more on expensive and unreliable "renewable" resources. Instead, they argue that individuals should be forced to pay more for renewable energy, even if they do not want to. 

Thus a linchpin in the governor's scheme is the expansion of the state's "renewable-energy portfolio standard." Because Nevadans cannot choose where they buy their electricity, and must purchase it from government-controlled utility companies, these "standards" are a way of forcing individuals to pay for something they would not voluntarily support. NV Energy has estimated that it already will cost an additional $2 billion by 2015 to comply with the state's current renewable-energy portfolio standard. This extra cost will be passed on to Nevada ratepayers, making it more costly to live and do business within the state. 

Contrary to popular belief, utility companies rarely oppose costly mandates such as portfolio standards because their guaranteed rate of return is based on a percentage of their costs. Hence, if the government requires a utility company to produce electricity through a more costly method, the utility company will receive even higher profits. Indeed, it is often only residential consumers who are penalized  through higher electricity rates  by the politicians' desire to bring about what they view as a "social goal."

Gibbons should realize that his renewable-energy plan, while well-intentioned, amounts to little more than social engineering and new taxes. Despite his repeated claims of opposing overt tax increases, the governor has shown no reservations about creating hidden taxes on electricity customers. Nevadans deserve a more consistent approach. That approach should protect them not only from overt tax increases, but from hidden ones as well.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

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