all flash, no light: the kabuki dance opposing a national renewable portfolio standard

N

Christopher Cooper is a PrincipalPartner for Oomph Consulting, LLC,and the former Executive Director forthe Network for New Energy Choices(NNEC), a New York-based nonprofitpublic interest group advocating utility

policy reforms that increase energyefficiency and the use of renewableresources. A former energy policylobbyist for the cement industry,

Cooper is the author of numerousreports, analyses, and articles

exploring the economic effect of energypolicy reform, including the first-ever

ranking and grading of state netmetering programs. His 2007

Renewing America report wasinstrumental in the passage of a

national renewable portfolio standardby the U.S. House of Representatives.He holds a B.A. in Politics from WakeForest University and an M.A. in the

social effects of mass communicationfrom the University of Miami. His

email address [email protected].

Benjamin K. Sovacool is a ResearchFellow in the Energy Governance

Program at the Centre on Asia andGlobalization, part of the Lee KuanYew School of Public Policy at the

National University of Singapore. Heis also an Adjunct Assistant Professorat the Virginia Polytechnic Institute &

State University. He has worked inadvisory and research capacities at the

U.S. National Science Foundation’sElectric Power Networks Efficiency

and Security Program, Virginia TechConsortium on Energy Restructuring,Virginia Center for Coal and Energy

Research, New York State EnergyResearch and Development Authority,

Oak Ridge National Laboratory, andU.S. Department of Energy’s ClimateChange Technology Program. He is the

co-editor with Marilyn A. Brown ofEnergy and American Society:

Thirteen Myths (2007) and the authorof The Dirty Energy Dilemma:

What’s Blocking Clean Power in theUnited States (2008). His e-mailaddress is [email protected].

ovember 2008, Vol. 21, Issue 9 1040-6190/$–s

All Flash, No Light: The KabukiDance Opposing a NationalRenewable Portfolio Standard

We don’t know what is driving Professor Michaels, but hiscase against a national RPS is little more than a Kabukidance of factual distortions and flawed analysis. Hispersistence cannot substitute for facts, more and more ofwhich, as we have shown, build a strong case for adoptinga national RPS and establishing a national market forrenewable energy.

Christopher Cooper and Benjamin K. Sovacool

I. Introduction

During the Tokugawa period

in Japan (1603–1868 C.E.), there

arose a secretive band of

magicians known as the

‘‘ninjutsu’’ who claimed to

possess supernatural powers,

such as the ability to turn

themselves into smoke, or dogs,

or rats. More entertainers than

mystics, the ninjutsu were

popularized by playwrights and

storytellers who used the

magicians’ physical skills and

rudimentary knowledge of

ee front matter # 2008 Elsevier Inc. All rights r

chemistry to startling affect on

the Kabuki stage. In one classic

disappearing act, a ninjutsu

would signal a half dozen

trained dogs to pursue him

round and round on stage. While

the canines careened madly

around the small space, the

ninjutsu employed a flash of

light and a puff of smoke to

momentarily blind the audience

while he dodged deftly behind a

curtain. So swiftly was this done

that the audience was led to

believe that one of the dogs

(having been added to the

eserved., doi:/10.1016/j.tej.2008.10.001 41

mailto:[email protected]

mailto:[email protected]

http://dx.doi.org/10.1016/j.tej.2008.10.001

Trying to assess theefficacy of a national RPS

in comparison to someideal alternative

regulatory regime is asuseful as debating how

many angels can Kabukidance on the head of a pin.

42

original pack) was none other

than the vanished ninjutsu.1

D eceptive elements like

the ninjutsu’s disappearing

act make for good laughs in

today’s Kabuki theatre primarily

because they don’t really fool

anyone. For all the smoke and

mirrors and trained dogs, today’s

more sophisticated audiences are

too familiar with these novice

sleights of hand to be much more

than tickled by the whole

shebang.

In much the same way, readers

who have followed the recent

debate in The Electricity Journal

over the efficacy of a national

renewable portfolio standard

(RPS) can only chuckle at Prof.

Robert J. Michael’s employment

of economic Kabuki in his latest

rebuttal of our earlier criticisms of

his work.2 While largely ignoring

our explication of internal

contradictions in his previous

article,3 Michaels bemoans our

lack of a model by which readers

may assess whether a national

RPS is an economically efficient

environmental policy. He

doggedly defends his previous

skepticism of the hedge benefits

and pollution abatement

advantages of a national RPS

using unnecessarily complex

graphs and diagrams that do

more to obfuscate than

illuminate. When a bit of basic

logic is applied to his tangled

economic theory, Michaels’

response is revealed as little more

than flashes of light and puffs of

smoke, a Kabuki dance of lines

and figures that is more ninjutsu

than ninja.

1040-6190/$–see front matter # 2008 Els

II. National RPS asEconomic Policy

Many of Michaels’ errors stem

from a persistent inability to accept

political reality. Despite his

criticisms of RPS as an effective

policy instrument, over half the

states (representing more than half

of U.S. electricity production) have

adopted some form of mandatory

RPS policy and every indication is

that more states will follow suit.

Trying to assess the efficacy of a

national RPS versus either no

existing state policies or in

comparison to some ideal (but

unstated) alternative regulatory

regime is as useful as debating

how many angels can Kabuki

dance on the head of a pin. Any

rational assessment of a national

RPS requires comparing it to the

existing state-by-state patchwork

of RPS policies and the likelihood

that this universe will continue to

evolve and expand, regardless of

Michaels’ preference that it not.4

Michaels insists that we

construct a model for helping

readers decide if an RPS is an

economically efficient

evier Inc. All rights reserved., doi:/10.1016/j.

environmental policy. But we

have consistently noted that a

national RPS would be designed

primarily to provide greater

uniformity and predictability

than the current tangle of state

policies and to correct many of the

distortions that 50 inconsistent

state programs create in an

increasingly interstate electricity

market. Indeed, the question is

not whether a national RPS is an

economically efficient

environmental policy, but

whether it is an environmentally

efficient economic policy.

A. The cost of ‘‘trivial’’

distortions

Michaels shrugs off the lack of

uniformity among existing state

RPS programs as ‘‘harmless,’’

finding that ‘‘[o]ne has to look hard

for differences likely to create non-

trivial ‘distortions’ relative to the

size of the market.’’5 But one need

only look as far as our 2007

Renewing America report to find

multiple examples of states

varying in their RPS targets,

definitions of eligible resources,

purchase requirements,

renewable energy credit (REC)

trading schemes, and compliance

mechanisms.6

These differences have created

conflicts over the meaning and

interaction of statutes, resulting in

protracted and expensive legal

battles in Connecticut, Hawaii,

and Iowa.7 Uncertainty over the

duration of state RPS policies has

complicated investment planning

in Arizona, Maine, New Jersey,

New Mexico, New York, and

tej.2008.10.001 The Electricity Journal


Even novice economistsare aware that twofactors are essentialfor the successfulgrowth of a market: atrusted exchange andsufficient tradingvolume.

N

Rhode Island.8 And potential

Commerce Clause challenges

resulting from inconsistencies

within state policies threaten a

morass of future litigation from

Pennsylvania to Texas.9

W hether the market

interruptions created by

differing state policies are ‘‘trivial’’

or not may be a judgment better

left to those more directly involved

in utility planning than either Prof.

Michaels or us. But we tend to

believe Don Furman, senior vice

president at PacifiCorp, when he

testified before the U.S. Senate

Committee on Energy and Natural

Resources that, ‘‘for multistate

utilities, a series of inconsistent

requirements and regulatory

frameworks will make planning,

building, and acquiring

generating capacity on a multi-

state basis confusing and

contradictory.’’10

Even novice economists are

aware that two factors are essential

for the successful growth of a

market: a trusted exchange and a

sufficient trading volume. The

current state-by-state approach to

trading renewable energy credits

discourages both. Contrary to

Michaels’ claim that federal

intervention is unnecessary

because of the robust growth of

regional REC trading markets,

contradictory and imprecise

restrictions on REC trading have

created inequities between states,

impeded potential investors and

artificially limited liquidity within

any given market.

I n August 2005, PJM launched

its Generation Attribute

Tracking System (GATS) to


monitor REC trading between

PJM member states. Under PJM’s

rules, however, renewable energy

generators outside of PJM’s

service territory are allowed to

trade RECs in the GATS market

only if they qualify under one of

the RPS policies of a PJM member-

state and are physically located

adjacent to PJM’s geographical

boundaries. However, for RECs

sold to PJM members Delaware,

Maryland, and the District of

Columbia, individual state rules

also require that the actual

electricity from renewable

generators outside of PJM be

imported into the territory.

ISO-NE has its own REC trading

market under a different tracking

system called the Generation

Information System (GIS). GIS

requires that renewable generators

operate in control areas directly

adjacent to the service area,

creating irrational restrictions on

the regional REC market.

Generators in NYISO, for example,

can trade RECs in Massachusetts,

but generators in PJM cannot, even

though they may be located just a

couple dozen miles away.


Connecticut further restricts REC

trading to generators actually

within ISO-NE, though that

restriction may or may not expire

in 2010.11 Again, whether or not

these variations in state and

regional renewable energy trading

rules represent more than

‘‘harmless’’ impediments to an

efficient energy market may be a

judgment call beyond mere

academics. But we defer to

Chistopher Berendt, director of

clean energy investments for Pace

Global Energy Services, who

wrote in this Journal that:

While state systems share simila-

rities, there is a critical lack of

consistent fungibility between

RECs issued in different states and

control areas . . . Thus, there are no

real REC markets among or even

within the states, only individual

state regulatory compliance sys-

tems. The lack of a real national

REC market for state RPS compli-

ance creates an absence of liquidity

for RECs and thus for investment

capital as well.12

B. The gaming of ‘‘harmless’’

differences

Michaels questions whether the

‘‘trivial’’ variations between state

RPS programs constitute true

inequities between states. In

Renewing America, we suggest that

inconsistencies between what

constitutes eligible renewable

resources under state RPS

mandates foster situations where

states rich in cheap renewable

resources end up paying to

import more expensive renewable

energy from neighboring states.

We point to, for example, the

eserved., doi:/10.1016/j.tej.2008.10.001 43


Nothingabout why

costs wouldrise in

Oregon is‘‘of course.’’ Logic

dictates just theopposite.

44

exclusion of hydropower in

Washington’s RPS and the

exclusion of geothermal power in

Arizona’s.

I nexplicably, Michaels devotes

half of his refutation of the

Washington example to guessing

that we would applaud the

development of non-hydro

resources that would occur in the

state as a result of its exclusion of

hydropower from the RPS13 and

the other half to claiming, without

citation or warrant, that, ‘‘of

course, Washington’s importation

of non-hydro renewables will also

raise costs in the states that export

them.’’14 This is a curious claim,

given that the cost of expensive

non-hydro resources (say, solar)

that would be exported to

Washington (from, say, Oregon)

would be borne by Washington

ratepayers who need that energy

to meet their state’s RPS

mandates. In exchange, Oregon’s

ratepayers can use Washington’s

excess hydropower to meet

their own RPS targets cheaply.

Nothing about why costs would

rise in Oregon is ‘‘of course.’’ In

fact, logic dictates just the

opposite.

Policymakers concerned that a

national RPS will lead to wealth

transfer from renewable poor

states to renewable rich states are

ignoring the inequitable transfer

that occurs currently because of

inconsistent state rules. A

national REC trading market

under a uniform federal

definition of eligible renewable

resources would eliminate this

predatory gaming and allow

utilities to invest in renewable


resources wherever their

development is most cost

effective.

With the Arizona example,

Michaels blithely discovers that,

‘‘states can also change their

laws.’’15 While correct, Michaels’

epiphany proves our point:

waiting for 50 states to adopt

uniform and equitable RPS

policies is both foolhardy and

inefficient. There is a time for

accepting the quirks and foibles of

state experimentation and then

there is a time for the federal

government to allow the states to

serve their proper function as

laboratories for policy innovation.

The latter is accomplished only by

crafting a coherent national

strategy from lessons learned

through observing the inefficient

interaction of state policies.

C. The success of concurrent

federal-state regulation

Finally, Michaels asserts that

our support of federal policy as a

floor that states may exceed if they

choose invalidates our claim that

a national RPS would create any


uniformity among the states.

Taken to its logical conclusion,

Michaels’ argument would

require letting the perfect stand in

way of the good. But a national

RPS is like sex, or pizza: it needn’t

be perfect to still be pretty good.

Because a federal model would

establish a shared set of eligible

resources and basic rules for

trading RECs across all states, a

national RPS would overcome

many of the liquidity and trading

volume issues that bedevil the

state-based approach. Even if

some states choose to exceed the

federal floor, a national standard

would create some level of

uniformity that is preferable to the

current mishmash of state

policies. Indeed, some level of

uniformity is still preferable to

none.

Michaels’ argument also

ignores many historical examples

of federal action adopted

concurrently with state initiatives

that nevertheless established

successful uniformity among the

states and encouraged more

efficient interstate commerce. The

example that best mimics the

national RPS policy that we have

proposed is the concurrent

federal-state regulation of

securities. After the stock market

crash of 1929, Congress

superimposed six federal statutes

on existing state securities law.

State statutes were retained

largely because federal regulators

had backgrounds in state

commissions and were

sympathetic to state authority and

because the federal government

recognized that the states in



Those who object tostate intervention in theenergy market are thefirst to invoke it toprotect the profits ofthose who claim a rightto natural gas on public

N

aggregate would perform a

significant enforcement role.16

I n 2002, the National

Conference of Commissioners

on Uniform State Laws adopted a

new version of the federal statute

that preserved the flexibility of

states to address local concerns

and to adopt variations in policy

with regard to virtually all

intrastate or smaller securities

offers. This concurrent federal-

state regulatory policy has

become the model in 40 of

the 50 states. While this system

may appear Byzantine, it has

been recognized as very

successful since federal and state

regulators generally have

understood that contradictory

state policies may deter

investment and invite further

federal preemption.17

property.
III. The Kabuki Dance:Figures, Not Facts
A. Gas markets

We prefaced our 2007 Renewing

America report with the

observation that most important

policy decisions involve winners

and losers; benefits that accrue to

one group often come at the

expense of another. Leadership is

making the tough choices about

how to achieve the most prudent

balance.18 That is why it is

bewildering that Michaels spends

such inordinate effort graphing

demand curves in the natural

gas market only to demonstrate

the rather obvious conclusion

that lower natural gas prices


resulting from a national RPS are

not an economic benefit, but

merely a transfer of wealth:

‘‘gains to users equal losses to

people who supply inputs into

gas production.’’19

Michaels’ true objection is

revealed in an endnote, where he

notes that, ‘‘there is no reason to

assume that the users of gas are

more deserving of benefits than

[natural gas suppliers] are

deserving of losses.’’20 Setting

aside for the moment the myriad

public policy benefits of a national

RPS, Michaels assertion is

counterintuitive on its face.

Players in an energy market do

not de facto deserve state

protection of their profits,

especially if those profits derive

from distortions to the market

made through other public policy

interventions (like subsidies,

public assumption of the cost of

externalities and the intervention

of 26-plus states into the market).

In other words, there is no reason

to assume that users of natural gas

(and taxpayers) are more

deserving of losses than suppliers

of natural gas.


M ichaels would no doubt

object that one public

policy intervention in the ‘‘free’’

market does not justify another.

But, as we have pointed out, an

unfettered energy market is

wishful thinking and probably

bad public policy anyway.

Supreme Court Justice Oliver

Wendell Holmes acknowledged

that rights to property and to

resources are a product of legal

rules, not of purely private

interactions or the laws of

nature.21 Or, as the esteemed legal

scholar Cass Sunstein put it:

. . . people tend to see as ‘‘volun-

tary’’ and ‘‘free’’ interactions that

are shot through with public force

. . . the laws of property, contract

and tort are social creations that

allocate certain rights to some

people and deny them to others.

These forms of law represent

large-scale government ‘‘inter-

ventions’’ into the economy.22

Those, like Michaels, who

object to state intervention in the

energy market are the first to

invoke it to protect the profits of

those who claim a right to natural

gas on public property that very

likely would not stand without

government interference.

Michaels’ invocation of Etch-a-

sketch graphs, while breaking up

his text, does no more to make

credible his opposition to

government intervention on

behalf of consumers than his

simply asserting it.

His graphs also obscure

common knowledge about the

future of natural gas markets. For

example, he sketches upward-

sloping supply curves to

eserved., doi:/10.1016/j.tej.2008.10.001 45


46

demonstrate a ‘‘more realistic

model’’ of gas market equilibria

that he claims proves that a

national RPS will not result in

depressed natural gas prices over

the long run. According to

Michaels’ graphs, the short-term

decrease in natural gas prices

that may result from a national

RPS will cause marginal

suppliers of natural gas to exit

the market, reducing supply

and eventually increasing the

price of gas to where it was

before.23

B ut Michaels’ model is an

almost comical

simplification of natural gas

markets, for it assumes that

demand for gas is affected only by

increased renewable generation.

With T. Boone Pickens and the

American Clean Skies Foundation

heralding the benefits of natural

gas as a transportation fuel that

can reduce U.S. dependence on

foreign oil,24 even non-

economists can predict an

increased demand for natural gas

from sectors other than electricity

production. But within the

electricity sector, Cooper has

noted that ‘‘shrinking reserve

margins, delay in the construction

of new gas pipelines, more

stringent emissions regulations

and the likelihood of future

carbon controls will all contribute

to an increased demand for

natural gas.’’25

M ichaels’ graph of short-

and long-run gas market

equilibria ignores ample evidence

that demand for natural gas will

almost certainly increase even if

new renewable generation


induced by a national RPS offsets

some current demand. A

marginal decrease in future

natural gas demand (when the

scale of demand from other

variables is likely to be massive)

simply proves that a national RPS

will decrease gas prices over what

they would have been otherwise,

even over the long run. This more

dynamic (and intuitive) model of

natural gas markets is made no

less obvious by Michaels’

employment of flashy but

confounding diagrams.

B. Criteria pollutants

When Michaels asserted in his

original treatise26 both that a

national RPS would lead to the

permanent exit of some natural

gas suppliers from the market and

that there would be no net

decrease in criteria pollutants

emitted by the electricity sector,

Cooper rightly pointed out the

contradiction: if renewable

generation offsets natural gas

combustion in the electricity

sector such that some suppliers

exit the market entirely, there


must be a concomitant decrease in

the emission of criteria pollutants.

To defend himself from this

charge, Michaels constructs even

more confusing graphs. Although

he never fully explains his

argument, it appears that

Michaels is trying to claim that

pollution allowances freed up by

renewable generation would be

bought up by coal-fired plants

and other polluting industries

that, presumably, would be

polluting currently if not for the

available allowances.

The idea that there are polluting

units currently mothballed that

would come online as a result of

pollution allowances freed up by

renewable generation bends

credulity, along with math. If one

assumes that allowances remain

constant so regulators never allow

an absolute decrease in

pollutants,27 even by Michaels’

logic new renewable generation

would decrease substantially the

amount of pollutants per unit of

energy produced in the sector. That

per-unit reduction would be a

decrease in criteria pollutants any

way one attempts to obfuscate the

numbers with charts, graphs, and

diagrams. There is simply no

logical way to crunch the numbers

such that renewable generation

induced by a national RPS would

not decrease pollutants from levels

they would otherwise be in the

absence of renewables. New

electricity demand must and will

be met by some means; if not by

renewables, then by coal or gas or

oil, any one of which emits

significantly more criteria

pollutants than renewables, a



N

point forcefully made by Sovacool

in his last article.

C. Risk reduction

Regarding the hedge benefits

derived from reliance on

fixed-price renewables versus

variably priced conventional

fuels (especially natural gas),

Michaels argues both that

Cooper disregards abundant data

on how utilities actually plan

using price forecasts and that

fixed-price contracts are not

important competitive tools in

any case. He is wrong on both

counts.

I n Michaels’ original article, he

stipulated that fixed-priced

renewables displacing variably

priced conventional fuels did not

reduce risk, but rather shifted it

from utilities to ‘‘captive’’

ratepayers.28 After Cooper

demonstrated how Michaels’

analysis overlooked the

substantial risk premium

ratepayers pay as a result of

betting on variably priced natural

gas over fixed-price renewable

generation,29 Michaels countered

that, ‘‘actual utilities choose to

avoid the biased comparisons

Cooper claims they make, at least

when more accurate predictions

exist.’’30 His evidence for this

claim is the same 2003 report by

Lawrence Berkeley Laboratory

researcher Mark Bolinger that

Cooper used to document the fact

that utility forecasts created a bias

in favor of natural gas

generation.31 According to

Michaels, ‘‘some of the utilities

also interpolate figures for several


years after futures data becomes

unavailable before relying

entirely on EIA or other

predictions’’32 This, he claims,

proves that ‘‘Cooper’s assertion

that utilities plan on the basis of

inferior forecasts is inaccurate.’’33

But Michaels’ claim severely

misinterprets Bolinger. We need

not guess at what Bolinger meant

when he wrote in 2003 that utility

forecasts created a ‘‘bias’’ that

underestimated the cost of

natural gas by anywhere

from 0.4 to 0.6 cents per kWh

levelized.34 In a January 2008

memorandum updating his

previous studies, Bolinger and

fellow Berkeley Lab researcher

Ryan Wiser found that ‘‘electric

utilities and electricity

regulators have increasingly

relied on NYMEX forward

prices over fundamentals

forecasts for assessing the likely

cost of natural gas in the near

term.’’35 Furthermore, the authors

warn:

Some have mis-interpreted [sic]

our work in this area as suggesting

that forward prices are better

predictors of future spot prices


than are fundamental forecasts.

This is certainly an area worthy of

study, but we do not make this

argument here, and our analysis

does not depend upon it. In fact, all

spot price forecasts – whether

gleaned from futures prices or

fundamental forecasts – have

been, and will continue to be

‘‘wrong’’ to some extent.36

Even conceding the risk

premium associated with variably

priced conventional fuels,

Michaels claims that ‘‘the fact that

some renewables contracts can

reduce risk in no way implies the

desirability of a national RPS.’’37

Michaels argues (without citation)

that this is partly because ‘‘there is

no evidence that fixed-price

contracts are important

competitive tools’’ and that

‘‘consumer participation in ‘level

payment’ programs is low.’’38

It should come as no surprise

that Michaels is unable to

substantiate his claim since it is

contradicted by the most recent

evidence about consumer

response to fuel cost adjustment

(FCA) premiums and their

exemption for customers

participating in utility green

power programs. As fuel costs

have risen, many utilities have

turned to FCAs to pass through

higher (or occasionally lower) fuel

costs as an addition to the base rate

rather than wait for formal rate

change approval.39 A handful of

utilities exempt their green power

customers from FCAs since those

customers have paid a premium

for electricity from fixed-price

renewable sources.

Researchers at the National

Renewable Energy Laboratory

eserved., doi:/10.1016/j.tej.2008.10.001 47


48

(NREL) examined the price-

stability benefits of customers

under these programs and

concluded that ‘‘FCA exemption

can have a marked impact on the

effective or net price differential

. . . the net premium was

significantly reduced (and even

went negative for a time), as a

result of the fuel cost adjustment

exemption.’’40

M ichaels is also wrong

about customer

participation in level-payment

programs. NREL researchers

documented how fixed-priced

contracts have a dramatic effect

on participation levels:

Austin Energy, which currently

offers a 15-year fixed-rate product,

was forced to implement a lottery

when the price of its GreenChoice

product fell slightly below stan-

dard electricity rates. To handle

overwhelming demand, the Aus-

tin City Council adopted a reso-

lution calling for the remaining

renewable energy supply to be

allocated equally among the three

customer bases – residential, small

commercial and large commercial

– and for the city manager to

conduct a drawing to select parti-

cipants until the program supplies

could be expanded.41

Austin’s experience has been

replicated by the Clallam County

PUC and the Eugene Water &

Electric Board (EWEB). The latter’s

fixed-price Windpower program

was fully subscribed in 2006 and

the utility subsequently had to

launch a new program. In

addition, utilities that offer some

form of fuel price protection to

their green power customers have

in recent years been ranked by


NREL among the top 10 U.S. green

pricing programs with respect to

customer participation (including

Xcel Energy, Edmond Electric,

Holy Cross, Oklahoma Gas &

Electric and We Energies).42

D. Transmission

A critical point often

overlooked in the debate over

renewable generation and the

limitations of our current

transmission system is that

utilities will have to invest in

substantial upgrades to the

nation’s transmission and

distribution system regardless if

the lines are used to transmit

conventional or renewable

generation.

Like prisons and high school

cafeterias, transmission lines are

almost certainly inadequately

funded absent government

mandates and incentives. For

example, while electricity

demand grew by almost 20

percent between 1998 and 2008,

transmission capacity grew by

only 5 percent.43 Some analysts

estimate that just to maintain the


current ratio of available

transmission capacity per MW of

electricity demand will require

the construction of 26,000 miles of

new transmission over the next

decade.44 Accordingly, even

maintaining transmission

adequacy at year 2000 levels will

require at least $56 billion ($2004)

in planned expenditures by

2011.45 The question, therefore, is

not whether RPS-induced

renewable generation will

require substantial transmission

upgrades, but whether an RPS

will induce inevitable

transmission upgrades faster

or cheaper than without

an RPS.

After conceding that the

transmission costs of a national

RPS will be small compared to the

costs already required under

26-plus state RPS policies,

Michaels questions our claim

that renewable generation

induced by a national RPS

would stimulate new

transmission faster and with less

public opposition than

conventional generation. This

claim is based, in part, on

Cooper’s analysis that

RPS-induced generation

would decrease the capitalization

costs of new transmission by

expediting the debt repayment

calculated by FERC under

hypothetical capital structures.46

Michaels attempts a weak

refutation by claiming that Puget

Sound Energy’s ability to bring 83

wind turbines at its Hopkins

Ridge Wind Project from

foundation pour to commercial

operation in six months and nine



N

days is only a ‘‘single example’’ of

faster construction lead times and

‘‘omits time spent planning,

obtaining finance, getting

regulatory permits, overcoming

local opposition, etc.’’47

P art of what makes Michaels’

opposition to a national RPS

a Kabuki dance is his hope that

readers will not understand that a

rational evaluation of

construction lead times requires a

comparison of renewable

generation to new conventional

capacity that would have to be

built otherwise. All of the

additional factors that Michaels

claims are omitted from our

comparison of lead times

(planning, finance, permitting,

etc.) are factors that conventional

facilities would face as well. And,

in most cases, these factors would

engender more delay for

conventional facilities than for

renewable units.

But even factoring out these

additional variables, construction

lead times for conventional power

plants are anywhere from three to

12 times as long as lead times for

wind plants. In 2006, researchers

at the National Renewable Energy

Figure 1: Construction Lead Times for 270 M(in years)


Laboratory compared statewide

economic impacts from new

wind, coal, and natural gas

generation in Arizona, Colorado,

and Michigan. To assess impacts

across generation technologies

and states, the researchers

assumed a plant with 270 MW of

annual output and capacity

factors of 80–85 percent for coal,

87 percent for natural gas and 25–

30 percent for wind (1.5 MW

turbines). They found that

estimated construction times

varied across technologies

(Figure 1). But in all cases

construction of a wind facility that

met their parameters would be far

faster than conventional plants:

Constructing a coal plant of this

size can take 3 to 6 years, whereas

natural gas plants typically take

1.5 to 2 years, and wind plants can

take between 6 months and 1 year

to develop. Wind generation of

such large size would likely take 1

year.48

Michaels also denies Cooper’s

claim that new transmission

justified by the need to access

renewable resources faces less

opposition than traditional

transmission upgrades. To

W Equivalent Coal, Gas and Wind Plant


buttress his claim, Michaels plays

fast and loose with facts, citing a

November 2007 Business Wire

report that he says indicates that

substantial transmission

upgrades undertaken by Xcel

energy in 2004 in order to expand

its Buffalo Ridge wind farm were

delayed until 2007 as a result of

eminent domain disputes and

opposition from

environmentalists.49

S etting aside the fact that three

years is remarkably fast for

completing the planning,

permitting, constructing, and

testing of transmission upgrades

on the scale that Xcel needed, the

fact is the Business Wire release

Michaels cites not only denies any

opposition, but quotes Xcel

Energy’s vice president for

transmission, Doug Jaeger,

corroborating the claim that a

national RPS compels faster

development of necessary

transmission upgrades:

During the 2007 legislative ses-

sion, Minnesota lawmakers

passed and Gov. Tim Pawlenty

signed into law legislation that

requires the state’s utilities to

obtain 25 percent of their electrical

energy from renewable resources.

Xcel Energy, which supported the

new law, must obtain 30 percent of

its electricity from renewables by

2020.50

‘‘That means we will have to build

more wind farms and more

transmission in order to meet this

ambitious goal,’’ Jaeger said. ‘‘As

the nation’s No. 1 wind power

provider, and by working with

companies like enXco, as well as

Burns & McDonnell and MYR

Group, our two largest contractors

on our transmission upgrade pro-

ject, we believe we can do it.’’

eserved., doi:/10.1016/j.tej.2008.10.001 49


50

E. Price signals and politics

W hile Michaels seems

perplexed that we split

our last responses into one

focusing on inaccurate price

signals regarding renewable

energy technologies and one

focused on critiquing his

evaluation of a national RPS as

efficient economic policy, he

should not be confused. He seems

now to have forgotten that his

original article included

numerous criticisms that apply

both to a national RPS policy

specifically and to renewable

power systems in general. Among

his claims were that (a) renewable

generators were at best

‘‘tenuously’’ related to enhancing

energy security; (b) despite

decades of R&D they have failed

to deliver on their promises; and

that (c) they make poor

substitutes for base-load power

plants such as nuclear and fossil-

fueled power stations.

But the reason renewables have

not achieved greater penetration

has little to do with the

technology – wind turbines, solar

panels, hydroelectric dams,

geothermal plants, and biomass

power stations work as they are

intended, and continue to

improve – and more to do with

inaccurate pricing and inadequate

politics.

Virtually every economist but

Michaels acknowledges that in

the United States the price of

electricity does not match its cost.

Renewables provide dozens of

un-priced positive externalities,

such as improved reliability,


diversification of fuel supply, and

reduced greenhouse gas

emissions. Likewise, the price of

conventional fuels fails to reflect

many of the negative externalities

for which non-consumers pay

and consumers benefit. Here

Michaels repeats the mistake of

insisting on the perfect to defeat

the good. The fact that efforts to

internalize these costs and

benefits would be imperfect is, for

him, a reason to reject all

attempts, even those that would

result in more accurate (if

imperfect) price signals than the

current market.

We have yet to meet a regulator,

commissioner, utility manager,

town councilperson,

congressperson, or senator who

would be willing to raise

electricity prices to match their

true costs. This is partly why

many state RPS policies are

economically inefficient: in order

to prevent (artificially low)

electricity prices from rising (to

where most economists agree

they should be, and which would

make renewable power

generators cost-competitive),


state regulators often weaken RPS

statutes with opt-out clauses, low

non-compliance fees, price caps,

and other ‘‘safety valves.’’ It is

precisely these sorts of

government interventions into the

‘‘free’’ energy market that we

suspect Michaels would embrace

even as he rejects other

interventions (like a federal RPS

statute) that would compel more

accurate free market exchanges in

the first place.

Michaels seems convinced that

everyone using electricity, as well

as those who invest in utilities

through their pension and mutual

funds, can achieve what the

markets have yet to – entirely

rational and efficient behavior

based on completely accurate

price comparisons, accounting for

all costs and benefits. His

assumption allows him to

conclude that ‘‘these individuals

do not feel as victimized as

Sovacool thinks.’’51 And despite

ample evidence that energy is the

premier political issue for voters

across the political spectrum,52

Michaels advances the

preposterous claim that ‘‘the most

charitable interpretation is that

[Sovacool] refuses to believe that

the public is not upset about the

things that upset him.’’53

The assumption that individual

pensioners, mutual fund

investors, and electricity

consumers are making rational

choices based on accurate

information is best rebutted by

Michaels himself. When it was

more convenient for his

argument, Michaels claimed in

his earlier work that, ‘‘much of the



N

public cannot even identify a

renewable,’’ and referenced a

study in Kentucky where 41

percent of respondents identified

coal, steel, and oil as ‘‘renewable

resources.’’54 This more intuitive

understanding of public

misperceptions about the energy

market is supported as well by a

U.S. Department of Energy report

that found that 88 percent of

Americans would fail a ‘‘basic’’

electricity-literacy test.55 In

another poll, only 39 percent of

those interviewed had ever heard

of ‘‘greenhouse gas emissions’’

and of those that had, more than

half did not know where they

came from.56

E lectricity investors and

consumers are not as well

informed as Michaels would have

us believe. Many cannot even

name a single renewable resource,

let alone accurately price

renewable energy relative to the

external costs of conventional

fuels. Without accurate price

comparisons, utilities, power

providers, and states ride freely

on the dime of taxpayers (many of

whom are beginning to catch on).

Previously, Sovacool documented

how some planners locate

landfills and coal mines near state

borders so damages can be

externalized; refineries pump

pollutants into the Great Lakes so

all bordering states pay the cost;

municipal regulators demand

taller smoke stacks for power

plants so air pollution travels a

greater distance. Western states

have for years fought to limit their

liability for sulfur dioxide,

nitrogen oxide, and mercury


emissions raining down on

Eastern states. States such as

Massachusetts and Rhode Island

suffer from the ozone pollution

emanating from Southern

Company’s coal-fired power

plants in Georgia, Alabama, and

Mississippi, and almost 70

percent of the air pollution falling

on Maryland comes from other

states.57

M ichaels’ logic requires us

to believe that other

regulatory approaches, such as

carbon taxes or emissions

allowances, can internalize all of

these pollution damages and

perfectly protect human health.

But we believe that the single

most effective solution to the

inaccurate price signals sent by

the current electricity market is

for government to insist that

electricity prices reflect a more

accurate cost of generation. Free

marketers should embrace this

idea since it would empower

consumers to make more accurate

purchasing choices. The fact that

they adamantly oppose it is one

reason why such direct

government intervention is


unlikely. But a national RPS can

impel more accurate price signals

with a policy that is far more

politically palatable. By

overcoming many of the free rider

issues associated with a

patchwork of inconsistent state

policies and by internalizing some

of the externalities associated

with conventional generation, a

national RPS fosters a more

efficient (if still imperfect)

national energy market where

consumers can make more

accurate (if still imperfect) choices

about how to spend their energy

budgets.

IV. Conclusion

When the majority of states and

even the majority of federal

lawmakers have come to embrace

the necessity of a national RPS, we

do not envy anyone trying to

oppose it. Indeed, we appreciate

Michaels’ tenacity in the face of

overwhelming evidence and

public support of the policy. But

persistence cannot substitute

for facts, more and more of

which, as we have shown, build a

strong case for adopting a

national RPS and establishing a

national market for renewable

energy.

When dozens of states have

chosen (rightly or wrongly) to

intervene in the market, federal

action to encourage a level of

consistency and some uniform

trading rules does more to

encourage a competitive

marketplace than does inaction. A

national RPS expands investment

eserved., doi:/10.1016/j.tej.2008.10.001 51


52

opportunities, discourages

profiteering from state

inconsistencies, reduces free

riding, and evinces more

accurate energy price signals

that allow consumers to

make increasingly rational

choices. These advantages

alone should engender support

of the policy by free market

advocates. But, by diversifying

the nation’s generation

portfolio, a federal RPS has

His case against a national RPS


the added benefits of

depressing short- and long-term

natural gas prices, reducing

criteria (and other) pollutants,

and inducing desperately

needed upgrades to our

strained transmission grid.

In the face of no compelling

disadvantages, we can

only surmise that the few

remaining opponents to a

national RPS are motivated by

ideology or greed.

is little more than a Kabuki dance of factual d


W e don’t know which is

driving Michaels,

but his case against a national

RPS is little more than a Kabuki

dance of factual distortions

and flawed analysis. His

employment of ‘‘ninjutsu

economics’’ is unlikely to

convince those with more than a

facile understanding of energy

markets. Even he cannot torture

numbers to say things simple

math and logic deny.

istortion and flawed analysis.



N

In the end, Michaels asks two

questions: are we really the best

RPS proponents have to

offer and, if so, why would

anyone want one? We do

not presume to be among

the nation’s best advocates

for an RPS policy. Neither

one of us has managed an

electric utility, taught economics,

built a power plant, or traded

fuels on the spot market. But

if our limited evaluation can

render such obvious holes in

Michaels’ opposition to a

national RPS, readers can

only suppose just how

strong the case for it is and

why many lawmakers,

utilities, environmentalists,

and even economists all

want one.&

Endnotes:

1. Samuel Salone, Ninjutsu: They KnewAll About Poison Gas, J. NON-LETHAL

COMBATIVES, Dec.2007, available athttp://ejmas.com/jnc/jncart_salone_1299.htm

2. See Robert J. Michaels, RenewablePortfolio Standards: Still No GoodReasons, ELEC. J., Oct. 2008.

3. See Christopher Cooper, A NationalRenewable Portfolio Standard: PoliticallyCorrect or Just Plain Correct?, ELEC. J.,June 2008, at 9–17, and Benjamin K.Sovacool, Renewable Energy:Economically Sound, Politically Difficult,ELEC. J., June 2008, at 18–29.

4. This fall, for example, Californiavoters were to consider Proposition 7,a voter initiative to expand the statesRPS to 40 percent by 2021, and 50percent by 2026. In addition, SanFrancisco voters were to vote on aseparate initiative, Proposition H,requiring that 100 percent of thecity’s retail electricity demandbe met by renewable resourcesby 2040.


5. Michaels, supra note 2, at 4.

6. See Christopher Cooper andBenjamin Sovacool, Renewing America:The Case for Federal Leadership on aNational Renewable Portfolio Standard(RPS), Network for New EnergyChoices, 2007 (subsequently cited asRenewing America), at http://www.newenergychoices.org/dev/uploads/RPS%20Report_Cooper_Sovacool_FINAL_HILL.pdf

7. Renewing America, supra note 5,at 26.

8. See Ryan Wiser, Kevin Porter andRobert Grace, Evaluating Experiencewith Renewable Portfolio Standards in theUnited States, MITIGATION AND

ADAPTATION STRATEGIES FOR GLOBAL

CHANGE 10 (2005), at 237–263.

9. For example, virtually all ofPennsylvania is serviced by PJM,except for a tiny sliver along the state’sWestern border (which falls underMISO) and another small area in PikeCounty (which does not fall into anyISO service area and is serviced by thePike County Electric DistributionCompany). Under Pennsylvania’srelatively new ‘‘Alternative EnergyPortfolio Standard,’’ the state PUCdecided that renewable energy fromMISO could only be used to meet thedemand in the tiny area of the statethat is serviced by MISO. This torturedinterpretation of the state statuteinvites a Commerce Clause challengefrom generators anywhere within theMISO service territory that may wantto sell their renewable energy toregulated utilities in Pennsylvania.


As well, the Pike County ElectricDistribution Company may be in aunique position to being aCommerce Clause case since itappears to be the only area in thestate inexplicably barred from usingout-of-state power to meet the state’sRPS mandate. See Renewing America,at 92–94.

10. Donald Furman, Power GenerationResource Incentives and DiversityStandards, Statement before U.S.Senate Committee on Energy andNatural Resources, Mar. 8, 2005.

11. See Renewing America, supra note 5,at 46–48.

12. Christopher R. Berendt, A State-Based Approach to Building a LiquidNational Market for Renewable EnergyCertificates: The REC-EX Model, ELEC. J.,June, 2006, at 57.

13. Here Michaels is purelyspeculating. Our Renewing Americareport makes clear that we support theuse of renewable fuels whileremaining agnostic about thetechnologies used to harnessthem.


15. Id.

16. See Joel Seligmann, The UnitedStates Federal-State Model ofSecurities Regulation, Research Studyprepared for the Wise Persons’Committee, Sept. 4, 2003, Available athttp://www.wise-averties.ca/reports/html/1E_Seligman/1E_Seligman_complete.html

17. Seligmann, supra note 16, at 3.

18. See Introduction to RenewingAmerica, at 16–27.


20. Id., at note 31.

21. See CASS R. SUNSTEIN, THE SECOND

BILL OF RIGHTS: FDR’s UNFINISHED

REVOLUTION AND WHY WE NEED IT MORE

THAN EVER (Cambridge, MA: BasicBooks, 2004), at 17–34.

22. Id.


24. See Nicholas Van Praet, Oil TycoonPushes Natural Gas So Drivers Can Fill

eserved., doi:/10.1016/j.tej.2008.10.001 53

http://ejmas.com/jnc/jncart_salone_1299.htm

http://ejmas.com/jnc/jncart_salone_1299.htm

http://www.newenergychoices.org/dev/uploads/RPS%20Report_Cooper_Sovacool_FINAL_HILL.pdf




http://www.wise-averties.ca/reports/html/1E_Seligman/1E_Seligman_complete.html




54

Up at Home, Financial Post, Sept. 23,2008, available at http://autos.canada.com/news/story.html?id=0caa776a-6ebe-4b3e-a063-94381fa82113

25. See Cooper, supra note 3, at 13.

26. See Robert J. Michaels, A NationalRenewable Portfolio Standard: PoliticallyCorrect, Economically Suspect, ELEC. J.,May 2008.

27. This process is, of course, absurdsince regulations for determiningallowable emissions of criteriapollutants for any utility requireassessing available control technologyfor a given generating unit versus atarget reduction in pollutants. When aregulated utility under a national RPSbegins supplying a certain percentageof its demand with renewableresources, regulators would correctlyreduce the amount of allowances tocorrespond with the deployment ofnew technologies. After all, that is howthe system is designed to actuallyreduce pollution.

28. Michaels, supra note 26.

29. See Cooper, supra note 3, at 13.


31. Mark Bolinger et al., Accounting forFuel-Price Risk when ComparingRenewable to Gas-Fired Generation: TheRole of Forward Natural Gas Prices,ENERGY POLICY, 2004; see Cooper, supranote 3, at 13.

32. Michaels, supra note 26, at note 47.


34. Bolinger et. al. (2003) at 719.

35. Mark Bolinger and Ryan Wiser,Comparison of AEO 2008 Natural GasPrice Forecast to NYMEX Futures Prices,Lawrence Berkeley NationalLaboratory Memorandum, Jan. 7, 2008at 10.

36. Id., at 6.


38. Id.

39. See Lori A. Bird, Karlynn S. Coryand Blair G. Sweeney, RenewableEnergy Price-Stability Benefits in UtilityGreen Power Programs, NationalRenewable Energy Laboratory


Technical Report 670-43532, Aug.2008, at 14.

40. Id., at 15. The effect of fixed-costcontracts is probably underestimatedsince, for many green powercustomers, ‘‘the FCA represents ashort-term collection mechanismused between major rate cases thateventually gets balanced in the nextutility rate case . . . Therefore, inmany cases, these higher fuel costseventually become part of baserates and the FCA is set back tozero, eliminating any pricing benefit.

If the green power premium is notadjusted to account for upwardchanges in the cost of conventionalgeneration, green power customerscontinue to pay a premium rate evenas the cost differential betweenrenewables and non-renewablesnarrows.’’ See Bird, Cory andSweeney, at 16.

41. Id., at 5.

42. Id., at 20.

43. M. Reutter, TransmissionCongestion Threatens to Clog the Nation’sPower Grid, News Bureau, Univ. ofIllinois at Champaign-Urbana, July 26,2006, available at http://www.news.uiuc.edu/news/06/0727power.html

44. E.K. Datta and D. Gabaldon,Energy Technology: Winner Take All,PUB. UTIL. REPORT, Oct. 15, 2003,available at http://www.pur.com/pubs/4273.cfm

45. Transmission Access Policy StudyGroup (TAPS), Effective Solutions for


Getting Needed Transmission Built atReasonable Cost, June 2004, available athttp://www.electricitydeliveryforum.org/pdfs/Effective_Solutions_TAPS6-2004.pdf

46. See Cooper, supra note 3, at 14–16.


48. S. Tegen, Comparing StatewideEconomic Impacts from New Generationfrom Wind, Coal and Natural Gas inArizona, Colorado and Michigan, NRELTechnical Report NREL-TP-500-37720,May 2006, at 10, available at:http://www.nrel.gov/docs/fy06osti/37720.pdf

49. Michaels, supra note 2.

50. Business Wire, State’ Largest WindFarm, Transmission Line Dedicated, Nov.13, 2007, available at: http://www.allbusiness.com/energy-utilities/utilities-industry-electric-power-power/5304874-1.html


52. See, for example, a June 2008Quinnipiac University survey ofColorado voters that found thatRepublicans, Democrats, andIndependents were more likelyto vote for a presidential candidateon the basis of his or her energypolicy than on his or her positionon the war in Iraq. Available athttp://www.washingtonpost.com/wp-srv/politics/interactives/campaign08/battleground-polls/battlegrounds_co_072408.html


54. Id., at 23.

55. U.S. Dept. of Energy Office ofPolicy and International Affairs andOak Ridge National Laboratory,Behavioral Research Workshop: ResidentialBuildings Energy Efficiency DraftSummary Report, Feb. 26, 2008, at 8.

56. Barbara C. Farhar, Trends in U.S.Public Perceptions and Preferences onEnergy and Environmental Policy,ANNUAL REV. OF ENERGY AND ENV. 9(1994), at 211–39.

57. Christopher Cooper and BenjaminSovacool, Maryland Shouldn’t Pay forSouth’s Pollution, BALTIMORE SUN, July27, 2007, at 17A.


http://autos.canada.com/news/story.html?id=0caa776a-6ebe-4b3e-a063-94381fa82113



http://www.news.uiuc.edu/news/06/0727power.html

http://www.news.uiuc.edu/news/06/0727power.html

http://www.pur.com/pubs/4273.cfm

http://www.pur.com/pubs/4273.cfm

http://www.electricitydeliveryforum.org/pdfs/Effective_Solutions_TAPS6-2004.pdf



http://www.nrel.gov/docs/fy06osti/37720.pdf

http://www.nrel.gov/docs/fy06osti/37720.pdf

http://www.allbusiness.com/energy-utilities/utilities-industry-electric-power-power/5304874-1.html




http://www.washingtonpost.com/wp-srv/politics/interactives/campaign08/battleground-polls/battlegrounds_co_072408.html





all flash, no light: the kabuki dance opposing a national renewable portfolio standard

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