Costs of Utility Mandate Ultimately Borne by Consumers

By Eric Revell

With the passage of Senate Bill 838 by the Oregon legislature in 2007, most electric utilities in Oregon are required to provide certain levels of electricity from so-called renewable resources. The mandate is 15% of electricity from renewable sources by 2015, rising to a target of 25% in 2025.

In the event that a utility is unable to meet the renewable energy mandate with their own resources, they can purchase renewable energy certificates (RECs). RECs are not an actual source of electricity; they are simply trade-able certificates representing the “environmental amenities” of power generated from politically correct sources, such as windmills and biomass facilities. They can be sold by the power generator to a retail utility company in need as a stand-alone certificate, or they can be bundled with the electricity actually produced. Unused RECs can be banked and sold to achieve compliance with green energy requirements at a later date.

While there is nothing wrong with consumers purchasing a fake commodity like a REC of their own volition, the state legislature should not make utilities purchase them simply to comply with expensive green power mandates. The additional costs incurred from REC purchases are passed on to all consumers through higher rates, an encumbrance that will increase as the renewable energy benchmarks continue to rise.

Eric Revell is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

Learn more at cascadepolicy.org.