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Ritter's Phantom Carbon Tax

by William Yeatman and Amy Oliver Cooke

Ratepayers can’t see it on their bill, and they won’t hear about it from Governor Bill Ritter. But a central component of his New Energy Economy is a big, hidden energy tax that makes customers pay for the controversial theory of global warming.

In order to make Ritter’s New Energy Economy appear affordable, the Public Utilities Commission (PUC) allows Xcel Energy to incorporate at least a $20-per-ton carbon tax into the economic models the utility uses to make resource acquisition decisions. The tax is used in the models, and the models dictate spending.

Ritter’s carbon tax is the worst kind of virtual reality because it leaps from the computers to your wallet. Ratepayers cannot see the tax because it is cloaked in the impossibly arcane processes of the PUC.

Legally, the tax is based on HB08-1164, which allows the PUC to “give consideration” to “the risk of higher future costs associated with the emission of greenhouse gases such as carbon dioxide when it considers utility proposals to acquire resources.”

Colorado Conservation Voters–which “works to turn conservation values into Colorado priorities”–bragged: “By giving the PUC the ability to use carbon as a value in resource planning decisions, HB 1164 represented the first time that the Colorado General Assembly took a substantive step forwards in giving regulators the tools they need to explicitly address global warming.”

HB 1164 was part of an unfortunate spate of laws, passed from 2007 and 2008, that changed the PUC’s priority from affordability to climate change mitigation, costs be damned.

While it’s prudent for the PUC to consider the risks of Congress passing a cap-and-trade scheme that would put a price on carbon, it is, in equal measure, rash to include the cost of a federal carbon tax in resource planning that covers a time frame during which these costs couldn’t exist.

In its most recent Resource Plan, Xcel made acquisition decisions based on an assumed carbon tax from 2010 through 2015, even though it is inconceivable the federal government could have a carbon bureaucracy ready by 2015. And that’s only if Congress passed cap-and-trade legislation tomorrow.

In light of a possible Republican takeover of the House of Representatives this November, it’s highly unlikely Congress will enact a controversial carbon tax anytime in at least the next two years.

To its credit, the PUC staff registered second thoughts about the application of a carbon tax. Alluding to the $20 ton emissions fee during hearings for Xcel’s most recent renewable energy compliance plan, PUC staff witness William Dalton expressed concern about “including costs that do not exist.” PUC Commissioners, however, owe their standing not to the staff, but to the Governor. Unless Xcel includes “costs that do not exist,” Ritter’s New Energy Economy is not exactly affordable.

Consider HB10-1365, Governor’s Ritter’s plan to switch 900 MW of electricity generation from coal to natural gas. According to Xcel projections, coal will be four times less expensive than natural gas through 2020. Therefore, economic models most likely would demonstrate that fuel switching from coal to natural gas will incur increased costs. But Xcel’s models show a natural gas future to be more affordable, thanks to the carbon tax. Due to coal’s higher carbon content, it is penalized hundreds of millions of dollars in the model.

A similar situation exists with another major component of Ritter’s New Energy Economy: HB10-1001, a law requiring that Xcel generate at least 30 percent of its electricity with renewable energy sources by 2020.

Naturally, carbon-free electricity will appear more affordable than hydrocarbon electricity when Xcel includes a carbon tax. According to the PUC staff, “If the Company includes the carbon cost in the [HB 1001) plan, it will create room to purchase renewable energy resources.” Xcel includes the carbon tax in its 2010 compliance plan, with the PUC’s and General Assembly’s blessing. Yet no federal cap-and-trade carbon tax exists.

Colorado Legislative Council Staff wrote in the fiscal note for HB 1164, “the bill will not affect state or local revenue or expenditures, and is assessed as having no fiscal impact.” But including a non-existent $20 per ton carbon tax that adds millions of dollars to the cost of otherwise inexpensive fuels such as coal, has an impact on ratepayers. The Denver Post reported in August that Denver had the nation’s second-highest increase in electric rates during the first half of 2010.

If Ritter and the state legislature want to tax Coloradans to pay for global warming, they need to make their case to voters. Anything less is dishonest.

This article originally appeared in the Denver Daily News, October 29, 2010.