Study finds no relationship between electricity prices, state renewable portfolio standards

Source: Daniel Cusick, E&E reporter • Posted: Thursday, April 12, 2012

The debate over the effect of renewable portfolio standards (RPSs) on electricity rates has a new entrant, the Center for American Progress, which issued a report today suggesting there is no relationship between the state-based RPSs and what customers pay for electricity.

The study, based on an analysis of electricity rates by Richard Caperton, the center’s director of renewable energy investment, found that RPSs “have no predictable impact on electricity rates” in the 28 states that have adopted such laws.

In seven states — California, Delaware, Iowa, Maine, Massachusetts, Montana and Texas — RPSs helped arrest rising electricity costs by forcing states to diversify their electricity sources, according to the study. While electricity rates may have increased in those states, the increases were on average smaller than those seen in non-RPS states over the same period.

But an equal number of states that experienced below-average electricity rate increases before their RPSs took effect saw above-average rate increases after the laws passed, the findings show. Such states included Arizona, Illinois, Maryland, New Jersey, New Mexico, Ohio and Pennsylvania.

Meanwhile, five states — Connecticut, Nevada, New Hampshire, New York and Rhode Island — continued to see rising electricity rates after RPSs were implemented, but at a slower rate than they had been increasing before the RPSs took effect, the study found.

“The key issue is that after enacting a renewable energy standard, some states’ rates go down, some go up more slowly, and some go up faster than they previously had. There’s no consistent pattern. So there’s no way to conclude that RESs [renewable energy standards] are bad for ratepayers,” Caperton said in an email about the findings.

He also noted that anecdotal evidence, including reports from state agencies administering RPS programs, suggests that renewable energy standards have had a minimal impact on electricity rates and provided other positive outcomes for state economies.

“Every state’s different and has unique things driving their electric rates,” Caperton said.

Restructuring and rising rates

Critics of RPS policies have pointed to states like Maryland, where rates have risen dramatically due to electricity restructuring and other changes, including implementation of a state standard requiring that 20 percent of the state’s electricity come from renewable resources by 2022.

According to Caperton’s analysis, Maryland electricity rate increases were 0.12 percent below the average for non-RPS states prior to the law’s passage in 2008. After the RPS was enacted, Maryland electricity rates soared, with average hikes 7.16 percent higher than the average for non-RPS states.

But Caperton maintains that Maryland’s rate increases were associated with a number of factors, including broad restructuring that occurred after 2007 when more than a dozen states decoupled traditional power generation and distribution systems.

“The conclusion is clear: Anyone who says they’ve looked at all of the states and found that renewable energy standards drive up rates is wrong,” Caperton writes in the report.

“There are no data showing a nationwide pattern of these standards leading to rate increases for consumers,” the report continues. “Instead, the data show that these standards do not cause electricity rates to go up faster than they otherwise would have, and that the standards are not responsible for electricity rates increasing faster than average.”