Why You are Paying More For Your Energy

By Eric Strobel

A generation ago, electricity was less expensive in Minnesota than in other states. This low-cost energy provided Minnesotans with a significant benefit and was a rare expense break for beleaguered state businesses. If you feel as if you have been paying more and more for your monthly energy bill, that is because you are, a lot more.

The cost of energy in Minnesota has increased 12.5% over just the past eight years compared to an average reduction of 1.5% in the rest of the nation. The primary cause of the price increases was a mandate passed in 2007 which requires all state utilities to generate 25% of their energy production from so-called “renewable energy” by 2025. This is even more aggressive than the federal mandate of 20% “renewable energy” production by 2030. As disastrous as this state mandate is, however, it is made significantly worse by a series of wrong-headed and costly subsidies handed out to so-called “green energy.”  

While everyone is in favor of renewable energy, the issue is at what cost to the public will these energy programs be implemented? As Warren Buffet noted, "…we get a tax credit if we build a lot of wind farms. That's the only reason to build them. They don't make sense without the tax credit." This is also why Bill Gates has said that the costs of reducing carbon emissions with current technologies such as wind and solar power are “beyond astronomical.” Simply put, without massive taxpayer subsidies and mandates, “green energy” is not currently viable.

As an example of the increased costs necessary to support “renewable energy,” Xcel Energy and other electrical providers are required by state law to purchase excess solar energy at retail prices. What this means is that the electrical providers must reduce their own output of less expensive electrical energy and purchase higher-cost solar power at the exact same rate as the electrical providers then charge their customers.

This is called “net-metering” and results in significant increased costs as well as inefficiency at the producer because the available solar power fluctuates depending upon the available sunlight. The effect is that utilities, and naturally their customers, must subsidize solar and other “green energy” by paying more than the market will bear for their products. Of course, the fact that utilities must subsidize their competitors by paying retail prices for electricity that they previously produced at wholesale cost also helps drive up costs.

In addition, because of state energy mandates, utilities must spend more money to promote “green energy” technology. Xcel Energy customers currently are paying a 5% surtax to permit Xcel Energy to promote so-called “renewable energy” programs, a direct tax to every rate payer.

Minnesota’s current energy program, focused on renewable requirements, raises electricity prices yet demonstrates little environmental benefit, especially when compared with other options.  The best answer is not more state and federal regulation and taxes on existing energy. It is a sensible environmental policy that embraces an “all of the above” approach to energy usage.  

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