NCPA - National Center for Policy Analysis

The Midwest Wind Surtax

January 3, 2011

You'd think poor Michigan has enough economic troubles without the Federal Energy Regulatory Commission (FERC) placing a $300 million to $500 million annual surtax on the state's electric utility bills.  But on December 16, FERC Chairman Jon Wellinghoff announced new rules that would essentially socialize the cost of transmission lines across 13 states in the Midwest, reports the Wall Street Journal.

The region-wide pricing scheme will force Michigan to pay about 20 percent of as much as $20 billion in new high-voltage transmission lines -- though Michigan businesses and homeowners will get little benefit.  Indiana, Illinois, Minnesota and Wisconsin will also absorb new costs.

This is the first step in a FERC scheme to socialize transmission costs nationwide.  In June FERC drafted a rule to create a new national transmission pricing policy that would link wind and solar energy projects to the national electricity grid.  The new pricing rule would establish a new category of transmission lines, "Multi-Value-Project," which would take into account broad "public policy goals," most notably the increased use of renewable energy.

About half the states already have renewable portfolio standards, which require from 10 percent to one-third of electricity to come from wind, solar and other renewable resources.  But states have discovered that ratepayers aren't thrilled about paying higher costs.  For example:

  • A 2009 report by the California Public Utilities Commission found that to meet the state's 33 percent renewable energy target by 2020, seven transmission lines at a cost of $12 billion would need to be built.
  • In Massachusetts, electricity from the Cape Wind project will cost two to three times more per kilowatt hour than electricity from coal or natural gas.
  • The wind industry has essentially conceded that without the ability to socialize costs, its projects can't compete with coal, natural gas or nuclear power.

The FERC pricing scheme is politically insidious and arguably unconstitutional, because it enables states with renewable energy standards to export the costs of those policies to states without these laws, says the Journal.

Source: "The Midwest Wind Surtax," Wall Street Journal, December 30, 2010.

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