RGGI requires consumer protections
Again this year, the high cost of electricity resulting from dramatic increases in oil and natural gas prices have made energy a top concern for New Hampshire businesses. This is especially true for New Hampshire’s manufacturers, hospitals, ski resorts, office campuses, lodging establishments and many other large energy consumers.
The Business and Industry Association of New Hampshire supports the intent of the Regional Greenhouse Gas Initiative (RGGI). We do, however, have a number of concerns with HB 1434 – the bill to implement New Hampshire’s participation in RGGI.
As currently written, HB 1434 will put revenues the state receives from the auction of RGGI allowances into a Greenhouse Gas Reduction Fund, which will support energy efficiency programs. If the auction price becomes too high, consumers will receive rebates to offset the purchase of allowances. BIA believes this rebate mechanism is essential, as it will help protect ratepayers should the auction price of allowances go higher than expected.
Unfortunately, the price per CO2 allowance in the House-passed version of the bill must exceed $12 before ratepayers receive any rebates. We believe this threshold is far too high.
The Department of Environmental Services has estimated New Hampshire will receive revenues from more than 10 million allowances in the first year of RGGI. If New Hampshire’s affected sources purchase the allowances for $12, then electricity rates in the state would increase by about $120 million in one year. All consumers will shoulder this price increase. And they will shoulder it during a weak economy, perhaps during a recession.
University of New Hampshire Professor Ross Gittell performed an economic analysis of RGGI several months ago. His analysis states that over time New Hampshire will see lower electricity rates through investments in energy efficiency. BIA does not question this assumption, although it is important to remember that, according to the study, it will take at least six years before the savings from these investments offset the net costs of RGGI.
Even so, we support and acknowledge the benefits of energy efficiency. However, is the state positioned to spend up to $120 million on energy efficiency programs within the first year of RGGI?
Initiatives that improve energy efficiency, increase conservation and implement demand-response programs to reduce greenhouse gas emissions require rulemaking and a realistic ramp-up period. The Public Utilities Commission needed four years to complete rulemaking and the administrative infrastructure necessary to implement the System Benefit Charge. While the PUC is working to allocate RGGI auction proceeds in the best manner possible, non-lapsing revenue will continue to accrue and all ratepayers will continue to pay higher electricity rates.
BIA believes the rebate threshold should be set at $2 — the amount for which Dr. Gittell’s study assumes allowances will sell during the auction’s first year.
A $2 allowance auction price will raise $20 million a year, nearly doubling what the state now spends on energy efficiency through the System Benefit Charge.
A $2 rebate threshold provides some hedge against price uncertainty created by the secondary market where no rebates will be available to New Hampshire ratepayers.
A $2 rebate threshold will give the PUC time to implement proper rules and administrative infrastructure necessary to deploy effectively additional energy efficiency dollars. And a $2 rebate threshold will also reduce the temptation by future legislatures to divert the Greenhouse Gas Reduction Fund for other purposes.
Another concern is that the RGGI auction is open to anyone. This means speculators may purchase a significant amount of allowances to take them off the market and sell them later as prices spike due to allowance shortages. Allowances sold in this secondary market provide no benefit to the state and no rebate to ratepayers.
New Hampshire currently has some of the highest electricity rates in the country. Many businesses struggle to make payroll. Without addressing the shortcomings in HB 1434, we fear RGGI may well achieve its CO2 reductions because New Hampshire companies will quietly move or expand operations elsewhere in the country or world. Obviously, this outcome would not help the environment, the thousands of New Hampshire men and women these companies employ or New Hampshire’s economy.
Jim Roche is president of the Business and Industry Association of New Hampshire.
