Testimony Before the Ohio Senate Energy and Natural Resources Committee In Support of the Continuation of the Freeze on Renewable Energy Mandates in Our State By Robert E. Murray Founder, Chairman, President, and Chief Executive Of?cer Murray Energy Corporation 46226 National Road St. Clairsville, Ohio 43950 On Behalf of the Ohio Coal Industry and Its Workers, Both Active and Laid As Well as Reliable, Low Cost Electricity in Ohio State House Columbus, Ohio December 7, 2016 Thank you, Chairman Balderson and members of the Senate Energy and Natural Resources Committee, for this opportunity to testify before you this afternoon. The mandate for renewable energy in Ohio, which is currently frozen, must be permanently eliminated. Electric power from windmills and solar panels is unreliable, and it costs six and one-half (6 1A) times more than the electricity generated from coal. Wind and solar power costs twenty-six cents per kilowatt hour at the buss bar, while coal??red generation is four cents per kilowatt hour. Wind and solar power would not even exist if it were not for the four cent per kilowatt hour Federal subsidiary that it gets from the American tax payer, including Ohio?s coal miners. Multi-billionaire Warren Buffett, who owns windmills in his sprawling empire, said ?They (wind farms) don?t make sense without the tax credit?, and it will be ended. hopefullv thisyear. To many, the arti?cially created wind and solar power industries are a pure fraud. President-Elect Trump will end these costly subsidiaries so that all forms of electric power generation can compete on a level playing ?eld, rather than the Federal government picking winners and losers. Right now, the poorest ?fty-one (51) million American families, forty percent of all, pay out twenty-two cents of every dollar of income for energy. This includes single mothers and retirees living on a ?xed nest egg. Also, Ohio?s manufacturers depend on reliable, low cost electricity for their products to complete in the global marketplace. But, electricity generated from windmills and solar panels is neither reliable or cost competitive. Under the old Ohio renewable energy mandate, a major electric utility in our State was forced to be connected to 3,800 megawatts of renewable energy during the very cold polar vortex of early 2014. When the utility called on this renewable generation, they got ?fteen (152 megawatts out of the 3,800 megawatts to which they were connected. The wind wasn?t blowing, and the sun wasn?t shining. But, what that utility had was 8,170 megawatts of coal-?red electricity generation that they called on at eighty?nine percent during this time. All of that coal-?red generation has been forced to close by the actions of the destructive President Barack Obama, his bureaucrats, and the U. S. Congress, who have forced wind and solar power on us in the guise of protecting us from so-called global warming or climate change. But, the environment is being used as a shill or strawman to justify the renewable energy industries. The U. S. Environmental Protection Agency itself issued a report stating that, if a_11 of the coal-?red power plants in America were closed, it would have an immeasurable effect on global temperatures, 0.02u Fahrenheit. But, many of Ohio?s companies and the Ohio Consumers? Council have not done their homework. If they had, they would know that renewable energy is unreliable and nearly six (6) times as costly as coal-?red electricity generation, and that the industry will die when the Federal tax subsidy from our citizens is phased out, hopefully this year. A thorough study by the MacIver Institute in Wisconsin shows that their same mandate as Ohio?s will cost the State $472 million in higher electricity costs in 2016, plus one (1) billion dollars in lost economic activity statewide every year, and 7,000 to 10,000 fewer jobs annually. Many experts and organizations have expressed their concerns regarding the loss of power margins in our electric power grids, including the PJM, in which Ohio is located, and renewable energy contributes to this. Further, there is an outcry in our Country regarding the fact that electricity ratepayers who do not use renewable energy are subsidizing those who do. Subsidies per net metering customer range from several hundred dollars a year to values in excess of ?fteen hundred dollars ($1,500) per year per ratepayer. Does Ohio really want to rely on this unreliable and costly form of generating electricity? Ask the single mother, the retired couple, or the Ohio manufacturer who will pay the price. Or, ask the Ohio coal miners whom we have been forced to lay off because of the mandates for unreliable and high cost wind and solar power. In 1970, Ohio produced ?fty??ve (55) million tons of coal; this year, it will be about fourteen (14) million tons. This month, I was forced to close Murray Energy Corporation?s ?rst Mine, the Powhatan No. 6 Mine in Belmont County, where I kept 711 employees working for nearly thirty (30) years, and accounted for up to 8,532 total jobs in eastern Ohio, according to university studies. One of these thirty (30) year employees, age 52, that I was forced to lay off, came in my of?ce bawling. I could not get this big, burly, red-faced man out of my of?ce. The renewable energy industries and our Federal leaders have no idea regarding the destruction that they have caused to the families of Ohioans who have only wanted to work in honor and dignity. I refer you to the enclosed excellent testimony of July 20, 2015 of The Buckeye Institute, submitted to co-chairs Balderson and Roegner of the Energy Mandates Study Committee, arguing for the freeze of Ohio renewable mandates because they ?intervene in and ultimately distort Ohio?s energy markets?. Ohio?s electricity generators must not be forced to use unreliable, six (6) times more costly renewable energy. There is no effect on the environment, and the Federal tax credits that created the industry and their lobbyists will be gone soon. This would leave Ohio with an unreliable power grid and costly electricity. The State government saw this when the renewable freeze was passed in 2014, and it needs to be extended, as nothing has changed. Thank you, Mr. Chairman and Members of the Committee. Sincerely, MURRAY ENERGY CORPORATION We. Robert E. Murray Chairman, President Chief Attachment -1- (Leek @959. His Interested Party Testimony Submitted to the Ohio Energy Mandates Study Committee July 20, 2015 Greg R. Lawson, Statehouse Liaison The Buckeye Institute for Public Policy Solutions Thank you Co-Chair Balderson and Co-Chair Roegner, and members of the Energy Mandates Study Committee for the opportunity to testify today. My name is Greg R. Lawson and I am the Statehouse Liaison and Policy Analyst with The Buckeye Institute for Public Policy Solutions. The Buckeye Institute is a think tank that promotes a low-tax, low-regulation environment, and free-market public policy solutions for Ohio. Ohio?s renewable mandates?collectively known as the Alternative Energy Portfolio Standard or as well as energy ef?ciency mandates intervene in and ultimately distort Ohio?s energy markets. These energy mandates?like virtually all government mandates?amount to nothing less than the government picking winners and losers in the marketplace. Unsurprisingly, such market manipulation and ?bureaucrat-knows-best? thinking has yielded poor results for Ohio, her businesses, and her citizens. The AEPS mandates hurt Ohioans in at least three ways. First, AEPS mandates arti?cially raise electricity prices for residential, commercial, and industrial consumers. Arti?cially high prices make Ohio less competitive, slow private sector economic growth and job creation, and exact a harmful regressive tax on Ohioans living on lower and ?xed incomes. Second, AEPS mandates discourage energy innovation by enabling less ef?cient resources and technologies to pro?t in the open market regardless of their consumer value. Third, AEPS mandates raise concerns about electric grid reliability as intermittent renewable energy resources displace other, more reliable energy sources that provide on-demand power. Higher Energy Costs and Their Consequences Ohio maintains its Alternative Energy Portfolio Standard mandates at a cost. Some of that cost is transparent and obvious to consumers?higher energy bills, for example?while some of that cost is hidden and virtually unseen beneath the market?s surface?such as tax subsidies, and the hours, wages, and even jobs that are cut by businesses that must pay the higher tax and energy bills to subsidize renewable energy providers. Those hidden, unseen costs may be paid less directly, but Ohioans pay them nonetheless.l Wind energy mandates offer one example of how the AEPS can be a net cost for consumers and a drag on the state?s economy. First, mandated wind resource use negatively affects existing fossil fuel generators and drives up electric costs per by requiring utilities to buy energy from the less efficient and cost-effective renewable energy providers. This requirement, in turn, enables uncompetitive resources to take market share directly from the more competitive and cost-effective dispatchable plants. By losing market share, dispatchable plants sell less electricity, which raises the price per required to break even. A new study from the Institute for Energy Research estimates that these additional costs of adding non-dispatchable resources ranges from to $30 per Second, electricity is a ?use-it or lose-it? commodity, and without batteries to cost-effectively store and release wind energy on-demand, utilities can only buy and resell wind energy when it is available. This requires dispatchable plants to ramp their own output up and down-Air Frederic Bastiat, ?What is seen and what is not seen." Selected Essays on Political Economy. Seymour Cain, trans. I995. Library of Economics and Liberty, http: library Basti_a:_bas_Essl (accessed Jan. 19, 2015). 2 Institute for Energy Research, ?The Levelized Cost of Electricity from Existing Generation Resources," June 20l5, UIID- 06 ier_lcoe_2015.pdf. ?cycle??more than they would without the mandates in order to accommodate the less reliable wind energy production. The additional ?cycling? causes dispatchable plants to run less ef?ciently than they otherwise would and arti?cially increases their operating cost.3 Third, wind and other renewable energy providers cost taxpayers their tax dollars through exorbitant government subsidies. Federal programs known as the 1705 loan guarantee program and the I603 loan program arti?cially ?lowers the cost of a new wind farm by about 55% and solar technologies by about half relative to a no-subsidy case??1 Those lower costs are made up with subsidies paid for with tax dollars. Finally, wind farms require new and retro?tted transmission infrastructures to accommodate their intermittency. This new infrastructure and higher transmission costs are ultimately borne by businesses, consumers, and taxpayers. Together, these costs on existing energy providers, taxpayers, and consumers make new mandated renewables less cost-effective than existing dispatchable plants. Energy efficiency mandates are another example of expensive, inef?cient government mandates that harm more than they help the economy. The National Bureau of Economic Research recently studied real-world outcomes of the largest energy ef?ciency mandate program to date and found that the program?s savings were 2.5 times less than expected, while the costs were 3 George Taylor, and Thomas Tanton, ?The Hidden Costs of Wind Electricity,? American Tradition Institute, December 2012, "l Carol Browner, Ron Klain, Larry Summers, ?Memorandum for the President- Renewable Energy Loan Guarantees and Grants," The White House, October 25, 2010, PPMISZ 105 renewable eneruv memo.pdf more than double the value of the energy savings.5 A similar study of Ohio?s energy ef?ciency mandate found that most compliance efforts have consisted of utilities subsidizing energy ef?cient light bulbs for businesses that would have purchased them anyway, and passing the cost on to all ratepayers.6 This is a classic example of wasteful ?free riding? that benefits a few at the expense of the many. All of these costs impose real consequences for businesses and consumers. Prior to Ohio?s AEPS freeze, large employers such as The Timken Company already described the increased, exorbitant costs created by the AEPS, and recently warned that renewing the AEPS mandates will likely result in layoffs? In 201 1, the American Tradition Institute issued a similar warning, stating: he AEPS will impose costs ofS 1.42?? billion in 2025, within a range of $262 million and 32.3.3 billion. For the period of 201 6 2025, the AEPS mandate will cost $8.629 billion, with a low estimate of $5.22 billion and a high estimate of 0. 929 billion. As a result, the AEPS mandate will increase electricity prices by 0. 9? cents per kilowatt-hour (kWh), or by 9.3 percent, within a range of 0. 8 cents per kWh, or by percent, and 1.61 cents per kWh, or by 15.4 percent. "5 5 Meredith Fowlie, Michael Greenstone, and Catherine Wolfram, ?Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program,? The Becker-Friedman Institute for Research in Economics, June 2015, 5_clean.pdf. 6 Robert]. Michaels, ?Ohio?s Energy Ef?ciency Resource Standard: Where Are the Real Savings?,? Mercatus Center at George Mason University, December 2014, 7 Peggy R. Claytor, ?Senate Public Utilities Committee Proponent Testimony - Senate Bill 310, April 8, 2014," The Timken Company, April 8, 2014, http: wp-content uploads 2014-04-1 1 lb energy Penny- lax tor-TimkenTestimom -SB-3 l0.pdf. a David G. Tuerck, Paul Bachman, and Michael Head, ?The Cost and Economic Impact of Ohio?s Alternative Energy Portfolio Standard," The American Tradition Institute, April 201 l. ati oh studv.pdf. These rising energy costs are not without consequences. As energy costs rise, Ohio?s economic growth rate falls. Looking speci?cally at Ohio, The American Tradition Institute study found: ?Upon full implementation, the AEPS law will reduce economic output in Ohio. Ratepavers will face higher electricity prices, which will increase the cost of living and the cost of doing business in the state. By 2025 Ohio will employ 9, 753jewer workers than without the AEPS policy, within an estimated range of 2,480 and 15, 523 workers. More broadly, the Heritage Foundation, in a 20l0 report, estimated that a national RPS would raise electricity rates by 36 percent for residential customers and 60 percent for industrial users while costing the country 1 million jobs.'? Ohio lost nearly 620,000 private sectorjobs over the past decade and has just begun to climb out of a deep economic chasm. The AEPS is almost certain to harm Ohio?s economy and jeopardize the state?s road to recovery. Renewing the AEPS would be a proactive step to slow the pace of recovery, and is simply not worth the risk to Ohio?s economy. Regressive Mandates Ohioans with low or ?xed incomes spend higher portions of their income on energy, which means that higher energy prices have a greater impact on their ability to afford other necessities 91bid. '0 David Kreutzer, Karen Campbell, William W. Beach, Ben Lieberman, and Nicolas Loris, Renewable Electricity Standard,? The Heritage Foundation, May 5, 20l0, http: u? heritageorg research reports 20l0 05 -cosl- americans. such as food and shelter. The AEPS and other policies that raise energy prices have an especially strong negative effect on the most vulnerable Ohioans. As more vulnerable citizens are forced into ?energy poverty? through high electric bills and job losses, the state is strained by increasing demand for government energy assistance.H Styling Renewable Energy Innovation Across the country, RPS mandates discourage investment in renewable energy and energy- ef?cient products. A competitive market tends to reward companies whose investments and products create value for consumers?a profit incentive to invent and produce more valuable products than are currently available. Unfortunately, government mandates skew the market and reward politically favored companies and industries with pro?ts regardless of the value that those companies create for consumers. This market manipulation removes the profit incentive for investments in truly innovative and valuable products, which in turn reduces private sector investments and innovation. By reducing investments in innovation, the mandates may ultimately crowd-out entrepreneurs who might otherwise bring better ideas and products to the market?a troubling, unintended consequence that may hinder or prevent the large-scale use of the best energy-ef?cient technologies. 11 Worst of all, companies that currently bene?t from mandates and government subsidies will likely lobby to maintain those mandates and subsidies and thereby keep competitors out of the market at the taxpayers? expense. Grid Reliabilinz Barbara Alexander, Mitchell, and Gill Court, ?Renewable Energy Mandates: An Analysis of Promises Made and Implications for Low-Income Customers,? Oak Ridge National Laboratory, June 2009, oZOand0 oEOlow" uQOincome?oc. '2 Joe Nichols, ?Power to the People: Repeal Ohio?s Counterproductive Energy Policies,? The Buckeye Institute for Public Policy Solutions, July 20, 2015. The safety and reliability of the electric grid is a serious concern, and mandated renewable energy sources could begin to jeopardize that reliability. PJM and other grid operators use complex mathematical constructs and futures markets to estimate capacity and ensure reliable energy delivery. But the mandated increase in renewable energy sources in the market has required changes to these tools and market designs. Unfortunately, these design changes are relatively untested and may be imprecise because they have not been thoroughly calibrated through the trial-and-error of experience. Should they prove imprecise and faulty, the grid may prove less reliable for consumers. As more inefficient, variable energy is forced onto the grid, there is no guarantee that the designs and tools will work properly to keep the necessary level of capacity online without requiring government subsidies and tax burdens. The independent market monitor for PJM testi?ed about this potential before this committee in April, stating: ?Procuring capacity when it is not needed for reliability, requiring it to clear in the auction through an after price below its costs and providing subsidies in the form of additional out of market revenue is not consistent with the PJM market design. The result would be to artificially depress prices in the PJM capacity market. This would negatively a?ect the incentives to build new generation and would likely result in a situation where only subsidized units would ever be built. '3 Joseph Bowring, ?Testimony of Joseph Bowring, Independent Market Monitor for Monitoring Analytics, April 20, 2015, http: emsc.legislatureohiogov Assets/Testimonv In other words, government mandates for arti?cially high levels of renewable energy sources and energy ef?ciency may require government subsidies for dispatchable power plants as well. A Brief Repiy to Mandate Advocates Ignoring many of these concerns, advocates of Ohio?s AEPS warn that repealing or even re- freezing the mandates would cost Ohio millions of dollars and thousands of jobs already invested and at work in the renewable energy sector. As my Buckeye Institute colleague, .loe Nichols, has argued, however, thosejobs and investment dollars allegedly at risk will not simply evaporate into thin air.14 Rather, most of the investment dollars will likely stay in Ohio. Investors and workers will shift their funds and labor to other, more productive industries that don?t need mandates to survive. This, in turn, will allow businesses to create more jobs and grow the economy in the long run. Although some current in-state resources may migrate to sunnier or windier states that may support renewable energy more ef?ciently, Ohio could then focus on its comparative advantage and make the products that it is best at making. Ohioans who want energy from renewable energy sources could buy it at a lower cost from those other states where it is produced more ef?ciently. This would be a positive step. not a negative one. Additionally, some so-called ?green jobs" would likely remain in Ohio despite the absence of the AEPS due to Ohio?s comparative advantage in manufacturing. For example. even without the AEPS, Ohio manufacturing ?rms could still produce wind turbines or solar panels for energy producers in other states where access to reliable wind and sun is one of their comparative advantages. '4 .loe Nichols, ?Why Ending the Renewable Energy Mandate is Good for Ohio Families and the Economy,? The Buckeye Institute for Public Policy Solutions, January 29, 2015, http:llbuclxeveinslituteorg/ uploads ?lesl'Pew? oZORenewables?020FinalU ).pd I. Conclusion In conclusion, government mandates are misguided attempts to manipulate markets and pick winners and losers from among our businesses and innovators. The AEPS is no exception and should be repealed. The AEPS costs consumers, businesses, and taxpayers; risks jobs and stymies economic growth; hampers innovation; and threatens the reliability of electric grids on which we all depend. The mandates prop-up today?s non-competitive energy sources through government subsidies and costly regulations that thwart full competition. Eliminating the AEPS mandate will help level the energy playing field, lower energy costs, strengthen Ohio?s energy infrastructure, and keep our economy on the road to recovery. Thank you again for your time. My colleague and I will be glad to respond to any questions that the committee might have.