Good morning, Mr. Chairman and distinguished members of the Task Force. I'm Mitch King, President of the Old Mill Power Company, an independent power marketer based in Charlottesville, Virginia. In addition to representing my company today, I'm also speaking on behalf of the Virginia Renewable Energy Association and the Virginia Hydropower Association. Collectively, we have collaborated on, and support, the proposal for a Renewable Energy Portfolio Standard and a Public Benefit Fund being presented to you today by Mr. Steve Kalland of the Maryland-District of Columbia-Virginia Solar Energy Industry Association.
A Renewable Energy Portfolio Standard and a Public Benefit Fund that includes seed money for renewable energy programs will bring true competition to the Commonwealth's retail electricity market by offsetting the huge subsidies currently enjoyed by power producers who use oil, gas, coal and nuclear fuels as their primary energy sources. As electric utility restructuring gets underway, these subsidies for energy producers using fossil and nuclear fuels will distort the market signals that competitive pricing is supposed to bring to the Commonwealth's electric power industry. Our citizens will not enjoy true competition for electric power, and true freedom to make environmentally responsible choices about how their energy dollars are spent, until the subsidies for energy producers using fossil and nuclear fuels are eliminated or mitigated.
Out of respect for your limited time, I will not list all the federal and state subsidies for power producers using fossil and nuclear fuels in my oral presentation. Interested parties will find many of them listed and quantified in the references cited in the footnotes of my handout. These references include the California Energy Commission Study on the Tax Barriers to Four Renewable Electric Generation Technologies1, a Forest Products Study comparing the cost of a biomass power plant to a natural gas power plant when federal and state tax subsidies are taken into consideration2, and a study on federal subsidies for the oil industry completed by an energy consultant under contract to Greenpeace3.
Some federal and state tax laws are specifically designed to benefit industries that produce or use fossil fuels. Such laws include:
Laws authorizing sales and property taxes impose both one-time and recurring taxes on real estate and equipment, while allowing fuel costs to be deducted from one's taxes as on-going business expenses. These laws give preferential treatment to facilities such as fossil fueled power plants that have high ratios of recurring expenses to capital expenses, while penalizing capital intensive facilities such as solar power plants, wind farms, and hydroelectric power plants that have almost no fuel expenses.
Other laws confer special tax benefits to companies such as oil and gas firms that have significant operations overseas. These benefits include:
The tax benefits described above are even greater for corporations that are based in jurisdictions where state income taxes are based on the taxable income reported on federal returns.
An even greater financial advantage to oil-consuming power plants accrues from the fact that our federal government is willing to deploy military forces around the globe, and to sacrifice the lives of members of our armed forces, to preserve commercial access to cheap crude oil supplies.
Please note that the natural gas industry enjoys many of the same government-created economic advantages as the oil industry.
As for subsidies to coal-fired power plants, which produced 50% of the electricity generated in Virginia in 19974: Under companion legislation to Virginia's recently passed Electric Utility Restructuring Act, coal producers who pay Virginia income taxes will soon begin receiving a $3.00 per ton rebate from Virginia taxpayers for every ton of coal produced in the state.
In addition to the huge federal subsidies for Research and Development that gave the nuclear power industry its jump-start a half-century ago, the nuclear industry continues to benefit from on-going subsidies such as public liability for accidents at nuclear power plants, public liability for accidents when nuclear fuel is being transported, and public liability for the development of long-term storage facilities for nuclear wastes. About two weeks ago, the federal government released an environmental impact statement approving the use of so-called mixed oxide or "mox" fuel at Virginia Power's North Anna nuclear power plant, which is near Mineral, Virginia. Approval of this environmental impact statement allows Virginia Power to receive free nuclear plant upgrades and free nuclear fuel from our federal government, as the government seeks to rid itself of surplus weapons-grade plutonium5. According to an environmental journal called Synergy of the Piedmont, the plant improvements and free nuclear fuel, which are paid for with taxpayer dollars, have been estimated by the Department of Energy to be worth $825 M dollars per reactor!6
Even a well-intentioned state subsidy intended to help migrating fish reach spawning grounds far up the James River will have the unintended effect of working against the continued development and operation of the Commonwealth's small hydroelectric power plants. For example, the state's Department of Game and Inland Fisheries recently helped finance a $1.5 M fish ladder for the Bosher Dam in Richmond, a dam that is owned by the C&O Railroad. Until its fish ladder was built with the help of taxpayer dollars, this privately owned dam had been preventing shad from migrating further upstream for many years.
When those migrating shad begin appearing at the base of the dams of upstream small hydroelectric power plants, or at the base of dams that are potential sites for new or redeveloped small hydroelectric power plants, existing federal regulations will require owners or would-be developers and redevelopers of such hydroelectric sites to install fish ladders. The alternative to installing the required fish ladders is to shut down the affected hydroelectric power plants, or to defer indefinitely any plans to develop or redevelop the affected sites.
Note that fish ladders do not provide any economic benefits to the owners of small hydroelectric power plants, nor do they provide any economic benefits to these power plants' customers. The only benefit fish ladders provide is to the public, which has a legitimate environmental interest in reintroducing shad to upstream spawning grounds.
Note, too, that fish ladders are not required for dams impounding water for large hydroelectric power plants, such as the pumped storage facilities owned and operated by the state's largest utilities. It is assumed right from the start that fish ladders for such large dams are economically infeasible. Therefore, the burden for providing million-dollar fish ladders for the public good currently falls squarely upon those least able to finance such projects—the owner-operators of small hydroelectric power plants.
Without a Renewable Energy Portfolio Standard to guarantee a market for the electricity produced by small hydroelectric power plants , and without a mechanism such as a Public Benefit Fund to provide public funds for capital intensive expenditures such as fish ladders, it seems likely that some, if not most, of the owners, developers, or redevelopers of small hydroelectric power plant sites located upstream of the Bosher Dam may ultimately have to shut down their existing plants, defer developing new plants, and defer redeveloping existing sites with good hydroelectric power potential.
Thus, due to massive and on-going federal and state subsidies for fossil and nuclear fuels, as well as to the unintended consequences of a million-dollar state subsidy for a fish ladder at a privately-owned dam on the state's largest river, the competitive "playing field" is heavily tilted against Virginia's small power producers using low-environmental impact, renewable, or nondepletable primary energy sources. On behalf of the Old Mill Power Company, the Virginia Renewable Energy Association, and the Virginia Hydropower Association, I urge the Legislative Transition Task Force to recommend adoption of a Renewable Energy Portfolio Standard and a Public Benefit Fund to be used for the benefit of renewable energy programs, until such time as federal and state subsidies to energy producers using fossil and nuclear fuels have no discernible effect upon competing technologies for producing electricity.
Thank you for allowing me to speak today. When you have a bit more time, I hope that some of you will review the references cited in my footnotes. Most of them are available on-line, and I think you will find them as enlightening as I did.
Michel A. King, President 1 2 3 4 5 6
Old Mill Power Company
103 Shale Place
Charlottesville, VA 22902-6402
Voice: 804-979-WATT(9288)
Fax: 804-979-9287
Email: mitchking_oldmill@earthlink.net