Myth Busting: Why Clean Energy Is Not Making Energy More Expensive

One question we have been asked recently is whether the big rate hikes we have been receiving are due to Oregon’s clean energy mandates. Would we have avoided these big rate increases if we did not pass clean energy mandates?

The simple answer is no. Clean energy policy is not responsible for rising energy bills in Oregon

There is little evidence to suggest that Oregon customers would have lower rates without our requirements that utilities invest in clean energy and phase out of fossil fuels.

Energy Bills Are Increasing Without Clean Energy Investments

Rates are increasing where there are no clean energy mandates.

Idaho Power has proposed a 27% rate increase for Oregon residential customers. Idaho Power primarily serves customers in Idaho but serves a small slice of Eastern Oregon. Because its Oregon service territory is small, it is exempt from Oregon clean energy mandates and Idaho does not have any clean energy mandates.

The biggest request to increase customer bills in 2024 is coming from a utility that does not have clean energy mandates.

Electric utilities that are behind in the clean energy transition are still asking for more money

Coal still makes up more than 50% of Pacific Power’s electricity supply. Yet Pacific Power is currently seeking a 22% residential rate hike on top of several additional increases over the last 3 years.

Very little of Pacific Power’s request to increase customers’ bills is coming from clean energy at all. In fact, Pacific Power’s plan to meet emissions reduction requirements currently includes little renewable energy. The utility is proposing converting coal plants to natural gas plants by 2030. Pacific Power has gone so far as to cancel its request for proposals for building more renewables and is extending the lives of its coal plants.

Natural gas prices are driving up energy bills

NW Natural is a natural gas (methane) utility. While its rates went down a little this year, in the previous two years combined, its rates had increased by more than 40%.

Most of Oregon’s electricity providers use natural gas to generate electricity. Customers who heat and cool with electricity also see rising bills. In 2024, Portland General Electric raised rates by 18%. Nearly a quarter of that 18% increase was from rising natural gas costs.

Renewable energy is the least cost resource

PGE recently brought online its latest renewable resource, the Clearwater Wind Facility in Montana. The power from this wind farm reduces PGE’s need to purchase power from the wholesale market. That savings, combined with federal clean energy tax benefits, has lowered rates. Even though the capital investment associated with building the wind farm has been added to rates, those costs are offset by the savings.

If clean energy mandates are not the cause of price increases, what is?

Several things are driving higher costs for utilities:

• Fossil fuel costs are increasing and risky
• Demand for industrial electricity is increasing
• Infrastructure needs to be replaced
• Extreme temperatures (planning for higher peak load capacity)
• Wildfires
• Lack of Setting Priorities
• Regulation that is not centered on the customer

Fossil Fuel costs are increasing and risky

All energy utilities, both gas and electric, currently rely on fossil fuels to provide energy to customers. As fossil fuels continue to become more expensive and higher risk, our energy bills go up.

Coal
In recent years, many coal mines have shut down. While some of this may be influenced by clean energy mandates, many closed for other reasons. One mine closed because of a fire. Another had a catastrophic failure of equipment. And a third closed to avoid pension costs for mine workers.

Each of these coal mine shutdowns has reduced competition for coal supply. And we have seen the costs of coal increase dramatically. While some coal-generating plants have access to coal at a reasonable, stable price, other plants have seen the cost of coal double in recent years.

At the same time, coal is increasingly a risky fuel. Many mines are owned by companies that are in bankruptcy or are financially struggling. Others are subject to the kinds of workplace safety risks that have shut down mines.

Natural Gas (Methane)
Gas costs are also higher and are incredibly volatile. Many customers who heat their homes with gas have experienced higher home heating costs due to increased gas costs. After a decade of stable gas prices, gas prices have been extremely volatile in recent years.

The price of gas has varied from about $3/mmbtu to $12/mmbtu. The run-up in prices in 2021 was during the winter when households needed heat. And in the summer of 2022, when households need cooling.

Demand for industrial electricity is increasing

Utilities are seeing increasing demand for electricity from industrial customers. While a lot of people point their fingers at electric vehicles, most of the load growth we are seeing is large industrial server farms. These are owned by large tech firms like Facebook, Apple, and Amazon.

While these large corporations pay for the direct costs of serving their loads, they also impact residential customers’ bills. Because they require a large amount of energy, they increase the need for utility to acquire resources and transmission to bring those resources to our communities.

Utility regulators assign costs to types of customers based on their use of utility infrastructure. So if a new server farm comes in, the utility may need to build newer or bigger power lines. The costs of that transmission will be shared with all customers who use it, not just the server farm. This means that when big industry comes into town, households can see bills go up.

Infrastructure needs to be replaced

Oregon utilities saw a lot of load growth in the 1960s and 70s. Electric utilities build out transmission and distribution lines to new homes as our suburbs grew.  Gas utilities expanded gas networks as homes moved from heating oil to gas for space heating.  Much of this infrastructure is hitting the end of its 50 to 60-year useful life and needs to be replaced. 

The replacements need to be designed for future electric service.  For example, the wires that delivered power to homes have traditionally provided one-way service, but with rooftop solar new replacements are designed for a modern two-way power grid. 

More Extreme Temperatures Require Expensive New Capacity

Renewable resources can produce kilowatt-hours of energy at a lower cost than traditional fossil fuel generation. But a big driver of cost is capacity—meeting customers’ energy needs, particularly during extreme temperatures.

Capacity represents the total amount of energy that you need at any one point in time to serve customer demand. And when customer demand, also called “load,” is at its peak, it can be expensive.

Utilities have to plan for how to meet the needs of customers every day. On the hottest days of the year, a utility has to have enough capacity to provide cooling to its customers. On the coldest day of the year, the utility has to have enough capacity to provide space heating. As we see temperatures continuing to hit new extremes, serving peak load becomes more expensive.

Because of climate change, we are seeing an increasingly high demand from customers trying to heat and cool their homes and businesses. These new extreme temperatures mean that utilities are having to ramp up the energy systems for higher peak loads.

Hydroelectric dams have historically provided the Pacific Northwest with some of the cheapest capacity in the country. But there are limits to what the hydro system can provide when peak demand is higher today than decades ago. Utilities often look to battery storage, which is fairly expensive and pushes up rates. However, it is important to recognize that batteries compete favorably with the alternative: buying expensive methane to raise capacity.

Idaho Power does not have clean energy mandates and has had a great deal of load growth in its Idaho service territory. This utility just made a large investment in batteries and that is one of the contributors to its big rate increase. But Idaho Power is not subject to Oregon clean energy laws. It could have invested in a gas plant instead because of the volatility of gas prices. Gas will likely be pretty expensive during times of peak needs. And gas plants and gas supply are subject to future regulation which could make them less economical.

Wildfires Are Driving Up Utility Bills

More than half of PacifiCorp’s 22% rate hike is associated with wildfires. These costs include investments to reduce the likelihood that the utility’s system will cause wildfires and liability costs associated with cases where the utility caused a wildfire.

The current risk of wildfires is largely a function of our changing climate. The forests of the Pacific Northwest evolved under climate conditions that were cooler and drier than current conditions.

The long-term solution to wildfires is to reduce carbon emissions. So rather than a cost associated with clean energy, wildfire costs are caused by climate pollution from energy. Reducing climate pollution globally can help drive down the risk of wildfires locally.

Lack of Setting Priorities

While there is no evidence that clean energy mandates are the cause of rate increases, utilities have to manage the transition to clean energy. Specifically, utilities must manage the transition in a way that minimizes customer impacts. They also must respond to the other challenges listed above in a way that minimizes bill increases. But we aren’t seeing utilities limiting their costs to protect customer affordability.

In news articles, PGE’s business model is often described as an “all of the above strategy.” Doing all of the above isn’t very strategic. Strategy means setting priorities. This means a utility has to set priorities.

Utilities have a responsibility, not to maximize profits, but to keep utility services affordable. We call our for-profit utilities “public utilities” because they provide a public service – an essential service. They have a responsibility to provide good service – which by definition must be affordable. When rising numbers of customers cannot pay their utility bills and are disconnected, utilities are not providing a good service.

Affordability is a big part of the current problem with how utilities are investing in their systems. When additional costs associated with wildfires appeared, did the utilities cut or delay any programs or investments? When it became clear that server farms were going to add significant additional costs, did the utility cut or delay any programs?

We Don’t Need Less Clean Energy, We Need Better Regulation

As we look for solutions, stripping away climate protections in our energy system is not the answer for protecting affordable utilities. We need the people approving utility rate increases to center customers, not utilities.

Regulation is not centered on the customer

For-profit utilities are monopolies and are regulated to protect customers. However regulation has become more and more focused on the needs of the utilities rather than the needs of the customer.

Our current structure leads regulation to focus on each individual line item of a utility’s request to raise rates, but not on the overall affordability of bills. There are several parts to this problem:

• Utilities have an incentive to spend money
• Utilities can request dozens of rate increases a year
• Regulator looks at individual utility projects, not total rates
• Costs can be updated even after they are approved by regulators
• Utilities work to keep information confidential from the public

Electric utilities are typically the ones who see the most frequent requests for rate increases. PGE is not the only utility that has had large bill increases in the past few years. Pacific Power customers saw bills increase by 21% at the start of 2023 and by 11% on January 1, 2024.

Increasingly, gas utilities are also asking for more from customers more often. Alongside the big spikes in the cost of methane, NW Natural gas rates have increased by 32.7% since September 2022.

We’re seeing a rising trend in utilities asking for more money more often

It used to be that once regulators established new rates, the utilities were expected to live with those prices. But that is no longer our reality. Utilities are asking for big bill increases through requests called “rate cases,” every 1-2 years. In the past, utilities would wait 3-5 years (or longer) before opening a new rate case with regulators.

At the beginning of 2024, within weeks of establishing new rates that were 18% higher than the old rates, PGE made a filing to track storm-related costs to add these to rates. And not long after that, PGE made a new rate filing to increase rates again.

More Requests, Less Transparency

In addition to frequent rate cases, utilities can track costs to later add to rates. And they have multiple separate pathways for asking customers to pay for wildfire mitigation, coal plants, storm damages, energy efficiency, and much more.

All of this makes it hard to even estimate how much rates will be increasing in any given year. And without knowing expected price increases, how can regulators protect customers from unaffordable rates?

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