In May, the Maryland Public Service Commission approved electricity-rate increases to fund two wind projects off the Ocean City shoreline. Over their 20-year life spans, these projects will cost Maryland electricity consumers more than $2 billion. Will they deliver economic benefits that justify their costs? Almost certainly not.
The Maryland Offshore Wind Energy Act of 2013 created a 2.5 percent set-aside in the state’s renewable energy portfolio for offshore wind energy. The Offshore Wind Energy Act also authorized the Maryland Public Service Commission to raise electric rates to support offshore wind projects but exempted large industrial and agricultural customers from such rate increases. Consequently, Maryland’s residential and smaller business electricity customers will be forced to subsidize these offshore wind projects.
The Offshore Wind Energy Act includes two important consumer protections. One prohibits the commission from approving any project that does not demonstrate “positive net economic, environmental and health benefits to the State” based on a cost-benefit analysis that includes “any impact on residential, commercial, and industrial ratepayers over the life of the offshore wind project.” The other protection caps the combined costs imposed by all approved projects at a maximum of $1.50 per month (in 2012 dollars) for residential customers and at a maximum of a 1.5 percent increase for business customers’ bills.
The commission’s outside consultant estimated that the two approved projects, on average, will raise residential customers bills by about$1.40 per month and raise business customers’ bills by about 1.4 percent, starting in 2020. Although these increases appear small when viewed on a per-customer basis, their total cost over 20 years will exceed $2 billion (in today’s dollars).
The consultant also estimated that these projects would create about 9,700 one-year full-time-equivalent jobs over 25 years. That’s $200,000 per job. Yes, these projects will stimulate economic activity and create jobs in the state, but Maryland residents’ money could be better spent on other projects producing greater economic benefits and creating more jobs at lower costs.
Despite the Offshore Wind Energy Act’s clear language requiring each project to pass a cost-benefit test, the commission never compared the ratepayers’ costs to support either project with the monetary value of the benefits that project is expected to deliver. Instead, the four commissioners interpreted the language as allowing them to consider only the economic, environmental and health benefits without comparing these benefits with the ratepayers’ costs.
Because these offshore wind projects will produce energy costing three to four times as much as renewable energy produced by onshore wind or large-scale solar, it is inconceivable that either project would pass a bona fide cost-benefit test. Interestingly, the Maryland Public Service Commission staff did not recommend approval of either project, stating only that: “The issue of cost should be of paramount consideration in the determination the Commission must make in this proceeding.”
The commission appears to have telegraphed its agenda when it said, “the State has already made the policy decision to authorize OSW development and the ratepayer impacts that may result from it.” Then why did the Offshore Wind Energy Act include the cost-benefit analysis requirement?
The commission’s decision is appalling. Marylanders deserve better.