O’Malley Subsidies mean higher utility rates

Governor O’Malley wants to end a tax credit for Maryland’s coal industry. According to the Capital News Service, O’Malley’s budget proposes to eliminate the Maryland Mined Coal Credit, which gives energy producers a $3 per ton credit for procuring coal from Maryland mines. The 24 year-old tax credit is slated to end in 2020, the same year as a supply agreement with AES Warrior Run a Cumberland-based generation plant, which supplies power to PEPCO.

This is the third time O’Malley has tried to eliminate the credit.

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O’Malley spokesman Shaun Adamec said incentives for fossil fuels is inconsistent with the governor’s policies.

Inconsistent indeed as O’Malley has lavished—at ratepayer expense—the renewable industry with generous subsidies and mandates. O’Malley increased Maryland’s renewable portfolio standard (RPS) mandating utilities derive 20 percent of retail utility sales from renewable energy by 2022. Utilities must pay compliance penalties if they do not meet RPS goals. However, through cost recovery mechanisms they can bill ratepayers for those costs. In 2009, O’Malley created a special solar RPS carve out mandating utilities derive two percent of sales from solar power. O’Malley’s current proposal would require utilities enter into long term (25 year) contracts to purchase offshore wind power, guaranteeing customers for the firms vying for federal offshore wind development leases. O’Malley’s plan could also end up enriching his former staffers at even further expense of ratepayers.

Government subsidies for any industry are generally undesirable because they distort the market for the product. However, if we’re stuck with government subsidies given the higher costs of generating and transmitting renewables shouldn’t they be targeted to the more cost efficient energy sources?

According to Energy Information Administration data, renewables get billions of dollars in government subsidies over coal, and federal subsidies for solar and wind are $24 and $23 per megawatt hour respectively, while coal is less than half a dollar. Even with $30 billion in federal stimulus cash the wind industry could not stand on its own. Tellingly, a big player in the wind industry admitted that the industry “cannot exist without the federal production tax credit.”

All of this taxpayer money goes to produce about one percent of our energy needs. Renewable energy, wind in particular, is the new ethanol.

Furthermore, the tangible results of subsidizing these green panaceas have been less than advertised just ask Spain and Germany.

O’Malley touts his offshore wind proposal a job creator, but for whom? Stimulus cash for wind projects ended up going to Chinese manufacturers. The only way it appears O’Malley can attract wind turbine manufacturing jobs to Maryland is with the enticement of even more taxpayer money. If the importance of governors creating jobs is as paramount as O’Malley now preaches, is he not concerned with the jobs Western Maryland—a region of the state hit hardest by the recession—will lose?

It is true as Adamec stated, incentivizing cost-efficient energy sources is not consistent with O’Malley’s policies. However, those policies are inconsistent with the campaign promises of lowering utility rates, which first propelled him to the governor’s mansion.

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