THE ECONOMIC AND JOB IMPACTS OF THE PROPOSED COLORADO RES Management Information Services, Inc.

April 12, 2013 A Bill has been introduced in Colorado that would require rural electric cooperatives in the state, such as the Tri-State Generation and Transmission Association, to increase the portion of renewable electricity generated starting in 2020 from 10% to 25%.1 The direct cost to Tri-state alone has been estimated to be as high a $4 billion, and the resulting rate increase would be about 20%. Rate Impact on Rural Colorado Rural electric coops in Colorado directly supply electricity to rural residences, farms and ranches, cities, towns, and suburban communities, as well as large and small commercial businesses and industries Figure 1 illustrates the member of Tri-state. The immediate, direct rate impact of the RES requirement would be especially severe on the one of every five Colorado citizens served by these cooperatives: Rural electric coops in Colorado supply electricity primarily to rural customers, and the communities served are relatively low-income. Many of the tribal customers served by these coops reside in some of the poorest economies in the entire country. On average, these member systems serve five consumers per mile, compared to 37 consumers per mile served by investor owned utilities thereby greatly increasing service costs. The RES would cause the average electric bill for the coops residential customers to increase from about $95 per month to about $115 per month Figure 2. This increase would pose real hardships for many of the customers low income, rural, and living on fixed incomes who lack the discretionary income to afford it. The trade-offs they would be forced to make include spending less money on medicine, healthcare, food, and clothing. Economic and Jobs Impacts in Colorado Electricity price increases act like a tax increase, reducing incomes of energy consumers and ratepayers. The supply-side impacts from electricity price increases depress business development and economic output and destroy jobs. Energy and energy prices specifically electricity and electricity prices -- matter to the economy and, in general, more abundant, efficient, and less expensive electricity is desirable and preferred and provides significant economic and jobs benefits. 2 Electricity is a mainstay of the U.S. economy and a critical factor of production, so this is straightforward and noncontroversial.3 To quantify the relationship between electricity 1

prices and the economy, MISI utilized the elasticity of GDP with respect to electricity prices. There is a quantifiable relationship between economic activity and jobs between the level of GDP/GSP and jobs. Basically, GDP and jobs are closely, positively correlated.4 Figure 1: Colorados 18 Tri-state Member Rural Electric Associations

Figure 2: Average RES Rate Impact on Affected Customers

Average Monthly Electric Bill
$115

$110 $105
$100

$95 $90
$85

$80 Current With RES

Our findings are illustrated in Figures 3 and 4. Figure 3 shows the impact on Colorado electric rates of the RES. It illustrates that: At present, Colorados average electric rate is below the U.S. average. With the RES, the states overall average would increase t o above the U.S. average. However, with the RES, the average rate to the predominately rural customers served by the electric coops would increase significantly and would be about 14% higher than the national average.

Figure 3: RES Electric Rate Impact in Colorado 2

11.5

11
Cents Per kWh

10.5 10 9.5
9 8.5

8
CO Current CO With RES Coops With U.S. Current RES

These increases in Colorado electricity prices would have severe impacts on the states economy and jobs. Total state gross product would decrease by about $5 billion an average loss of nearly $3,000 to every Colorado family. In addition, about 40,000 Colorado jobs would be destroyed. While the entire state would suffer, the economic and job impacts would be especially harmful in the predominately rural areas served by the electric coops. For example, as shown in Figure 4: At present, Colorados unemployment rate is below the U.S. average. With the RES, the states unemployment rate would increase to about 15% above the U.S. average. However, job losses resulting from the RES, would be largely concentrated in the predominately rural areas served by the electric coops many of which are already suffering economically. The unemployment rate in these areas would increase substantially and would be more than 1/3 higher than the state average and more than 50% higher than the national unemployment rate. Figure 4: RES Impact on Colorado Unemployment Rate
12%

11% 10% 9% 8%
7% 6%

5%
CO Current CO With RES Rural CO With RES U.S. Current

Endnotes

A Bill For an Act Concerning Measures to Increase Colorado's Renewable Energy Standard so as to Encourage the Deployment of Methane Capture Technologies. 2 See the discussion in Roger Bezdek, Robert Wendling, and Robert Hirsch, The Impending World Energy Mess, Toronto, Canada: Apogee Prime Press, 2010. 3 Management Information Services, Inc., Literature Review of Employment Impact Studies of Power Generation Technologies, DOE/NETL-2009/1381, September 14, 2009. 4 This is relatively noncontroversial. We assume that the relationship is linear, but changes over time as productivity increases: Increasing the number of jobs created per billion dollars of GDP of GSP implies slower productivity growth, while decreasing the number of jobs created per billion dollar of GDP implies more rapid productivity growth. See Management Information Services, Inc., Optimizing the Relationship Between Energy Productivity/Costs and Jobs Creation, report prepared for the U.S. Department of Energy, National Energy Technology Laboratory, DOE/NETL-402/110209, November 2009; Management Information Services, Inc., GDP Impacts of Energy Costs, report prepared for the U.S. Department of Energy, National Energy Technology Laboratory, DOE/NETL- DOE/NETL- 402/083109, October, 2009.