Starting in 2020 Maryland’s electricity consumers will be paying higher electric bills in order to subsidize two wind projects to be developed off the Ocean City waterfront. Over the lives of these projects the subsidies will total more than $2 billion. Despite this exorbitant cost the projects will deliver no environmental benefits and, most likely, will contribute to global warming. How did this lose-lose situation come about?
Offshore wind development was a pet project of former Governor O’Malley. After several tries he finally got the legislators to pass the Maryland Offshore Wind Act of 2013. The act authorizes the Maryland Public Service Commission (PSC) to raise electric rates to support offshore wind projects but exempts large industrial and agricultural customers from these rate increases, forcing Maryland’s residential and smaller business customers to carry the full burden.
However, the act includes two important consumer protections. One prohibits the PSC 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 caps the combined costs imposed by all approved projects at a maximum of $1.50 per month for residential customers and at a maximum of a 1.5 percent increase for business customers’ bills.
Last year two out-of-state wind developers submitted proposals to the PSC. To evaluate the proposals, commissioners hired an outside consultant who concluded that, starting in 2020, the two projects combined would raise residential customers’ bills, on average, by about $1.40 per month and raise business customers’ bills, on average, by about 1.4 percent. Although these increases appear modest, over the 20-year lives of the projects they will total to more than $2 billion (in today’s dollars of purchasing power).
The PSC and the Maryland Energy Administration defend the projects, claiming they will create jobs and spur economic growth. Indeed, the PSC’s consultant estimated that they would create 9,700 direct and indirect jobs. Dividing $2 billion by 9,700 reveals that the state is spending more than $200,000 per year for each job created.
Many of these jobs will be for skilled construction workers, likely earning around $100,000 per year. Furthermore, many of these workers will likely live out of state and commute to the job sites. Surely the state can find cheaper, more efficient ways to create jobs. For example, wouldn’t this money be better spent creating job opportunities for Baltimore’s inner-city poor?
Despite the act’s requiring each project to pass a cost-benefit test, the PSC appears to have never compared the ratepayers’ costs to support these projects with the monetary value of the benefits the projects are expected to deliver. Because these offshore wind projects will likely produce energy costing three to four times more than renewable energy produced by onshore wind or large-scale solar it is unlikely that either project can pass a bona fide cost-benefit test.
The PSC appears to have revealed its true agenda in stating, “the State has already made the policy decision to authorize [offshore wind] development and the ratepayer impacts that may result from it.” Really? Then why did the legislators include a cost-benefit analysis requirement in the act?
The PSC and the Maryland Energy Administration also claim the projects will reduce carbon emissions. However, the PSC’s own consultant concluded that while “carbon emissions in Maryland would decrease” carbon emissions will increase in the central and western areas serviced by PJM, the operator of the Mid-Atlantic's high-voltage regional electric system. So, the consultants concluded, “overall emissions in PJM would increase.”
Carbon emissions have no adverse local effects, therefore reducing them in Maryland will not benefit the state. But increasing regional emissions will contribute to global warming, which will harm the state. Because of its extensive shore line Maryland is particularly susceptible to rising sea levels.
Neither of these offshore wind projects should have been approved. The PSC’s decision is appalling. We Marylanders deserve better.
Robert Borlick (email@example.com) is an energy economist with more than 40 years of consulting experience. He lives in Montgomery County Maryland.