Diversifying your portfolio

[ MAY 24, 2010 - OKLAHOMA CITY, OK ] - Let’s take a look at your portfolio – and no, I don’t mean your stocks and bonds. Oklahoma, I’m talking about your energy portfolio.

Last week, Oklahoma House Speaker Chris Benge, who introduced House Bill 3028, also known as the “Oklahoma Energy Security Act,” saw its passage with a whopping 91-2 vote. That’s an impressive margin in these uber-partisan times.

So what? What does it even mean?

To get started, let’s figure out what a portfolio standard is, specifically a renewable portfolio standard, also known as an RPS.

An RPS is a mandate, or, as seen in the current bill, a goal, for the electricity companies and energy sector to develop a measurable level of their supply using renewable energy sources. So, practically speaking, when you turn on your air conditioner, a certain percentage of the electricity that probably powers it would come from a renewable energy source. Generally, those renewable sources come in the form of wind or solar power or geothermal technologies.

Traditionally, the point is to make the marketplace competitive for renewable energy. Renewable energy can help reduce air pollution, avoid waste, and help preserve Oklahoma’s natural resources. And, as Benge points out, it helps diversify our energy “portfolio” so that we aren’t too dependent on foreign sources. The theory is: The more we draw on energy sources right here in our own state, the less we draw on energy sources out of state. True enough.

For example, Oklahoma still powers itself significantly with coal imported from Wyoming. While I have nothing against Wyoming, those are jobs and revenue that are leaving the state, as opposed to staying here in Oklahoma and helping Oklahomans. Similarly, on a national level, reducing dependence on foreign sources is not only good for our nation’s economy, but America’s energy independence as well.

Equally as interesting is the idea of energy security; RPS standards can create jobs. More jobs mean more revenue, which means more economic development, which impacts all Oklahoma communities: rural and urban.

Each state that has adopted an RPS has a unique application of its own renewable energy portfolio. Some offer tax incentives to companies; others offer penalties for noncompliance. Carrot or stick, the Oklahoma Energy Security Act creates a strong recommendation that the industry in the state move toward having 15 percent of its electricity sources come from renewable energy by 2015. Currently, five states (Utah, North and South Dakota, Virginia, and Vermont) have similar recommendations, while 30 others (Texas, New Mexico, Arizona and Colorado, to name a few) have mandates. Some states are more aggressive than others.

For example, New York has a mandate of 24 percent by 2013, while Minnesota has mandate of 10 percent by 2015. In fact, with the exception of Arkansas, Oklahoma is surrounded by states that have RPS mandates.

The determination is generally made based on market trends, availability of renewable energy, and other considerations.

What can be tricky is determining what renewable energy or technology qualifies in order to meet the percentage threshold. Obviously in Oklahoma, wind is a consideration – seriously, just feel the “wind sweeping down the plain,” or cellulosic biofuels. But unlike other states, generating energy from waves, or ocean thermals, is not likely. In addition to that, determining what the market is going to do in relationship to energy production and consumption can also be challenging. This is why Oklahoma is moving toward recommending an RPS instead of mandating it. To implement the RPS, states have to strike just the right balance and be mindful of impacts to citizens’ utility bills.

This is why the bill in Oklahoma requires the state to work closely with the Corporation Commission, the state agency responsible for regulating utilities and oil and gas development, and the Southwest Power Pool, a regional transmission organization, to help successfully reach the RPS recommendation with the appropriate infrastructure and adequate market preparation.

Naturally, the impact of this legislation remains to be seen and what it truly means for Oklahoma is not yet realized – especially since it still has to pass the Senate and reach the governor’s desk.

But in any case, Oklahoma, I hope you found this review of your portfolio helpful. Oh yeah, and past performance is no indication of future performance. Good luck to all of us.

Jim Roth, a former Oklahoma corporation commissioner, is an attorney with Phillips Murrah P.C. in Oklahoma City, where his practice focuses on clean, green energy for Oklahoma.