Wind-Power Program Participation

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1 R E P O R T Wind-Power Program Participation Developing Predictive Models December 1998 Prepared by Patricia A. Champ USDA Forest Service Rocky Mountain Research Station Fort Collins, Colorado Richard C. Bishop University of Wisconsin Department of Agricultural and Applied Economics Madison, Wisconsin Prepared for 595 Science Drive Madison, WI Phone: (608) Fax: (608) Web:

2 Copyright 1998 Energy Center of Wisconsin All rights reserved This report was prepared as an account of work sponsored by the Energy Center of Wisconsin (ECW). Neither ECW, participants in ECW, the organization(s) listed herein, nor any person on behalf of any of the organizations mentioned herein: (a) makes any warranty, expressed or implied, with respect to the use of any information, apparatus, method, or process disclosed in this report or that such use may not infringe privately owned rights; or (b) assumes any liability with respect to the use of, or damages resulting from the use of, any information, apparatus, method, or process disclosed in this report. Project Manager Dan York Energy Center of Wisconsin

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4 Contents Abstract...i Report Summary...iii Introduction...1 Method...3 Results & Discussion...7 Conclusions...13 References...15 Appendix A: Survey Instruments...1 Dichotomous-Choice Actual Participation Survey...2 Dichotomous-Choice Hypothetical Participation Survey...10 Payment-Card Actual Participation Survey...18 Appendix B: Frequencies From Dichotomous-Choice Actual Participation Survey...1 Appendix C: Frequencies From Dichotomous-Choice Hypothetical Participation Survey...1 Appendix D: Frequencies From Payment-Card Actual Participation Survey...1 Tables and Figures Table 1 Additional Cost for the Purchase of Wind Power...4 Table 2 Response Rates...5 Table 3 Demographic Variables...7 Table 4 Awareness of MG&E wind-power plans and attitudes toward MG&E...8 Table 5 Response to Willingness to Pay Question...9 Table 6 Response to Willingness to Pay Question by Annual Cost of Wind Power...9 Table 7 Estimates of the Average Amount of Wind Power Purchased for the Dichotomous-Choice Treatments10 Table 8 Statements with Statistically Significant Relationships to Response to the Willingness to Purchase Question for both Actual and Hypothetical Dichotomous-Choice Treatments...11 Table 9 Distribution of Amount of Wind Power Purchased in the Payment-Card Actual Payment Treatment...12 Table 10 Statements with Statistically Significant Relationships to Response to the Willingness to Purchase Question for both Actual and Hypothetical Dichotomous-Choice Treatments...13 Figure 1 Percent Yes Respondents by Offered Monthly Wind Power Amount (kwh)...10

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6 Abstract Wind power and other renewable green resources provide a virtually emissions-free means of generating electricity and can provide economic benefits. Utilities are beginning to offer customers the option of purchasing green power at a higher price, in support of renewable resource development. This study examined the nature of the demand for wind power in Madison, WI and collected information about the characteristics of customers who are willing to pay a premium rate for green power. The study also refined a method to predict actual participation in a voluntary green power program. More customers said they would participate when the commitment was hypothetical as opposed to actual. A model was developed that could accurately predict which customers would actually sign up based on the level of certainty associated with their willingness to participate. Surveys also identified a group of residential customers whose participation is motivated by concerns about the environment. i

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8 Report Summary This study looked at predicting voluntary participation in a green pricing program, specifically a wind-power program, with Madison Gas and Electric (MG&E) residential customers. The study obtained information about the nature of demand for wind power in Madison, WI by residential customers and refined a method used in previous research to predict actual participation in a voluntary program using a hypothetical willingness-to-participate question, also called a contingent valuation question. Contingent valuation questions are designed to estimate the value of goods for which a market does not currently exist. Method The data were collected via mail surveys. After reading a the description of the wind power program, respondents were asked in one of three different ways if they were willing to pay for wind power through an extra charge on their electric bills. One form of the question asked respondents to actually pay a set amount. Another form asked respondents to actually pay their choice of one of six amounts. The third form of the question asked about a hypothetical payment. Because hypothetical payment questions tend to overestimate the amount respondents will actually pay, we asked respondents to rate on a ten-point scale how certain they were that they would purchase wind power given an actual opportunity to do so. We then used the responses to predict which participants in the hypothetical-payment group would actually pay if they had been in the actual-payment group. Results More people said they would purchase wind power in the hypothetical-payment group than in the actual-payment groups. This pattern was consistent for all amounts of wind power. The follow-up certainty question allowed us to predict which participants in the hypothetical-payment group who said yes to the willingness to pay question would actually pay if they had been in the actual payment group. Only respondents who said yes and had a certainty level of 8 or more were predicted to actually pay. Although the demographic information collected could not be used to predict responses to the willingness-to-pay questions, many attitude variables related in a statistically significant way to the responses. Conclusions As in previous studies, the results of this study suggested the amount of wind power purchased is affected by whether the purchase was real or hypothetical. Hypothetical questions have been criticized as producing hypothetical answers. However, we found that the answers were consistent with respondents attitudes regardless of whether payment was actual or hypothetical. Therefore the hypothetical questions can provide useful information about customer preferences. The follow-up certainty scale showed promise as a device for calibration of hypothetical responses. Although we cannot comment on the extent of the market for wind power, we found that certain consumers were willing to voluntarily purchase wind power at a premium rate. These consumers were motivated by environmental concerns, and the hope that their purchase would support future use of renewable energy sources. iii

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10 Introduction This study looked at predicting voluntary participation in a green pricing program, specifically a wind-power program, with Madison Gas and Electric (MG&E) customers. The study objectives were twofold, we wanted to refine methods used in previous research by Bishop and Champ to compare voluntary contributions elicited via a hypothetical willingness to contribute question (also called a contingent valuation question) to actual contributions. Asking individuals what they would be willing to pay if the described program was available is called the contingent valuation method. The contingent valuation method is a survey research technique used to value public goods. The approach was developed over 20-years ago and has been the subject of much research. Mitchell and Carson (1989) provide an overview of the method and associated research issues. Comparisons of actual payment to contingent values allow for assessments of the validity of the valuation method. The other objective of this study was to provide useful information about the characteristics of participants in the MG&E sponsored wind-power program. The study involved the purchase of 430,000 kilowatt hours of new wind-generated electricity by MG&E that was in turn sold to MG&E customers. In a cooperative effort, MG&E allowed the Department of Agricultural and Applied Economics at the University of Wisconsin to use the wind power to design a three-treatment study. Two of the treatments asked respondents to commit to actually purchasing wind power for one year (actual payment treatments). In one of these actual payment treatments, respondents chose the amount of wind power they would like to purchase from a menu of amounts. The other actual payment treatment asked respondents to commit to the purchase of a single (one set amount only) specified amount of wind power. The third treatment asked respondents to hypothetically commit to purchasing a single specified amount of wind power. The hypothetical payment treatment asked respondents, If wind power were available today, would you be willing to purchase a (specified amount) kilowatt hour block of wind-generated electricity... Because this was a methodological experiment, it is inappropriate to generalize results about the scope of the market for wind power. However, the study provides insights into consumer response to new wind power in MG&E s residential service territory. 1

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12 Method The data were collected via mail surveys. Development of the survey materials was facilitated by eight focus groups and a pretest. 1 As our interest was in comparing the hypothetical payment treatment to the actual payment treatments, all materials were developed as state-of-the-art contingent valuation materials rather than marketing materials. With the contingent valuation method, the researcher describes the good of interest in neutral terms to encourage respondents to make an informed decision. In a marketing research effort, the researcher might describe the good in more positive terms to get a sense of whether respondents would purchase the good if it were sold in the traditional manner. The materials were sent from the University of Wisconsin, Department of Agricultural and Applied Economics rather than MG&E. Macmillan, Smart, and Thorburn (1998) found the neutral approach of a contingent valuation scenario combined with the sponsorship of a University provided higher contributions than an actual campaign mailing used by a charitable trust set up to purchase a remote Scottish island for nature conservation purposes. We cannot speculate whether this result would generalize to this study. However, the University of Wisconsin sponsorship may have affected the number of people who agreed to purchase wind power. Feedback from focus-group participants was used to develop a description of the wind-power program that was easy to read and included information for participants to make an informed decision. Focus-group participants told us it was important to explain why the survey materials were from the University of Wisconsin rather than MG&E and they wanted to know how this program would influence future wind-power programs at MG&E. Attitude and demographic questions were also tested and revised based on input from focus-group participants. The survey began with a detailed description of the wind-power program (see Appendix A for complete copies of the three survey instruments). The first section explained the purpose of the study and encouraged participants to return the survey whether or not they chose to purchase wind power. The next section explained MG&E s opportunity to purchase the wind power from a turbine in the Green Bay area. The benefits and drawbacks of coal generation and wind generation were explained in the next section. Respondents were told while the wind itself is free, wind-generated electricity costs more than coal-generated electricity because of the high construction and maintenance cost of wind turbines. Also, it was made clear that the overall environmental benefits of this particular wind program would not be substantial. 2 Following the information scenario, survey respondents were asked if they would purchase wind power. The form of this question is the only difference among the three treatments. Each respondent received one of the three question forms. Two of the question forms asked individuals if they would pay one of six possible amounts (dichotomous-choice format). 3 One of the dichotomous-choice question forms asked respondents to actually pay. The other question form asked about a hypothetical payment. The third question form asked about an actual 1 The pretest involved an initial sample of 900 MG&E residential customers. The pretest sample was randomly split into an actual participation treatment and a hypothetical participation treatment. The response rates were 43% and 49% respectively. 2 The exact wording was Since the wind power MG&E would purchase through this program is a very small part of the total quantity of electricity they sell, the overall environmental impacts will not be substantial. The nature of the environmental impacts being local or distant was not mentioned. 3 The use of this take-it-or-leave-it format with a contingent valuation exercise was first implemented by Bishop and Heberlein (1979, 1980). Since their study, the dichotomous-choice format has been used extensively and is considered the state-of-theart contingent valuation format (National Oceanic and Atmospheric Administration, Notice of Proposed Rulemaking, Natural Resource Damage Assessments, 59 Federal Register 1062, January 7, 1994). This was the motivation for asking the willingness to pay question in the dichotomous-choice format even though it is unlikely an actual wind-power program would use such a format. 3

13 Predicting Green Power Participation payment and respondents could choose one of six possible amounts of wind power (payment-card format). For all treatments, payment would be made through an additional charge on the respondent s monthly electric bill for one year. The additional cost was expressed in kilowatt hours per month, cost per month, and total cost for the year (Table 1). The additional cost of wind power is approximately 4 per kilowatt hour (residential customers currently pay about 7 per kilowatt hour so the total cost of wind power is approximately 11 per kilowatt hour). 4 Table 1: Additional Cost for the Purchase of Wind Power Size of block (kwh per month) Cost per Month ($) Cost per Year ($) Similar studies have found more positive responses to the willingness to pay question in the hypothetical treatment than the actual payment treatment (Duffield and Patterson 1991, Seip and Strand 1992, Navrud 1992, Champ et al. 1997). We hypothesize that the overestimation of actual payment is due to individuals who say they will pay when the commitment is hypothetical but who would not pay when the commitment is real. In an effort to identify this source of overestimation, we followed up the hypothetical payment question with a question asking respondents to rate on a ten-point scale (very uncertain to very certain) how certain they were that they would purchase (or not) wind power given an actual opportunity to do so. We hoped to use the responses to this question to predict which participants in the hypothetical payment treatment would actually pay if they had been in the actual payment treatment. 5 Respondents in all three treatments were asked about their attitudes toward wind power, MG&E, and the benefits of this study. They were also asked about general environmental attitudes and behaviors. The last section of the survey asked for standard demographic information. A sample of 3020 MG&E customers was randomly split into the three treatments: 1) payment-card actual payment surveys were sent to 500 customers, 2) dichotomous-choice actual payment surveys were sent to 1260 customers, and 3) dichotomous-choice hypothetical payment surveys were sent to 1260 customers. The sample was not necessarily representative of the population of MG&E customers. For convenience, we eliminated multiple-unit dwellings and customers that were chosen to participate in a MG&E survey that was being conducted 4 The average MG&E residential customer uses approximately 600 kwh per month (about $42 per month). 5 Champ et al. (1997) describes the economic theory associated with this approach and results of a previous experiment. 4

14 Method simultaneously. 6 Although this sampling scheme is appropriate for comparing treatments, we do not suggest that the results of this study would generalize to the entire population of MG&E customers. Initially a packet with a cover letter and the survey was mailed. Approximately one week later, a reminder postcard was sent. Two follow-up survey packets were mailed to non-respondents. The overall response rate was 56% for the dichotomous-choice actual payment treatment, 50% for the payment-card actual payment treatment, and 63% for the dichotomous-choice hypothetical payment treatment (Table 2). Table 2: Response Rates Payment-Card Actual Payment Dichotomous-Choice Actual Payment Dichotomous-Choice Hypothetical Payment Initial Sample Size Number Returned and Completed Response Rate 50% 56% 63% 6 MG&E s service area has a high number of renters due to the student population. We intentionally tried to exclude this population as participation in the wind power program required a year commitment and the configuration of a student household is likely to change within a year. 5

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16 Results & Discussion Contingency table analysis of the general attitude and demographic measures from the survey suggested that the three treatments were representative of the same population. Therefore, we assumed that differences in responses among the treatments were due to treatment effects. Table 3 summarizes the demographics of the study participants. The average age of the study participants was 53 years. Most participants were male, have children, are college graduates, and have lived in Madison for an average of approximately 30 years. Removal of multiple-unit dwellings from the initial sample could have excluded a disproportionate number of short-time Madison residents (see Appendices B, C, and D for the distribution of responses to all survey questions). Table 3: Demographic Variables Payment-Card Actual Payment Dichotomous-Choice Actual Payment Dichotomous-Choice Hypothetical Payment Have Children? (percent) No Yes Gender (percent) Male Female Education (percent) 8 th or less Some high school High school grad Some college Trade school grad College grad. Some grad. work Advanced degree Income (percent) Less than $10,000 $10,000 - $19,999 $20,000 - $29,999 $30,000 - $39,999 $40,000 - $49,999 $50,000 - $59,999 $60,000 - $69,999 $70,000 - $79,999 $80,000 - $99,000 $100,000 or more Years lived in Madison (mean) Age of respondent (mean)

17 Predicting Green Power Participation Despite coverage by the local media about MG&E s plans to offer wind power, less than 25% of the respondents were aware of MG&E s plans (Table 4). Awareness of MG&E s plans for wind power did not affect the response to the willingness to pay question in a statistically significant manner. We cannot speculate whether knowledge of MG&E s plans affected the decision to respond to the survey. Most respondents were satisfied with the service provided by MG&E and most read the inserts in their MG&E bills. Neither of these measures was related to the response to the willingness to pay question in a statistically significant manner. Table 4: Awareness of MG&E wind-power plans and attitudes toward MG&E Variable Payment-card actual payment Dichotomous-choice actual payment Dichotomous-choice hypothetical payment Before you received this survey, were you aware that MG&E is considering investing in wind power? (percent) No Yes I am very satisfied with the service provided by MG&E (percent) Strongly disagree Disagree Neutral Agree Strongly agree I regularly read the inserts MG&E puts in their bills (percent) Strongly disagree Disagree Neutral Agree Strongly agree As in previous studies, more people said they would purchase wind power in the hypothetical payment treatment than in the actual payment treatments (Table 5). The distributions of the responses to the willingness-to-pay question are significantly different between the dichotomous-choice actual payment and hypothetical payment treatments. This result is consistent across different amounts of wind-power (Table 6 and Figure 1) for the dichotomous-choice treatments. In addition, the estimated average amount of wind power purchased differs between the two dichotomous-choice treatments (Table 7). Comparing the respondents who said yes to the willingness-topay question between the two dichotomous-choice treatments suggested some significant differences. For example, more of the yes respondents in the hypothetical payment treatment said electricity costs are too high compared to those in the actual payment treatment. Likewise, more of the yes respondents in the actual payment treatment strongly agreed with the statements Future generations should be considered when making decisions about natural resources and I am willing to make personal sacrifices for the sake of the environment. More of the actual payment yes respondents also had incomes more than $70,000 than the yes respondents in the hypothetical payment dichotomous-choice treatment. As these measures have significant statistical relationships to the response to the willingness to pay question (Table 8), these differences are important. 8

18 Results & Discussion Table 5: Response to Willingness to Pay Question Response Payment-Card Actual Payment (n=237) Dichotomous-Choice Actual Payment (n=647) Dichotomous-Choice Hypothetical Payment (n=761) No 63% 76% 57% Yes 37% 24% 43% Table 6: Response to Willingness to Pay Question by Annual Cost of Wind Power Annual Cost ($) Percent Dichotomous-Choice Actual Payment Treatment saying Yes Percent Dichotomous-Choice Hypothetical Payment Treatment saying Yes

19 Predicting Green Power Participation Figure 1: Percent Yes Respondents by Offered Monthly Wind Power Amount (kwh) Offered kwh per Month of Wind Power hypothetical participation actual participation Table 7: Estimates of the Average Amount of Wind Power Purchased for the Dichotomous-Choice Treatments Estimates of the mean Actual payment Hypothetical payment Hypothetical payment with certainty levels less than 8 recoded as no Parametric Estimate a $80 $180 $102 Nonparametric Turnball Estimates: b Lower Bound Upper Bound $60 $93 $116 $221 $57 $107 a b This estimate is described in Hanemann (1984). This estimate is described in Carson et al. (1996). 10

20 Results & Discussion Table 8: Statements with Statistically Significant Relationships to Response to the Willingness to Purchase Question for both Actual and Hypothetical Dichotomous-Choice Treatments Statements with which Yes respondents were more likely to strongly agree a I think wind power is worth the extra cost I like the idea of wind power I think it is a good idea for MG&E to use wind power to meet the growing demand for electricity in the Madison area I need more information I felt that if I said I would buy the wind power, more renewable energy sources such as wind, solar, and biomass are likely to be used in the future I think it is a good idea to consider renewable energy sources even if they cost more I am worried air quality in the Madison area is not good I am worried about global warming Landfill space in Dane County is scarce Natural resources should be preserved even if people have to do without some products Future generations should be considered when making decisions about using natural resources People should limit their use of products made from scarce resources I am willing to make personal sacrifices for the sake of the environment I think of myself as an environmentalist a The attitude statements were rated on a five-point scale with 1=strongly disagree, 2=disagree, 3=neutral, 4=agree, 5=strongly agree. As mentioned, a follow-up question to the hypothetical payment question asked respondents to rate on a ten point scale (1=very uncertain and 10=very certain) how certain they were that they would purchase the offered wind power if they had the opportunity. The purpose of this question was to determine if we could identify the hypothetical payment yes respondents who would respond no if they had been in the actual payment treatment. 7 We recoded the response to the hypothetical willingness to pay question such that yes respondents with certainty levels less than eight were coded as no. We found the remaining yes respondents to have similar attitudes and characteristics as those who said yes in the actual payment treatment. In addition, the estimated average purchase amount was closer to the average estimated with the actual payment data (Table 7). These results suggest the certainty question provides useful information for calibrating the hypothetical responses to the actual participation levels. We do not know how this question would work with other goods in other studies, however, we consider the result of this study to be promising. 7 In a previous study (Champ et al. 1997), we found that recoding the responses to the willingness to pay question such that only those who circled 10" on the certainty scale were coded as yes (i.e., we recoded yes responses with certainty levels less than 10 as no ) provided an estimate of average willingness to pay similar to our actual payment treatment and a group of yes respondents with similar attitudes and demographic characteristics as the actual payment yes respondents. 11

21 Predicting Green Power Participation When comparing the payment-card treatment to the dichotomous-choice treatments, it is important to keep in mind that the payment-card willingness to pay question was different. In the payment-card treatment, the willingness to pay question was simply asking if a person would pay something; the respondents then chose the amount of wind power they wanted to purchase. In the dichotomous-choice treatment, the respondents were asked about purchasing a specified amount of wind power. In the dichotomous-choice treatment, there were likely respondents who were interested in purchasing wind power but not the specified amount. Thus, we see a higher percent of the respondents in the payment-card treatment saying yes than those in the dichotomous-choice actual payment treatment; this result is statistically significant. Comparing the payment-card response to the willingness to pay question to the dichotomous-choice hypothetical payment question suggests that the distribution of the responses are not significantly different between these two treatments. Table 9 shows the responses for the payment-card treatment. Individuals who said they did not want to purchase wind power were coded as paying zero. Most of the respondents said they did not want to purchase wind power. A simple average purchase amount is estimated as 59 kilowatt hours per month or approximately $28 per year. This is much less than the estimated average amount of wind power respondents said they would purchase in either the hypothetical ($180) or actual ($80) payment dichotomous-choice treatments. Table 9: Distribution of Amount of Wind Power Purchased in the Payment-Card Actual Payment Treatment Kilowatt hours per month Annual cost ($) Percent of respondents choosing each amount Average Amount of Wind Power Purchased: $28/year To test the construct validity (the extent that a particular measure relates to other measures consistent with theoretically derived hypotheses) of the data, we examined the relationships between the response to the willingness to pay question and the attitude and demographic measures from the survey. Evidence of construct validity suggests that the response to the willingness to pay question is related to other measures in a consistent manner. The contingent valuation method (asking about hypothetical willingness to pay) has been criticized as not providing meaningful responses or responses consistent with actual preferences. We found many attitude variables related in a statistically significant way to the response to willingness to pay question for the actual and the hypothetical payment treatments (Tables 8 and 10). Respondents who said they were willing to pay for wind power also think that wind power is a good idea and are more concerned about environmental issues, such as global warming, than 12

22 Results & Discussion those who chose not to pay. Respondents who chose not to pay said they cannot afford the additional cost of wind power, electricity costs are too high already, and do not seem to think that the environmental benefits of this windpower program are substantial. Table 10: Statements with Statistically Significant Relationships to Response to the Willingness to Purchase Question for both Actual and Hypothetical Dichotomous-Choice Treatments Statements with which No respondents were more likely to strongly agree a I can t afford to pay the extra cost of wind power It is inevitable that Madison and other communities will depend primarily on coal-generated electricity for the foreseeable future I think the environmental benefits of the wind power involved in this study are too small to matter I think wind turbines are ugly I would rather encourage conservation of electricity than pay to develop renewable energy sources Electricity costs are too high Economic progress is more important than environmental concerns a The attitude statements were rated on a five point scale with 1=strongly disagree, 2=disagree, 3=neutral, 4=agree, 5=strongly agree. The demographic measures in the survey were not strong predictors of response to the willingness to pay question. Only education had a statistically significant relationship with the willingness to pay for all three treatments; individuals with higher levels of education were more likely to purchase the wind power. In the actual payment dichotomous-choice treatment, income also had a statistically significant relationship with the response to the willingness to pay question; individuals with higher incomes were more likely to purchase the wind power. With the hypothetical payment dichotomous-choice treatment, we found the years lived in Madison and age to be related to the response to the willingness to purchase question in a statistically significant manner. Conclusions Consistent with previous studies, the results of this study suggested the amount of wind power purchased is affected by whether the purchase is real or hypothetical. The interesting issue is whether the hypothetical payment treatment provides useful information about the preferences of study respondents. As mentioned, hypothetical questions have been criticized as giving rise to hypothetical answers. However, we found responses to the hypothetical payment question to be consistent with preferences when considering that the response to the willingness to pay question and measures of attitudes are similar whether payment is actual or hypothetical. Therefore, we conclude that the hypothetical payment treatment provides useful information about customer preferences. Despite the hypothetical treatment overestimating actual payment, we found that the follow-up certainty scale is promising as a device for calibration of responses. The certainty scale was a way to identify respondents who say 13

23 Predicting Green Power Participation yes when payment is hypothetical but would not actually pay if asked to do so. It is unknown if the results from this experiment will generalize to a different wind-power program. However, this research provides promise for future contingent valuation studies incorporating calibration devices. The amount that individuals purchase is also affected by the way the question is posed. More wind power was sold using the dichotomous-choice format relative to the payment-card format, which allowed respondents to specify the quantity they would purchase. The latter is probably most similar to how an actual full-scale wind power marketing effort would be designed. Although we do not comment on the extent of the market for wind power, we conclude that certain consumers are willing to voluntarily purchase wind power at a premium rate. These consumers are motivated by environmental concerns, and the hope that their purchase will increase the chance that more renewable energy sources will be used in the future. 14

24 References Bishop, R.C. and Heberlein, T.A Measuring Values of Extra-Market Goods: Are Indirect Measures Biased? American Journal of Agricultural Economics 61(5): Bishop, R.C. and Heberlein, T.A Simulated Markets, Hypothetical Markets, and Travel Cost Analysis: Alternative Methods for Estimating Outdoor Recreation Demand (Staff Paper Series, No. 187). Department of Agricultural Economics, University of Wisconsin. Carson, R.T., Conway, M.B., Hanemann, W.M., Krosnick, J.A. Martin, K.M., McCubbin, D.R., Mitchell, R.C. and Presser, S The Value of Preventing Oil Spill Injuries to Natural Resources along California s Central Coast (Vol. 2- Appendices B-E). Prepared for U.S. Department of Commerce, National Oceanic and Atmospheric Administration; California Department of Justice, Office of the Attorney General; California Department of Fish and Game, Office of Oil Spill Prevention and Response. Champ, P.C., Bishop, R.C., Brown, T.C. and McCollum, D.W Using Donation Mechanisms to Value Nonuse Benefits from Public Goods. Journal of Environmental Economics and Management 33: Duffield, J.W. and Patterson, D.A. 1991, January. Field Testing Existence Values: Comparison of Hypothetical and Cash Transaction Values. Paper presented at the annual meeting of the American Economic Association, New Orleans. Hanemann, W.M Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses. American Journal of Agricultural Economics 66: Macmillan, D., Smart, T.S., and Thorburn, A.P A Comparison of Real and Hypothetical Donations When Incentive to Free-Ride and Over-Bid are Equivalent Across Surveys. Paper presented at the World Congress of Environmental and Resource Economists, Italy. Mitchell, R.C. and Carson, R.T. Using Surveys to Value Public Goods: The Contingent Valuation Method. Washington, D.C.: Resources for the Future. Navrud, S Willingness to pay for preservation of species An experiment with actual payments. Chapter 11 of Pricing the European Environment. New York: Oxford University Press. Seip, K. and Strand, J Willingness to Pay for Environmental Goods in Norway: A Contingent Valuation Study with Real Payment. Environmental and Resource Economics 2(1):

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26 Appendix A: Survey Instruments This Appendix reproduces the three survey instruments. Dichotomous-Choice Actual Participation Survey...A-2 Dichotomous Choice Hypothetical Participation Survey...A-10 Payment-Card Actual Participation Survey...A-18 A-1

27 Predicting Green Power Participation Dichotomous-Choice Actual Participation Survey Please read the information given on the next few pages carefully. It will provide you with information that you will need to answer the questions. What this study is about: This study will investigate the economic value of wind power as measured by people s willingness to pay for wind generated electricity. MG&E has made some wind power available to us for purposes of this study. As a participant in this study, you will have an actual opportunity to purchase wind power from MG&E if you wish to do so. Whether you wish to purchase wind power or not, please read the following information and complete the survey. To find out how a full cross-section of Madison residents feel about wind power, we need to hear from everyone. The Issue: What role will wind power play in Madison s future? MG&E currently sells no wind generated electricity, but is considering wind power to meet part of Madison s growing demand for electricity. MG&E has an opportunity to purchase wind power from two wind turbines being constructed near Green Bay, which are specially suited for the low wind conditions in Wisconsin. If wind conditions are as predicted, MG&E can purchase up to 430,000 kilowatt hours annually from this source, which is more than enough for our study. 430,000 kilowatt hours are a small percent of the electricity consumed by MG&E customers. It is roughly equivalent to the total amount of electricity used in a year by 70 households. If their customers are willing to pay the extra costs of wind power, MG&E will purchase the wind power from the Green Bay wind turbines and construct more wind turbines in Wisconsin. Most of the electricity that MG&E currently sells is generated from coal. Coal is a relatively inexpensive source of energy. However, there are environmental drawbacks of coal generation: Although coal burning power plants are much cleaner than they used to be, they still release sulphur dioxide, nitrogen oxide, particulate matter, and carbon dioxide into the air. These compounds are linked to acid rain, global warming and reduced visibility. These compounds are also linked to health problems such as respiratory illness. Coal mining and transportation are also damaging to the environment. Coal burning power plants produce ash which must be disposed of in landfills. Though the U.S. still has large coal reserves, coal is a nonrenewable source of electricity; once coal is burned, it will not be available to future generations. A-2

28 Appendix A: Survey Instruments Wind generated electricity is less polluting and uses a renewable energy source. However, there are also some drawbacks to wind energy: While the wind itself is free, wind generated electricity costs more than coal generated electricity because of the high construction and maintenance costs of wind turbines. Electricity from wind power will cost about 11.5 cents per kilowatt hour for residential consumers. In comparison, electricity generated from current sources costs about 7.5 cents per kilowatt hour for residential consumers. - The estimate of 11.5 cents per kilowatt hour for wind generated electricity is calculated by spreading construction and maintenance costs for the turbines over a ten year period. A wind turbine is quite tall (about 170 feet) and typically has a tubular tower and a three blade propeller. Some people might consider wind turbines unattractive (see front cover of survey booklet). Wind turbines make a sound that can be heard up to 100 yards away. - This sound is often described as similar to wind blowing through trees. - This sound may be bothersome to some people. - However, the wind turbines near Green Bay will not be in an urban or residential area. Today s wind turbines are less dangerous to birds than wind turbines of the past. However, even modern wind turbines are likely to kill a small number of birds. To measure the benefits of wind power, we need to know whether you and others in Madison are willing to pay the extra costs: In Question 1, you will be asked whether you are willing to pay an additional amount each month to purchase wind power. If you answer no, you will pay nothing extra for wind power on your future MG&E bills and coal will continue to be used to generate an equivalent amount of electricity. If you say yes, you will be charged for the additional cost of wind power as part of your monthly MG&E bills for a period of one year. The wind turbines are expected to be completed by Spring of We expect you will be able to purchase wind power by late Spring MG&E will let you know the start date prior to the actual billing for the wind power - These charges will be in addition to what you normally pay for the electricity you use and would cover the extra costs of the wind power. - MG&E will reduce its coal generation by an amount equal to the amount of wind power you agree to purchase. - You will be asked to pay for wind power for twelve months. - After the twelve months, the study will end and you will be under no obligation to continue paying for wind power. A-3

29 Predicting Green Power Participation How will the environment benefit if you choose to purchase wind power? According to the U.S. Environmental Protection Agency s Green Lights program... Purchasing 100 kilowatt hours of wind power each month for a year has the same environmental benefits as not driving your car 2,400 miles. Since the wind power MG&E would purchase through this program is a very small part of the total quantity of electricity they sell, the overall environmental impacts will not be substantial. However, if this wind program is successful, MG&E will offer more wind power in the future. There are good reasons why you might choose to sign up. You may think the benefits of wind generated electricity are well worth the cost. There are also good reasons why you might decide you do NOT want to participate. You may decide that wind power is not worth the extra cost to you or the environmental benefits are too small to matter. 1 Are you willing to purchase a 100 kilowatt hour block of wind generated electricity each month for twelve months at an additional cost of $ 4 per month (that is $ 48 for the year)? (CIRCLE ONE NUMBER) 1 No 2 Yes----> Please fill in this box. We will send a copy of this page to MG&E. Name Street City State Zip Phone number I understand that $ 4 will be added to my monthly MG&E bill for 12 months for the purchase of wind power. This program is subject to approval by the Wisconsin Public Service Commission and is expected to begin in Spring Signature A-4

30 Appendix A: Survey Instruments In this section, we would like to better understand how you feel about the wind power, MG&E, and electricity in general. 2. Before you received this survey, were you aware that MG&E is considering investing in wind power? (CIRCLE ONE NUMBER) 1 No 2 Yes 3. Please let us know how strongly you agree or disagree with each of the following statements. (CIRCLE ONE NUMBER FOR EACH STATEMENT) Strongly Disagree Disagree Neutral Agree Strongly Agree I think wind power is worth the extra cost I can t afford to pay the extra cost of wind power I like the idea of wind power I think it is a good idea for MG&E to use wind power to meet the growing demand for electricity in the Madison area I need more information about the wind power I think all MG&E customers should pay the higher cost of the wind power offered in this study I think the purchase of all the wind power involved in this study could result in noticeably cleaner air in the Madison area I think MG&E will use wind power in the future regardless of whether I sign up I think the environmental benefits of the wind power involved in this study are too small to matter I felt that if I bought the wind power offered to me, more renewable energy sources such as wind, solar, and biomass are likely to be used in the future I am very concerned about the birds that might be killed by the wind turbines A-5

31 Predicting Green Power Participation Strongly Disagree Disagree Neutral Agree Strongly Agree I think wind turbines are ugly I doubt the noise from a wind turbine would bother me It is inevitable that Madison and other communities will depend primarily on coal-generated electricity for the foreseeable future I think it is a good idea to consider renewable energy sources, even if they cost more I would rather encourage conservation of electricity than pay to develop renewable energy sources Electricity costs are too high I am very satisfied with the service provided by MG&E I regularly read the inserts MG&E puts in their bills A-6

32 Appendix A: Survey Instruments In this section, we would like to know how you feel about the environment. 4. Please indicate how strongly you disagree or agree with each of the following statements. (CIRCLE ONE NUMBER FOR EACH STATEMENT) Strongly Disagree Disagree Neutral Agree Strongly Agree Economic progress is more important than environmental concerns I am worried air quality in the Madison area is not good I am worried about global warming Landfill space in Dane County is scarce I am worried about acid rain Natural resources should be preserved even if people have to do without some products Future generations should be considered when making decisions about using natural resources New technologies will solve many of our current environmental problems People should limit their use of products made from scarce resources I am willing to make personal sacrifices for the sake of the environment I think of myself as an environmentalist A-7

33 Predicting Green Power Participation 5. How often do you do the following activities on a scale from 1 to 5, where 1 means Never and 5 means Frequently? (CIRCLE ONE NUMBER FOR EACH STATEMENT) Never Frequently I donate money to environmental causes I volunteer my time to environmental causes I walk, ride a bike, take a bus or carpool to work to help the environment I buy products that come in packages that can be recycled I vote for political candidates who take tough stands on protecting the environment I recycled cans, glass, or newspaper before curbside pickup was available I buy products that are environmentally friendly even though they may cost more I make an effort to reduce energy use in my home I purchase energy conserving products, even though they may cost more than other products I participate in MG&E sponsored energy conservation programs, such as the energy audit A-8

34 Appendix A: Survey Instruments The following questions are to help us learn more about the survey respondents. All the information in this section (and the rest of the survey booklet) is confidential. Your name will never be associated with your answers to these questions. 6. How many years have you lived in the Madison area? (FILL IN THE BLANK) Number of years in the Madison area 7. Do you have children? (CIRCLE ONE NUMBER) 1 No 2 Yes > How many children currently live in your home? (FILL IN THE BLANK) Number of children living at home 8. How old are you? (FILL IN THE BLANK) Years old 9. Are you... (CIRCLE ONE NUMBER) 1 Male 2 Female 10. What is the highest grade or year of school you completed? (CIRCLE ONE NUMBER) 1 Eighth grade or less 2 Some high school 3 High school graduate 4 Some college or technical school 5 Technical or trade school 6 College graduate 7 Some graduate work 8 Advanced Degree (M.D., M.A., Ph.D., etc.) 11. What was your total household income before taxes and deductions in 1996? (CIRCLE ONE NUMBER) 1 Less than $10,000 2 $10,000 to $19,999 3 $20,000 to $29,999 4 $30,000 to $39,999 5 $40,000 to $49,999 6 $50,000 to $59,999 7 $60,000 to $69,999 8 $70,000 to $79,999 9 $80,000 to $99, $100,000 or more A-9

35 Predicting Green Power Participation Dichotomous-Choice Hypothetical Participation Survey Please read the information given on the next few pages carefully. It will provide you with information that you will need to answer the questions. What this study is about: This study will investigate the economic value of wind power as measured by people s willingness to pay for wind generated electricity. At this time, we can not offer you an actual opportunity to purchase wind power from MG&E. However, we would like to know what you would do if you were offered such an opportunity. Whether you think you would purchase wind power or not, please read the following information and complete the survey. To find out how a full cross-section of Madison residents feel about wind power, we need to hear from everyone. The Issue: What role will wind power play in Madison s future? MG&E currently sells no wind generated electricity, but is considering wind power to meet part of Madison s growing demand for electricity. MG&E has an opportunity to purchase wind power from two wind turbines being constructed near Green Bay, which are specially suited for the low wind conditions in Wisconsin. If wind conditions are as predicted, MG&E can purchase up to 430,000 kilowatt hours annually from this source, which is more than enough for our study. 430,000 kilowatt hours are a small percent of the electricity consumed by MG&E customers. It is roughly equivalent to the total amount of electricity used in a year by 70 households. If their customers are willing to pay the extra costs of wind power, MG&E will purchase the wind power from the Green Bay wind turbines and construct more wind turbines in Wisconsin. Most of the electricity that MG&E currently sells is generated from coal. Coal is a relatively inexpensive source of energy. However, there are environmental drawbacks of coal generation: Although coal burning power plants are much cleaner than they used to be, they still release sulphur dioxide, nitrogen oxide, particulate matter, and carbon dioxide into the air. These compounds are linked to acid rain, global warming and reduced visibility. These compounds are also linked to health problems such as respiratory illness. Coal mining and transportation are also damaging to the environment. Coal burning power plants produce ash which must be disposed of in landfills. Though the U.S. still has large coal reserves, coal is a nonrenewable source of electricity; once coal is burned, it will not be available to future generations. A-10

36 Appendix A: Survey Instruments Wind generated electricity is less polluting and uses a renewable energy source. However, there are also some drawbacks to wind energy: While the wind itself is free, wind generated electricity costs more than coal generated electricity because of the high construction and maintenance costs of wind turbines. Electricity from wind power will cost about 11.5 cents per kilowatt hour for residential consumers. In comparison, electricity generated from current sources costs about 7.5 cents per kilowatt hour for residential consumers. - The estimate of 11.5 cents per kilowatt hour for wind generated electricity is calculated by spreading construction and maintenance costs for the turbines over a ten year period. A wind turbine is quite tall (about 170 feet) and typically has a tubular tower and a three blade propeller. Some people might consider wind turbines unattractive (see front cover of survey booklet). Wind turbines make a sound that can be heard up to 100 yards away. - This sound is often described as similar to wind blowing through trees. - This sound may be bothersome to some people. - However, the wind turbines near Green Bay will not be in an urban or residential area. Today s wind turbines are less dangerous to birds than wind turbines of the past. However, even modern wind turbines are likely to kill a small number of birds. To measure the benefits of wind power, we need to know whether you and others in Madison would be willing to pay the extra costs: In Question 1, you will be asked whether you would be willing to pay an additional amount each month to purchase wind power. If we had wind power to sell today, and you answered no, you would pay nothing extra for wind power on your future MG&E bills and coal would continue to be used to generate an equivalent amount of electricity. If we had wind power to sell today and you answered yes, you would be charged for the additional cost of wind power as part of your monthly MG&E bills for a period of one year. The wind turbines could be completed by Spring These charges would be in addition to what you normally pay for the electricity you use and would cover the extra costs of the wind power. - MG&E would reduce its coal generation by an amount equal to the amount of wind power you say you would purchase. - You would be asked to pay for wind power for twelve months. How will the environment benefit if you choose to purchase wind power? According to the U.S. Environmental Protection Agency s Green Lights program... Purchasing 100 kilowatt hours of wind power each month for a year has the same environmental benefits as not driving your car 2,400 miles. A-11

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