Reefer Madness: Electricity + the Legalized Marijuana Industry

At a recent board meeting of the Cowlitz County Public Utility District in Longview, Washington, the hot topic was not a pending rate increase or other typical utility business. Instead, the Commissioners wrestled with the issue of whether or not Cowlitz PUD should provide electric service to marijuana-growing operations.

Initiative 502, passed by Washington voters in November 2012, made it legal under state law for Washington residents to grow, sell and possess small quantities of marijuana. Federal law, however, has been slow to catch up with state law and marijuana use remains unlawful under the Federal Controlled Substance Act. Thus, Cowlitz PUD and other Washington utilities face the choice of either refusing service to eligible customers, whose actions are legal under state law, or knowingly supporting activities that violate federal law.

Cowlitz PUD is not alone in facing this question. In November 2012, Colorado voters passed Amendment 64, which allows individuals to grow, possess and use small amounts of marijuana. Like Initiative 502 in Washington, Amendment 64 also paves the way for the commercial production and sales of marijuana by licensed businesses. Other western states, including California, Oregon and Alaska, may also follow suit in the not-too-distant future.

While the criminal justice and tax implications associated with legalization of marijuana at the state level have been widely debated, less attention has been paid to the effect that it may have on electric service providers. According to a study performed by Evan Mills, a researcher at the Lawrence Berkeley National Laboratory, indoor marijuana growing operations already account for about one percent of all electric consumption in the United States. In California, the number may be as high as three percent. To put that in perspective, Mills estimates that an indoor marijuana growing operation has the same power density (watts per square foot) as a data center, and that pot growers use about one-third of the total electricity used by data centers in the United States.

another challenge for utilities may lie in designing and applying a retail rate structure that recovers the costs of serving residential marijuana growing operations.

If Mills’ data is accurate, then the first challenge faced by electric utilities may be to keep up with increased electric demand caused by marijuana production. While it is clear that utilities already are serving illegal growing operations, it remains difficult to predict how legalization of the industry will affect long-term energy usage. If the legalized marijuana industry expands significantly, then the demand for power may also increase on a proportionate basis. Increased utility demand also could come from existing growers who have previously relied on diesel generators, or other “off-grid” power sources. It is certainly plausible, therefore, that the marijuana industry alone could spark significant changes to a utility’s long-term load forecasts.

An increase in retail demand because of marijuana production may be particularly problematic for utilities purchasing power from federal power marketing agencies such as the Bonneville Power Administration (BPA) and the Western Area Power Administration (WAPA). As stated above, although marijuana production, sales, possession and use may be legal on a limited basis in Colorado and Washington, it remains illegal under federal law. Therefore, while the federal government presently does not seem intent on prosecuting inconsequential violations of federal law in these states, it also has not abdicated the right and authority to do so. This raises the question of whether federal agencies, such as BPA and WAPA, can or will refuse to provide wholesale power for resale to operations that, in the eyes of the federal government, remain unlawful. There is at least one precedent for this: the United State Bureau of Reclamation recently announced that it will not provide irrigation water for marijuana growing operations.

However, it also can be argued that legalizing marijuana production may present the opportunity to reduce existing power demand. Illegal marijuana growing operations are notoriously inefficient in terms of energy use. Legalization may allow proactive utilities to create and deploy conservation and efficiency measures that could cut marijuana energy usage substantially. In Colorado, for example, Xcel Energy already has begun to develop a rebate program that is specifically designed to incentivize marijuana growers to replace old lighting equipment with more-efficient technology. Larger commercial growers should also be expected to adopt more energy-efficient measures that would not have been possible before, such as growing in green-houses rather than in secluded basements, in order to reduce production costs.

The prospect of legalized marijuana use and possession may also have retail rate implications — particularly as applied to residential production. It has been noted that increased marijuana production can result in noticeable changes in residential power consumption. Humboldt County, California, is regarded as the marijuana capital of America. According to a recent Humboldt State University masters thesis, Humboldt County has seen a steady rise in average electric use by residential customers since 2006, while average usage for the rest of the state has declined. To the extent that this is attributable to increased marijuana production, there are customers paying residential rates for operating what are, essentially, small industrial facilities. Thus, yet another challenge for utilities may lie in designing and applying a retail rate structure that recovers the costs of serving residential marijuana growing operations.

There is one other issue underlying the debate about marijuana growing operations that has nothing to do with load-growth, federal power, conservation or retail rate setting. It is the fact that, for many Americans, the production, possession and use of marijuana is seen as immoral. Polling data suggests that, although attitudes about marijuana use have changed significantly in the past two decades, many Americans still view marijuana use as either wrong, or dangerous, or both. Inevitably, personal opinions about drug use will influence policy decisions about utility service to marijuana growers. It is here where utilities and their decision-makers, particularly those that are government entities, should tread lightly in order to avoid potential legal liability.

About the Author

Richard Lorenz, Cable Huston
Since graduating with his law degree from Harvard in 2000, Richard Lorenz has built expertise in the energy industry, taking on siting and financing power generation projects, drafting power sale and purchase agreements, dealing with the acquisition and/or disposition of utility assets, derivative transactions for risk management, dispute resolution, and other general regulatory matters. He can be reached at