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Does the “Act to Modernize NC’s Generation” Do Just That?

Updated: Sep 10, 2021

Image courtesy of PV Magazine, August 2020

Earlier this week, legislators in North Carolina publicly released House Bill 951: "An Act to Modernize North Carolina's Generation and Grid Resources and Ratemaking and Invest in Critical Energy Infrastructure for the Benefit of Customers." For months, lawmakers, manufacturing lobbyists, clean energy groups, and Duke Energy have been working behind closed doors to pull together the 47-page document. The text notes that the 951 is "generally consistent" with Duke Energy's 2020 IRP—notwithstanding the fact that the IRP is currently under fire from several interest groups. Though the bill has "customer benefit" in the title, many have criticized the process given that neither environmental organizations nor residential customers had a seat at the table. Now, as the first draft of the bill comes to light, there are mixed opinions about what it entails.

The bill is anticipated to cut carbon emission by 61 percent by 2030, largely through a number of coal plant retirements. The utility will be directed to securitize $200 million of the retirement costs, which may yield customer savings. As coal plants are removed, they are largely set for replacement with new natural gas facilities, coupled with 70 MW of solar and 20 MW of battery storage technology.

HB 951 allows multi-year rate plans, revenue decoupling, and performance-based ratemaking. These would allow rate planning based on anticipated costs over three years, without changes from the utility commission; it would also build in policy-linked performance incentives and eliminate the link between energy delivered and collected revenue. This provision resurrects the ghost of 2019's contentious HB 559, which sought similar goals and ultimately failed. Lawmakers contend that the language in 951 is very different from 559, and that this multi-year planning would ultimately save ratepayers money. Critics, however, worry that the provision would generate excess Duke Energy profits.

The legislation also extends the Competitive Procurement of Renewable Energy Program (CPRE), which emerged in 2017's House Bill 589 and required Duke Energy to add thousands of MW of utility-scale solar to its grid. The program generated millions in customer cost savings since its inception, and this renewal would likely save more as it adds 777 MW additional per year to the program. This extension would also require Duke Energy to own and operate 55 percent of the new capacity and uncaps the maximum size of new projects owned by independent solar developers.

Other provisions include (but are not limited to): changes to power purchase agreements with small power producers; updates to state net metering regulations to reflect other state models, and changes to programs like Shared Solar/Community Solar Gardens, a solar leasing program, and Green Source Advantage. Provisions such as the Green Source Advantage may not ease transactional costs for large energy users.

Mixed Perspectives

In terms of public response, reactions to the bill run the gamut. Environmental organizations have called the bill "Duke Energy-Friendly," noting that despite the bill's attempts to predict "future stringent federal environmental regulations," there is no mention of climate change in the text. The North Carolina Sierra Club asserts that the bill would strip utility oversight, miss state climate goals, and harm communities. The securitization provision, which would allow Duke Energy to repay coal plant debt to investors using lower-interest ratepayer-backed bonds, is capped at $200 million; meanwhile, there are $6 billion worth of plant balances remaining. The 61 percent emission cuts target, while promising at face value, falls significantly short of Governor Cooper's 70 percent by 2030 goal. Also problematic is the replacement of coal with new natural gas, which will harm communities, the climate, and result in stranded, obsolete assets that generate customer cost burdens. The Environmental Defense Fund echoed these worries, noting that the measure would push the state "perilously close to trading one fossil-fueled future for another."

Clean energy organizations, such as the North Carolina Sustainable Energy Association (NCSEA), were part of the bill's stakeholder process. However, they have their concerns as well. NCSEA, like environmental groups, is worried about the "mandate to replace coal with risky natural gas." Though only 900 MW of new gas plants are explicitly spelled out, other bill sections require regulators to "approve coal-replacement units that meet criteria that only natural gas could satisfy." There are also problems with proposals for small modular nuclear reactors, the $50 million costs of which would be recouped from ratepayers. Those outside the utility note that this technology is too expensive and untested to pose that cost risk to customers.

Statements from business organizations like the Carolinas Clean Energy Business Association (CCEBA) express thanks for their inclusion in the HB 951 stakeholder process and applaud several the bill's features. In particular, CCEBA was pleased with the CPRE expansion, as well as the expanded customer renewable programs and accelerated coal retirements. However, they are worried about the prescriptions for natural gas, and are pushing for a final product that "provides North Carolinians all the benefits of competitive procurement of low-cost renewable energy."

The Carolina Utility Customers Association (CUCA) is concerned about the bill's implications for their member base. They note that many provisions tie the hands of the NC Utilities Commission, placing ratepayers at the mercy of Duke Energy. The securitization cap and the significant rate increases expected with multi-year ratemaking would significantly raise costs for the manufacturing and industry customers they represent. CUCA—as well as many other energy organizations in NC—also supports a study of potential models for electric market competition in NC, an issue which has been fraught with disagreement in the past months. HB 951 does not include any provision to consider or implement energy market reform within the state.

What's Next?

It's clear that there is still a lot to be done before HB 951 is deemed satisfactory. The bill passed its first reading in the NC House on May 12, and a committee substitute emerged just this week. It also remains to be seen how the Governor will respond, should the bill make it to his desk. As it stands, several provisions are completely out of alignment with the significant climate planning and energy goals in our state. In a recent episode of NCSEA's Squeaky Clean Energy podcast, Governor Cooper hinted at his feelings toward the impending legislation. He expects "tough negotiations," and offered concerns about increasing natural gas usage in the face of more cost-effective, renewable options. The Governor is on board with signing energy generation legislation, but only if it significantly moves us toward expanded clean energy in our state.

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