HB 951 Sets the Path for North Carolina's Energy Future

On Oct. 13, Governor Roy Cooper signed HB 951/Energy Solutions for North Carolina into law after months of bipartisan negotiation. One of the law's centerpieces is a 70 percent reduction in carbon emissions by the year 2030, primarily achieved through retirement of uneconomic coal plants. Duke Energy will refinance these plants through low-interest ratepayer-backed bonds in a method called securitization, and the N.C. Utilities Commission (NCUC) will develop rules on the costs which can be securitized.

Increasing Importance of the NCUC

By the end of 2022, the NCUC will develop a plan to meet the 70 percent emissions reduction standard and determine Duke Energy's lowest-cost options/mix of resources. The law requires the NCUC to weigh in on several other issues, putting them at the forefront of crafting rules that will drive energy decisions for years into the future. These issues include standby service charges, net metering rates, an on-bill finance program for energy efficiency improvements, and a renewable energy credit purchase program for different customer classes. While these provisions sound esoteric, they have consequences for renewable energy and energy efficiency investment.

Controversial Provisions

Ratemaking

The new law will undoubtedly increase the price of energy, and that has drawn criticism from environmentalists and consumer advocates. HB 951 allows multi-year ratemaking and other performance-based incentives, with yearly rate hikes of up to 4 percent. These ratemaking changes create the potential for Duke Energy to earn more at customers' expense and that reflects badly when 13.6 percent of North Carolina residents are living in poverty. The law unfortunately does little to alleviate the high energy burden of these residents.

Ownership

HB 951 continues the existing Competitive Procurement of Renewable Energy program under HB 589 into 2022 before establishing a split ownership of 55 percent Duke Energy/45 percent IPP ownership for solar and solar plus storage. Duke Energy is guaranteed 100 percent ownership of all stand-alone storage and onshore and offshore wind resources. This will inevitably drive up costs, making customers pay a premium for resources that would have been less expensive if a competitive procurement process had been required for all resources.

The legislation continues Duke Energy's vertically integrated ownership over North Carolina's energy market. Despite the attempt to introduce a measure to study energy market reform (such as the one in South Carolina), the final bill did not have any provision to examine competition. Given FERC's recent decision to allow SEEM and an energy imbalance market, North Carolina will not be studying the move toward an RTO any time soon.

Overall Assessment

HB 951 is a mix of good and bad: While it puts in motion a carbon reduction plan and retires uneconomic coal plants through a lower cost of capital, it unnecessarily increases the financial burden to customers and keeps the utility business model in place. Compromise means that not all interests were met, but the outcome makes North Carolina's future energy trajectory clear.