A broad energy bill is headed to Gov. Josh Stein's desk after the N.C. Senate agreed Thursday to concur with changes the House made previously.
Senate Bill 266, which the House rebranded as "The Power Bill Reduction Act," scraps an interim carbon dioxide emissions reduction goal for Duke Energy and also shifts how much different groups of ratepayers pay for energy Duke purchases from third parties.
Senate President Pro Tempore Phil Berger expressed hope that by removing the interim goal, Duke will be able to more cheaply reach the still-intact target of reaching net zero by 2050.
"What we've done with the bill makes it more likely that that's going to happen, makes it more likely that nuclear is going to be the vehicle through which we get to zero carbon and makes it more likely that consumers over that period of time will save a significant amount of money," Berger told reporters Thursday.
Berger also expressed hope that Duke will build large nuclear plants like the two reactors that Georgia utilities recently completed at a cost upwards of $30 billion.
Senate Democrats unsuccessfully urged their colleagues to hold off on approving the energy bill Thursday, namely to make changes that would provide additional protections for low- and fixed-income consumers.
Sen. DeAndrea Salvador, D-Mecklenburg, warned that since much of the generation Duke will need to slash carbon has yet to be built, removing the interim target could introduce its own set of perils.
"If we start to see some rising rates, if we start to have headaches with our grid reliability, we can clearly point to this moment in time, today, as the new fork in the road for any impacts," Salvador said.
The Senate approved the bill by a vote of 29 to 11, with all Republican Senators present voting to concur and most Democrats voting against it.
Residents to pay more for purchased power
An analysis performed for the Environmental Defense Fund found that the tweak to purchased power payments would shift $87 million in annual payments from the state's commercial and industrial customers to residential customers.
The bill directs the N.C. Utilities Commission to split the costs of purchased power based on which groups of customers are using energy when demand is at its highest. Under the current system, purchased power costs are divvied up based on which groups of customers use the most energy year-round.
Those costs are included in fuel riders that appear on customers’ power bills. They primarily cover Duke's purchase of solar energy generated in the state, but also apply to some energy that is brought in from nearby states.
That portion of the rider currently costs residential customers about $458 million annually, analysts from EQ Research determined. By altering the allocation to focus on demand, the rider would cost residential customers about $545 million each year.
In North Carolina, the highest amount of energy is used on cold winter mornings. That, critics say, means residential customers are unlikely to turn the thermostat down or decide to forego a warm shower, while industrial customers could more easily shift their activity.
"If you allocate on a demand basis in a system that is focused on the winter peak, that's a time when the residential class is using a higher percentage of energy because they're turning up their heat pumps or using more electricity to heat their homes," Will Scott, the EDF's Southeast climate and clean energy director, told the NC Newsroom.
Manufacturing groups insist the changes are necessary because, they say, they’ve paid a “disproportionate share” of the costs of renewable energy in the state.
“It’s a better way to assign costs to the customer classes that contribute the most to causing the infrastructure that is necessary to serve peak load,” Lu-Ann Perryman, a lobbyist representing the N.C. Manufacturers Alliance, told the NC Newsroom.
An analysis performed last week by the N.C. Public Staff, the state-funded ratepayer advocate, came to a more conservative estimate.
Public Staff found that residential customers would pay about $24.8 million more under the changes in Senate Bill 266. Per Public Staff, that would add an annual total of $6.71 to Duke Energy Carolinas and $7.89 to Duke Energy Progress bills.
It appeared, Scott said, that Public Staff and EQ Research were basing their analyses on different filings, with Public Staff using monthly updates while EQ used annual fuel rider filings. For the Duke Energy Carolinas service area, in particular, Scott wrote, the forecast of purchased power costs has spiked.
Clean energy advocates argue the change is unfair to residential customers because it's harder for them to avoid using power on high-demand days.
Justin Somelofske, the N.C. Sustainable Energy Association’s senior regulatory counsel, is among those who believes it could be difficult for residential customers to shift large amounts of electricity from peak demand times.
“It is basically taking those fuel and fuel-related costs from commercial and industrial customers and putting them on residential customers,” Somelofske told the N.C. Newsroom.
Rep. Dean Arp, a Union County Republican who helmed the rewritten version of Senate Bill 266, said part of the push to allocate power purchase fees based on demand is to encourage consumers to shift when they use electricity.
“Consumers who put more strain on the system at peak times would just simply have to pay a larger share of the cost. If you’re able to wait and use the energy on off-peak basis, that’s better for everybody,” Arp said.
Duke Energy, Arp noted, offers residential customers subsidized smart meters that can turn thermostats down slightly on cold days when demand is highest and time of use pricing programs that let customers know their energy is going to cost more at certain times because the grid will be strained.
“Let’s say you have 100 units of power going out and that is in competition between an industrial user and the residential,” Arp said. “If the residential (users) say, ‘I don’t want to curtail my energy usage’ but the industrials do, then that allows for more use of the electricity by the residential so they benefit.”
During Thursday's debate in the Senate, Sen. Julie Mayfield, D-Buncombe, implored Duke Energy to help residential customers more easily learn about those programs.
Looking up from the floor to where a handful of Duke lobbyists were gathered, Mayfield said, "The opportunity this creates, and I'm looking at my Duke Energy friends up in the gallery, is for Duke Energy to expand its demand management programs, make those programs more easily available to customers and to really more aggressively market them than they do right now."
What else is in the bill?
Senate Bill 266 originally dealt with rebuilding homes in floodplains after large storms, an effort that was meant to make it easier to rebuild in low-lying parts of Western North Carolina after Helene.
House lawmakers stripped out that language entirely, instead shifting the bill to its current form dealing with electric utilities. They used provisions included in Senate Bill 261 as a basis for the new legislation.
Lawmakers first saw the new version of the bill late on June 4, and it appeared before the House Energy and Public Utilities Committee on June 5.
Rep. Pricey Harrison, a Guilford County Democrat, said the process was dramatically different than the broad, consensus-driven efforts that resulted in important energy legislation like 2007's Senate Bill 3 or 2021's House Bill 951.
"How can we trust that when we put together another agreement like this, we're not going to come back in two years and undo it?" Harrison said, arguing that removing the interim target will actually make it more difficult for Duke to reach the 2050 target.
Republican bill writers in both the House and the Senate wanted to remove an interim carbon dioxide emissions goal included in House Bill 951 that originally required Duke to reach 70% reduction from 2005 levels by 2030.
That bill gave the N.C. Utilities Commission some latitude to shift the interim date back, particularly if doing so involved construction of a nuclear power plant or wind farm. The Utilities Commission has taken that option, pushing the deadline for Duke to reach the interim target back to 2034 under its most recent order.
Arp argued that keeping the interim target in place would not necessarily help Duke reach the longer-term net zero goal because, he said, carbon reductions happen in leaps as more polluting plants are retired in place of cleaner generation.
"It's not a linear process at all, and there's nothing to ensure but higher costs if we keep these interim target goals," he said on the House floor.
Modeling from the N.C. Public Staff found that removing the interim target would save ratepayers about $13 billion by 2050, Arp said. Harrison critiqued that analysis, arguing that it likely under-estimated fuel costs to power natural gas plants that would likely be built to meet demand without the interim target instead of non-emitting solar and wind.
Paying for plants under construction?
A section of the original Senate legislation allowing Duke to recover the costs of large power plants before they generate electricity was pared down.
The new version clarifies that Duke can only ask the Utilities Commission to require that ratepayers pay for the financing of those projects before they are generating power.
The Utilities Commission could only approve a rate increase in those cases if it deems ratepayers will ultimately save money from it. Duke can only requests the under-construction increases for plants that provide baseload power which, in practice, means either natural gas-fired or nuclear facilities.
"Policies that enable more timely recovery of investments in modern infrastructure like always-on nuclear power plants help keep costs down for customers and result in more predictable energy prices by avoiding sudden spikes," Garrett Poorman, a Duke Energy spokesman, wrote in an email.
Critics of the legislation are worried that the Utilities Commission process for deciding to tack those financing costs onto bills for plants under construction would be able to happen outside of the scrutiny of a typical rate case.
And Harrison questioned whether ratepayers would be able to recover those payments if the plant that was being financed wasn't completed.
"Are there any protections in here for ratepayers? No, it doesn't appear (so). They are going to be allowed to have rate increases without the proper rate cases before the Utilities Commission," Harrison said during debate.
Retiring coal, paying for gas
The bill also makes law rules that allow Duke Energy to securitize 100% of the value of coal plants that are being retired, a step designed to help lower what ratepayers spend on retired power plants.
And it tweaks the multi-year ratemaking process that was created under House Bill 951 to allow Duke to recover the costs of gas plants known as "peakers" — because they are used when energy demand spikes — to be included in the same rate case where they are put into service.
That would apply to assets like the two 425-megawatt combustion turbines Duke plans to build at its Marshall plant in Catawba County.
Typically, Duke cannot recover the costs of power plants that cost more than $500 million until the next rate case.
"The original statute did not account for the impact of inflation. Natural gas remains a crucial part of our energy mix as we look to maintain reliability and affordability while investing in an increasingly clean mix of energy resources," Poorman wrote.
The bill now heads to Gov. Josh Stein's desk. He will have 10 days to sign the bill, veto it or let it become law.
