North Carolina energy bill pits clean energy advocates against Duke Energy’s plans for new gas plants

New GOP legislation would boost solar but replace coal plants with natural gas and scuttle many of the Democratic governor’s proposed reforms.

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After months of closed-door negotiations, Republican lawmakers in North Carolina have unveiled a long-awaited clean energy bill that would set utility Duke Energy on a path to close its coal-fired power plants by 2030 and expand the scope of solar development in the state.

But that’s about all in the bill that’s pleasing to environmental groups, consumer advocates and corporate energy buyers hoping for a much broader legislative package to address the state’s clean energy future.

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In fact, some aspects of the bill could take away state authority to restrain Duke Energy from building gigawatts’ worth of natural gas power plants to replace coal plants, or from shifting growing capital costs onto ratepayers with reduced regulatory oversight, critics say. Other aspects of the GOP-sponsored bill set up a conflict with the clean energy agenda of Governor Roy Cooper (D).

That’s why North Carolina energy stakeholders consider House Bill 951, introduced Wednesday, as an opening salvo in what’s expected to be a much more contentious public battle over the state’s energy future in the months and years to come. 

The proposal appears to be a recipe for a more expensive and more polluting energy system than North Carolinians deserve,” David Kelly, senior manager of the Environmental Defense Fund’s North Carolina political affairs unit, said in a statement.

Clean energy boosters vs. natural gas 

Duke Energy has pledged to halve its carbon emissions by 2030 and reach net-zero emissions by 2050 — and it is under scrutiny to make progress on those goals. Last year’s integrated resource plan for Duke’s North and South Carolina utilities, Duke Energy Carolinas and Duke Energy Progress, lays out six pathways to reach that goal. All but one of the plans call for new natural-gas capacity in the range of 6.1 gigawatts to 9.6 gigawatts to meet its grid reliability needs.

Environmental and consumer advocacy groups have challenged this 15-year plan, arguing that it fails to properly value how solar, wind power and batteries could replace that natural-gas capacity at a lower cost. Building more costly gas plants could lock utility ratepayers into covering the cost of power plants that can’t compete against renewable energy for years to come, even if the plants must be shuttered before the end of their expected lifespan to meet carbon-reduction goals, they warn.

Image credit: Duke Energy

The North Carolina Utilities Commission has the authority to approve or deny power plant construction and replacement plans. But H 951 seems to restrict that authority by setting legislative mandates on the types of resources can replace individual coal plants to be closed by 2030.

The legislation does specify that energy storage systems should replace some plants, such as the 1.1‑gigawatt Allen plant, the 556-megawatt Cliffside Unit 6 and the 727 MW Mayo Plant. But it also specifies that the Marshall 1 and 2 coal-fired units are to be replaced by 900 megawatts of natural-gas-fueled, single-cycle combustion turbines.

And the bill limits the replacement for the 2.4 GW Roxboro Plant to a resource that can deliver continuous power at or near the maximum capacity of the resource for a continuous period of one week or longer without reliance on other grid resources” — a definition that would exclude batteries charged with solar or wind power generated elsewhere.

This appears to bind the hands of the commission by mandating new fossil-fuel power plant construction, irrespective of how those projects stack up against alternatives,” EDF’s Kelly wrote. Any new investments in natural-gas generation would need to be carefully scrutinized, and should stand up on their own merits against readily available alternatives.”

Duke Energy vs. its customers

Business and consumer groups also worry that the bill’s proposals to allow Duke Energy to use a multiyear ratemaking process for capital investments could limit state regulator oversight of the costs of those plans — and whether they can be pushed onto customers’ bills. The utility has said the process could add nearly $60 billion for its Carolinas utilities over the next five years.

Duke Energy has been lobbying for years for legislation to create this multiyear ratemaking process, but a 2019 bill that would have accomplished it saw the provision stripped in last-minute negotiations. Since then the utility has been faced with multibillion-dollar costs associated with the cancellation of the $8 billion Atlantic Coast Pipeline natural gas project and a settlement with state regulators to absorb $1.1 billion in coal ash cleanup costs.

For Duke, it’s really imperative that they signal to investors that they can make these large [capital expenditure] investments into their decarbonization plans,” said Rob Rains, an analyst with Washington Analysis. Duke has pledged to double its current 8.8 gigawatts of renewable energy generation by 2025, both at the regulated electrical utilities it owns and operates in six states and through its Duke Energy Renewables business.

The North Carolina Sustainable Energy Association was one of the few outside groups permitted to join in the closed-door negotiations that yielded H 951. But hours after the bill was publicly unveiled, the group issued a statement declaring its opposition to the legislation based on four key provisions.”

Those provisions include a $50 million subsidy to explore next-generation nuclear power, which the group said was a costly and unproven” burden to ratepayers. It also objected to a $200 million provision for securitizing the costs of closing coal power plants, which is a small fraction of the billions of dollars of capital costs that will remain part of customers’ bills even after they are shuttered.

The group also emphasized its opposition to the bill’s provisions to replace coal with natural gas, as well as its lack of reasonable guardrails to prevent utility over-earning at customer expense.”

Duke Energy spokesperson Grace Rountree said in a Thursday statement that the utility supports North Carolina state leaders charting a path forward for an orderly energy transition, one that supports communities and helps ensure the continued affordability and reliability our customers depend on.”

We consistently hear from our customers that they want their energy to come from cleaner sources and they want Duke Energy to make those investments while keeping energy prices affordable,” she said. We also believe it is important to incentivize clean-energy investments and modern cost-recovery mechanisms, which this bill addresses.”

Republican lawmakers vs. a Democratic governor’s state energy policy pathway

The legislation from Republican lawmakers also doesn’t address major parts of a clean energy plan that has evolved from a 2019 executive order from Democratic Governor Roy Cooper. That order led to a multi-stakeholder system, dubbed the North Carolina Energy Regulatory Process, that in December resulted in a policy document for lawmakers to consider.

The policy options in that plan include opening competitive procurement structures for new generation capacity, as well as decoupling utility revenue from electricity sales and applying performance-based ratemaking to Duke and other investor-owned utilities. Many of these proposals have won support from clean energy groups and from companies with aggressive clean energy goals that are major electricity buyers in the state, such as Google, Apple, Amazon, Starbucks, Target and Walmart.

The state’s Republican-controlled legislature is seen as unlikely to support the clean-energy-focused parts of the governor’s plan, including reducing electricity-sector greenhouse gas emissions 70 percent below 2005 levels by 2030. H 951 calls for a reduction of 61 percent. 

But the bill also lacks many of the other policy recommendations that could subject Duke to a regulatory framework that might reduce its ability to invest heavily in capital projects that earn guaranteed rates of return. That’s led some North Carolina stakeholders to suggest that Duke has used the closed-door negotiations to craft a bill to meet its interests, as with this Wednesday tweet from the North Carolina League of Conservation Voters:

The bill does include mandates for utilities to build renewables, provisions that will please clean energy developers but may face opposition from some Republican senators, Rains said. The legislation calls for 4.7 gigawatts of renewable energy by 2026; it also contains solar-specific mandates for 3.5 gigawatts of new solar projects by 2027 and 7.3 gigawatts by 2030.

Duke Energy would be permitted to own 55 percent of those solar projects, while the remainder would be open to independent solar developers. This split between utility-owned and independently developed solar was set in place by an energy law passed in 2017; it’s one of the few opportunities for nonutility parties to compete in the state’s vertically integrated energy market.

In the House, you have leaders like [Rep.] Dean Arp and [Rep.] John Szoka,” two lead authors of H 951, who support solar power from a sort of antimonopoly perspective,” Rains said. The Senate is more traditionally oriented around utilities. They like the idea of Duke being a strong, North Carolina – domiciled company.”

Vertically integrated utilities vs. competitive energy markets

The policy document developed by the North Carolina Energy Regulatory Process also proposed that North Carolina study the potential of altering its regulatory framework, moving from its vertically integrated utility regulatory structure toward a more competitive wholesale energy market operated by a regional transmission organization, or RTO.

Outside large parts of the U.S. West, the Southeast is the only region of the country that isn’t part of an RTO. Studies indicate that creating one in the region could save billions of dollars over the next two decades. This would result from encouraging competition to provide lower-cost grid resources that can be shared between utilities, as well as speeding the replacement of legacy fossil-fuel power plants with renewable alternatives.

But that proposal has been the target of Facebook attack ads from the Duke-linked political action group Citizens for a Responsible Energy Future, accusing supporters of a wholesale market study of undermining energy security and supporting a Big Tech” takeover of the state. Some of the ads are specifically aimed at state Rep. John Autry, the Democratic sponsor of legislation that would authorize such a wholesale market study, which so far has failed to move out of committee.

Image credit: Duke Energy

It’s highly unusual to attack sitting legislators in that fashion over introducing a bill,” Bryn Baker, policy director for the Renewable Energy Buyers Association, a group representing large corporate purchasers of energy, said in a Thursday interview. H 951 is an important advancement in the conversation around how to evolve the energy and electricity space in North Carolina,” she said. But it is missing a critical piece, which is the RTO study.”

The need for such a study has been heightened after Duke joined fellow Southeast utilities in proposing a regionwide energy trading structure, called the Southeast Energy Exchange Market, she said. Groups including the Renewable Energy Buyers Association have criticized this market proposal as lacking the openness to third-party competition and regional transmission and generation planning that could capture the full benefits of wholesale energy market integration.

The Federal Energy Regulatory Commission in March found that the Southeast Energy Exchange Market plan had deficiencies” that needed to be addressed by the utilities proposing it. Further deliberation is expected in the coming months.

It is a beginning of the conversation around this — it is not the end,” she said.

(Article image courtesy of Jason Blackeye)

Jeff St. John is the editor-in-chief of Canary Media. He covers the technology, economic and regulatory issues influencing the global transition to low-carbon energy. He served as managing editor and senior grid edge editor of Greentech Media.