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North Carolina to mandate 70% cut in electricity CO2 emissions by 2030

The bipartisan compromise bill includes bold targets and regional firsts, but critics say it’s too lax on Duke Energy.
By Jeff St. John

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North Carolina's revamped energy bill would set a 2030 target for cutting electricity sector carbon emissions 70 percent from 2005 levels. (Karen Swain/NCMNS via Flickr)

North Carolina lawmakers have reached a bipartisan compromise on a sprawling energy bill that would set the state’s first-ever targets for cutting electricity-sector carbon emissions. The goal will be to bring emissions down 70 percent below 2005 levels by 2030. That has been a key demand of Gov. Roy Cooper (D) in his fight with the Republican-dominated state legislature over the state’s energy future.

But the new version of HB 951 still retains many features that drew fire from environmentalists and consumer advocates when the bill was first unveiled this summer. These include giving Duke Energy the freedom to set rates in a multiyear process that opponents fear could lock in hefty customer bill increases — a win for the investor-owned utility after it saw a similar proposal blocked by lawmakers in 2019.

The proposed legislation also does not alter Duke’s continued monopoly control over power plants and energy markets in the state. In a 2019 executive order, Gov. Cooper proposed reforms to North Carolina’s regulatory regime including bringing competition to energy markets and power project procurements. This yielded a multi-stakeholder policy proposal backed by corporations including Amazon, Apple, Google, Starbucks, Target and Walmart, which have long sought more leeway to source clean energy for their North Carolina operations. But the governor’s suggestion to open up competition was not included in the bill.

Despite criticisms of the legislation, leaders from both political parties appear ready to move forward with the compromise. In a Friday statement, Republican House Speaker Tim Moore said the bill would fulfill the responsibility to be good stewards of our natural resources while also maintaining low costs for citizens and businesses,” while Cooper stated that it will update our energy systems while saving people money and doing our part to slow climate change.”

Duke Energy spokesperson Bill Norton said in a Tuesday email that HB 951 represents a recognition of the opportunity in front of us to move away from coal and accelerate a clean energy transition for our state. […] Our goals at Duke Energy remain to provide affordable, reliable, and increasingly clean energy to all North Carolinians.”

The compromise has also drawn tempered support from the North Carolina Sustainable Energy Association, one of the only stakeholder groups allowed to participate in the closed-door negotiations between Duke and state lawmakers that yielded both the original version of HB 951 and the new rewrite.

Like any well-crafted compromise…problematic provisions remain,” the group acknowledged in a Monday statement. Overall, however, the new version of HB 951 marks a momentous step forward in North Carolina’s clean energy future.”

A groundbreaking carbon standard for the Southeast 

NCSEA specifically praised the bill’s carbon standard, one of the first in the Southeast, which it said will open additional market opportunities and increase renewable energy deployment and customers’ access in the near and long term.”

The bill will require the North Carolina Utilities Commission to develop a plan by the end of 2022 to meet the emissions-reduction standard and prioritize the lowest-cost options when determining what mix of resources Duke might be allowed to build to meet those goals.

Duke, which serves about 7.4 million customers across six states including North Carolina, has pledged to halve its carbon emissions and close its remaining coal-fired power plants by 2030, and to reach net-zero emissions by 2050. Its current 15-year plans for both North and South Carolina call for between 8.7 gigawatts and 16.4 gigawatts of new solar and 1 gigawatt to 7.5 gigawatts of new energy storage, but it also set targets of between 6.1 gigawatts and 9.6 gigawatts of new natural-gas capacity.

Environmental and clean energy groups have been fighting Duke’s plan to build new natural-gas plants as part of its transition from coal. Duke claims these new plants are needed to maintain reliable grid supplies, but opponents say the utility has failed to consider solar and wind power stored with batteries as a viable and increasingly cost-effective alternative.

The previous version of HB 951 included a provision that would have allowed Duke to avoid regulatory oversight in replacing some of its coal plants with natural gas; that element elicited immediate opposition. The new version strips out that language, putting the North Carolina Utilities Commission in charge of assessing the relative cost and reliability of the mix of resources Duke may propose to replace the roughly 6.7 gigawatts of coal-fired power plants it operates in North Carolina.

Some groups in the state highlighted potential flaws in how the bill’s carbon-reduction plan is structured. Environmental advocacy group Appalachian Voices pointed out in a Friday statement that the bill sets an objective,” rather than a requirement, for the 70 percent reduction by 2030. According to the group, this grants Duke Energy substantial influence and authority in determining how, and when, that target might be met.”

Gudrun Thompson, senior attorney for the Southern Environmental Law Center, noted in a Tuesday email that the bill puts the obligation to achieve the carbon-reduction targets on the North Carolina Utilities Commission, not Duke or other utilities in the state, which she said could weaken implementation of the carbon standard over time.

Sarah McQuillan, NCSEA government affairs manager, agrees that the key role is assigned to the state’s utility commission. In a Tuesday email, she stated that the rule-making process at the [North Carolina Utilities Commission] and overall implementation will be very important” in reaching the emissions-reduction target.

Coal securitization and solar competition 

Beyond the carbon standard, NCSEA supports a number of other components of HB 951, McQuillan said, including changes made since the original version of the bill was released over the summer. Chief among them is the removal of highly prescriptive” mandates that could have allowed Duke to build natural-gas plants to replace certain coal plants without oversight from regulators, she said. Stripping $50 million in state subsidies for advanced nuclear power development is another welcome change, she added.

McQuillan also affirmed NCSEA’s approval of the new bill’s strengthened support for securitizing the costs of closing Duke’s coal power plants. Securitization allows utilities to issue bonds to reduce the financial burden on customers who would otherwise be forced to continue paying the multibillion-dollar costs of building those power plants for years after they’re closed down.

The new version of the bill will allow securitization to cover up to half of coal plants’ remaining costs, up from $200 million per plant in the previous version, according to Rob Rains, an analyst with Washington Analysis. The intention is to free up capital that Duke can reinvest in clean energy projects, he said.

These investments will include new utility-scale solar, one of the only areas where Duke will be competing against third-party project developers to build new power plants. Under a policy set in 2019, independent operators can compete for up to 45 percent of the utility-scale solar to be built under the state’s targets, while Duke will control 55 percent.

But the new version of HB 951 reduces the target for the total amount of utility-scale solar to be procured in the state to 2.66 GW, down from 3.9 GW in this summer’s draft, Rains said.

Will Duke Energy hike rates?

One of the major criticisms of HB 951 is that it could allow Duke to significantly raise electric rates. This aspect of the bill has drawn fire from a wide range of groups, from large industrial and commercial customers to advocates for low-income and disadvantaged communities.

We expect to see large rate increases,” Kevin Martin, executive director of the industrial electricity buyers trade group Carolina Utility Customers Association, said in Tuesday testimony before the state Senate’s Agriculture, Energy and Environment committee. We pray that we’re wrong with that.”

One key concern is that the bill will let Duke set rates in a multiyear process instead of doing it annually. The utility says this will allow it to more efficiently implement the $60 billion in clean energy and grid improvement investments it has planned in its North and South Carolina territories over the next five years. The utility also faces pressure to recover from major unexpected costs in the past few years, including the cancellation of the $8 billion Atlantic Coast Pipeline project and a settlement with regulators to absorb $1.1 billion in coal-ash cleanup costs.

Critics contend that multiyear ratemaking processes lack sufficient regulatory oversight, while annual proceedings help keep utility price increases in check. States that have passed similar laws, including Illinois and Virginia, have seen rate increases higher than initial projections.

The Southern Environmental Law Center warned in a Tuesday statement that this reduced regulatory oversight risks failing to achieve our state’s carbon-reduction goals while exposing electricity customers to the risk of utility gold-plating’ of investments.”

Rains pointed out that HB 951 would cap annual rate increases at no more than 4 percent after the first year of the process, largely to protect ratepayers and assuage concerns by manufacturers that rates would skyrocket.”

To ensure that Duke’s investments help its customers, HB 951 also gives state regulators authority to pursue performance-based ratemaking,” which would tie Duke Energy’s revenue to achieving certain measurable benefits for customers. This method of linking utility revenue to performance metrics, whether to penalize them for underperformance or reward them for good performance, has long been promoted as a way to encourage utilities to meet public policy goals. Hawaii is the leading example of a state that has put performance-based ratemaking into action.

But whether performance-based metrics end up driving utilities to improve service, or simply providing utilities with extra revenue for things they would have done anyway, will depend on how the regulations are crafted. A performance-based system in Illinois has been criticized for being too lax in how it measured the performance of utility ComEd, for example.

In a Tuesday email, Maggie Shober, director of utility reform at the Southern Alliance for Clean Energy, pointed out what she described as several flaws in the performance-based ratemaking language in the latest version of HB 951. These include environmental performance incentives that could lead to utility profit windfalls for doing the bare minimum,” as well as a customer cost-sharing method that shifts costs from large customers to residential customers,” which could continue to put high energy burdens on low-income households, she said.

Republican state Sen. Paul Newton said during Tuesday’s hearing that the bill’s performance-based mechanisms are not designed to create utility windfalls” and that the utility commission will be in total control” of how the program is implemented.

But Al Ripley, a director at the North Carolina Justice Center, told lawmakers in Tuesday’s hearing that he fears the law will fail to help solve existing crises for low-income Duke customers, such as the more than 200,000 who faced having their electricity shut off last year because they were unable to pay their utility bills.

The bill appears to be a done deal now, however. It is expected to advance to a vote in the state Senate later this week, and then the House and the governor are expected to approve it.

Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.