RALEIGH — In a 29 to 11 vote, the North Carolina Senate passed Senate Bill 266, the Power Bill Reduction Act, a bill supporters claim will reduce energy costs over the next 25 years by partially eliminating the state’s climate goals, changing the way we fund large power plant construction, and changing the way utilities can pass on the cost of fuels like natural gas.
Initially, a bill about reconstructing properties in the floodplain, SB 266 was completely gutted and changed in the House to become an amended version of SB 261.
It’s sponsor in the House, Rep. Dean Arp (R-Union), explained it as a compromise bill addressing some of the concerns with SB 261 and input from manufacturing and utility stakeholders to ensure energy prices will not become a burden to economic growth in the state while we work to meet the net zero carbon emissions goal by 2050.
Opponents say its cost savings are over-stated and because the bill will increase the state’s reliance on fossil fuels which tend towards higher price volatility, and the bill prioritizes expensive nuclear projects.
What’s in the bill?
The first section of the bill eliminates the interim carbon emissions target, 70% reduction of 2005 emissions by 2030, set by HB 951 in 2018. It maintains the long-term net-zero by 2050 goal.
Environmental advocates and supporters of clean energy argue this provision is not necessary as the North Carolina Utilities Commission has already approved a plan for Duke Energy’s long-term energy outlook that misses the 2030 target and instructs the utility to aim for 70% reduction at “the earliest possible date.”
Supporters of SB266 argue that the interim goal requires Duke Energy to focus on shorter lead-time projects over longer-term projects, such as nuclear. Removing the target they say allows the utility to be more flexible, which may cost ratepayers in the long run.
The second section concerns how utilities can use electric rates to fund construction work in progress. Under the current rules, utilities can’t increase rates to cover the cost of construction until a project is completed. This change would allow utilities to increase rates, with approval from the NCUC, to help finance construction costs for baseload projects if the commission finds those projects are in the public interest.
Rep. Arp explains this should save ratepayers money in the long-run because it reduces the chance for sudden and extreme rate increases and frontloads interest costs for financing so big projects ultimately cost less.
The third section focuses on how utilities can pass on the cost of using, burning and transporting fuels, such as natural gas onto its customers.
While Duke Energy produces most of its own power, the utility will also purchase power from private producers (like independent solar developments) or neighboring utilities. Sometimes those purchases come with a fuel rider.
Currently, Duke Energy divides the cost of the fuel rider between residential and industrial customers based on a mix of overall energy use and use at peak demand times, when the fuel and therefore the energy it produces is at its costliest. The bill changes that allocation to use at peak demand only.
Will SB 266 lower power bills?
It depends what you mean by lowering. According to Public Staff, which serves as the ratepayer representatives in cases before the NCUC, the expectation isn’t that you would see your monthly bill decrease if this bill passes, but rather that energy costs will not rise as much as they might have had the bill not passed.
Regarding the first section, Public Staff ran an analysis to determine the impact of removing the interim target on the cost of Duke Energy’s long-term plan. It found without the interim target the plan would cost an estimated $13B less, though bill opponents point out this analysis does not take into effect other sections of the bill and are concerned it underestimates the rising cost of fuels, including natural gas.
The section regarding construction work in-progress drew criticism for its perceived lack ratepayer protection and similarities to a former South Carolina law which led to rate increases for a nuclear power plant that ultimately never completed construction.
Rep. Arp said the final version of SB 266 offers far more consumer protections than that South Carolina law and includes a provision that allows the commission to recover funds that were used imprudently.
Justin Somelofske, the senior regulatory counsel for the North Carolina Sustainable Energy Association, said he doesn’t believe that protection goes far enough and fears this provision incentivizes passing on the risk of large, expensive projects, including nuclear onto ratepayers, despite a history of project delays and cost overruns.
“Even though there is a clause that allows for those costs to be recovered by customers if the project is canceled, it still requires a very high standard in law that is almost insurmountable,” he said. “Because once that project gets there and their construction costs are deemed prudent and reasonable by the commission, it’s very hard to undo that ruling.”
Public Staff did a short analysis of the construction work in progress section. Staff accountants explained to WSOC’s climate reporter Michelle Alfini that exact savings figures are difficult to quantify without a specific project in mind, but for example, if Duke Energy were to finance a $10B project through this provision, it could save just under $500 million in interest costs over the lifecycle of the power plant. Typically, that’s 50-60 years.
In short, Public Staff acknowledges there would be savings to ratepayers versus the current system, though that savings would be likely be spread out over decades.
As for the fuel cost rider section, there’s consensus that this would increase the cost burden for residential customers while lowering the burden for industrial and commercial customers, however the degree of the impact is in dispute.
The argument is that residential customers typically have less flexibility than industrial or commercial customers to power down at peak demand times and therefore would be hit harder by a rider that focuses on peak power usage versus total energy use. Rep. Arp argued this is good for energy policy because it encourages more conscious time of use among ratepayers and could ultimately reduce high energy peaks.
A report from the independent firm EQ Research found that, currently, residential customers pay about 41% of the purchased power portion of fuel costs and use about 40% of the energy. Should these changes go into effect, the report claims those same customers would not be on the hook for about 49% of purchased power costs even if they continue to use just 40% of the energy.
Public Staff disputed the methodology of the EQ Research study and found a much smaller difference between the residential cost burden of each allocation method. Its analysis found there would likely be a small increase to residential customers amounting to about $7 a year.
EQ did not respond to requests from WSOC to clarify its methodology and findings.
What’s next for SB 266?
Now that the bill has passed both chambers, it’s on Governor Josh Stein’s desk. He has ten days to sign or veto the SB 266 or it automatically becomes law.
The bill passed the House and Senate with bipartisan support.
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