by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
A major new report examining the additional costs to consumers of electricity rates for solar and wind facilities yielded staggering numbers. The report, produced for the Edison Electric Institute by Emma Nicholson and Michael Kagan of Concentric Energy Advisors, uses proprietary utility data to examine the cost of avoided-cost rates awarded to solar and wind qualifying facilities [QFs] under federal Public Utility Regulatory Policies Act [PURPA] and compares them to competitive-market rates from solar and wind facilities.
The key here is that while utilities are not forced by law to purchase all electricity produced from other solar and wind facilities, regardless of need, they are with PURPA qualifying facilities. The “must-take” mandate gives QFs additional leverage in securing extremely high rates well above a competitive market rate.
That may be good for the solar and wind companies, but it’s not good for consumers.
In their analysis, Nicholson and Kagan concluded:
We found that the avoided cost rates in the sample of solar and wind QF contracts we reviewed generally exceeded rates that are realized in competitive markets for solar and wind energy. We also found that trends in solar QF contracts did not reflect underlying cost trends because solar installation costs declined far faster than the administratively determined QF rates. We estimate that utilities and, in the end, customers overpaid in the approximate range of $150.7 million and $216.2 million per year under the QF solar and wind contracts.
Accounting for the full term of the solar and wind QF contracts raises the total overpayment estimate to between $2.7 billion and $3.9 billion, respectively.
This may be news to the rest of the country, but not here. This is the same problem already facing North Carolina ratepayers. See my Spotlight report on Reforming PURPA Energy Contracts for more details.
Our state’s extremely solar-favorable interpretation of PURPA is in large part responsible for this one state having 60 percent of the nation’s PURPA qualifying facilities. (A Renewable Portfolio Standards Mandate, solar investment tax credits, and solar property tax abatements also contributed).
Solar providers flocked to North Carolina to take advantage of (a) the highest avoided-cost rates in the Southeast, rates which are (b) fixed rather than variable, and rates that last for (c) by far the longest contract terms in the Southeast (15 years!).
Get this: Even as solar advocates boasted that solar’s costs are plummeting, North Carolina’s PURPA terms were locking state ratepayers into a situation where they’re forced to buy all solar energy produced at exorbitant costs that go well past the actual production costs. It’s a great way to make money, but no way to treat captive consumers of a vital necessity.
Duke Energy warned that this untenable situation was threatening to cost North Carolinians over a billion dollars extra for electricity. But the NC Utilities Commission (NCUC) repeatedly resisted changing how avoided-cost rates are set, reducing contract terms, and lowering the size limits on qualifying renewable energy facilities. (Decisions that were regarded as victories for the solar energy industry, not for consumers.)
House Bill 589 of 2017 struck a major compromise between utilities and solar energy facilities. It lowered the size of PURPA-qualifying facilities in exchange for guaranteeing solar energy facilities a full seat at the table competing to provide electricity to North Carolinians.
Turns out, however, that wasn’t good enough for the solar lobby. And that is how we came to the pass we are now. Solar companies wanted to grandfather many projects under the former scheme than Duke’s understanding of the new law would allow. Meanwhile, Duke wanted permits for the Atlantic Coast Pipeline, which had been strangely delayed.
Earlier this year WBTV reported what happened: Gov. Roy Cooper and senior staff “use[d] the pipeline permit as leverage to force Duke [Energy] into cutting a deal with the state’s solar industry.” So Cooper obliterated the rate-saving compromise by forcing Duke to contract with 240 solar companies under the older, costlier scheme.
A subsequent investigation into the matter conducted by former federal investigators working with Eagle Intel Services for the NC General Assembly found that “criminal violations may have occurred.” Investigators concluded that:
From the information presented in this report it would be reasonable to conclude that Governor Cooper improperly used the authority and influence of his Office to cause the ACP partnership to commit to a $55 million “Mitigation Fund” that the Governor placed under his complete control. Governor Cooper continued to use his authority and influence to delay the ACP permitting process until the ACP partners agreed to increase the fund amount to $57.8 million.
Also, from the information presented in this report, it would be reasonable to conclude that Governor Cooper used the influence and authority of his Office to pressure parties involved in the Nameplate Dispute, to enter an agreement that favored the solar industry at the cost of $100 Million to the ratepayers of North Carolina.
Cooper denied those conclusions and stated three times in a press conference that “The facts are on our side.” (Perhaps a Jedi hand wave to PolitifactNC: this is not the quid pro quo you’re looking for.)
Still, as John Hood wrote today, believing Cooper’s version means believing a lot of things that, taken all together, don’t sound very convincing at all.