Implementation of H.B. 951: What’s on the Road Ahead?

In October 2021, the General Assembly passed, and Gov. Roy Cooper signed H.B. 951, a transformational piece of energy legislation that could be the conservative response to the costly and unreliable “Green New Deal.” The policy, crafted by the North Carolina Senate, promotes a reasonable and responsible pathway forward to reduce carbon dioxide emissions. The policy is sound; the soundness of the policy’s implementation is still yet to be determined.

A few quick facts on H.B. 951:

• The bill mandates that reasonable steps be taken to achieve a 70% reduction in CO₂ emissions by 2030 (with timing discretion given in certain circumstances) and “carbon neutrality” by 2050 (also with time discretion in certain circumstances).

• The General Assembly gives the North Carolina Utilities Commission (NCUC) authority to pick the energy fuel source mix and plans, through a stakeholder process, to achieve the goals stated in the law.

• The law requires that the NCUC choose the least-cost and most reliable options.

• The law further requires the NCUC to reevaluate its plan(s) every two years to account for technological advancements which may improve the least-cost and reliability standards.

Some analysis of the critical components of the law

What are reasonable steps? While the legislature gave discretion to the NCUC to determine the energy plan through a stakeholder process, they set specific guardrails that constrain the NCUC in its determinations. The law mandates that the NCUC choose the least-cost path to achieve the CO₂ emissions reduction goals. Likewise, the law states that the plan must “maintain or improve upon the adequacy and reliability of the grid.” Keeping the determining process within those guardrails will ensure reasonability. A plan that creates high costs and impacts reliability would, by definition, not be reasonable. Excessive grid modifications would also not be reasonable.

Reliability is the key to success. Determining the least-cost scenario while reducing CO₂ emissions can become tricky, though it is possible to find a least-cost pathway among other similarly low-cost methods. Still, the most crucial guardrail is reliability, which will keep the grid functioning adequately and reliably, prevent rolling blackouts, and keep ratepayers’ prices holistically more affordable. This means utilizing baseload, dispatchable energy sources such as nuclear and natural gas rather than using non-dispatchable, non-baseload sources like solar and wind, which are objectively not as reliable. Focusing on dispatchable baseload energy sources would guarantee reliability and keep energy rates reasonably at least cost in the long run.

Grid modifications are not necessary and may be hidden costs in proposed plans. North Carolina’s current energy grid is designed for dispatchable baseload facilities, such as nuclear power plants, natural gas facilities, and coal plants which are now phasing out. The grid was not designed for non-dispatchable, non-baseload fuel sources or battery storage on a large scale. Relying heavily on renewables and battery storage requires sizeable grid modifications that would incur excessive costs. In no reasonable way can massive grid modifications calculate to a least-cost scenario, nor is it an adequate way to maintain or improve reliability. Plans brought before the NCUC must be further analyzed to calculate what grid modification costs would be incurred by implementing those plans. It is likely that plans relying heavily on renewables would create costs beyond what is calculated in them because of the required grid modifications. These grid modifications might be “hidden costs,” and oversight on this matter will be crucial. There are potential scenarios where no, or perhaps minimal, grid modifications would be necessary. Such plans should take priority over any plan which necessitates excessive grid modifications.

Two things to consider

Reducing CO₂ does not automatically mean not adding additional hydrocarbon fuel sources to the grid. Natural gas emits less CO₂ than coal (we could potentially reach the 2030 goal simply by transitioning from coal to natural gas), and with future technologies like carbon capture, adding natural gas infrastructure is a reasonable pathway forward to achieving CO₂ emissions reduction goals. North Carolina’s economy would also benefit exponentially from additional natural gas infrastructure, especially in eastern North Carolina.

Nuclear power is the cleanest, safest, and most reliable green energy source. North Carolina also has a nuclear market advantage with Duke Energy, one of the world’s premier nuclear operators. Incorporating large swaths of renewables instead of reliable options like nuclear and natural gas likely violates the law established by H.B. 951, owing to the reliability standard. Even if it were legally compliant, it would be incredibly obtuse given our realities in North Carolina’s energy sector.

What happens once the NCUC chooses a plan?

The NCUC is scheduled to make its determinations on the first pathway forward in December. The success of the stakeholder process and the arguments presented before the commission will impact their decisions.

In a perfect world, the NCUC chooses a plan compliant with the law that is reasonable, least cost, and most reliable. There are indeed several scenarios that would fit into that category. Locke’s Center for Food, Power, and Life produced such a scenario and an analysis of the plans Duke Energy submitted to the NCUC. Locke’s proposal and analysis were also presented to the NCUC as part of their docket for H.B. 951’s implementation and stakeholder process.

The NCUC could also do the bare minimum this first go-around, as they can reevaluate the plan in two years per law. That is to say, they could make a plan in December that determines the closing of specific coal facilities while initiating a study on technology like small module nuclear reactors (SMRs), carbon capture, and the cost analysis/reliability analysis of introducing more natural gas infrastructure into the state. They do not need to go all-in on this first round. Prudence is likely better for all elements impacted by their decision.

There is also potential for the NCUC to choose a plan that is not compliant with the law, and there are several potential outcomes if that occurs, predicated on the make-up of the General Assembly next year. Proper policy must prevail over partisan ideology.

The proceedings before the NCUC and their determinations in December are not negligible. The outcomes of the plans chosen by the commission directly impact every North Carolinian and every business in North Carolina. Ratepayers in North Carolina deserve to see and should expect legislative oversight on the proceedings and decisions made by the NCUC. Regardless of the chosen plan, owing to the significance of the NCUC’s decision and the fact that the General Assembly sets energy policy for the state, oversight of varying degrees should occur.

The John Locke Foundation will continue to monitor and provide analysis of the implementation of energy policy in North Carolina.