August 5, 2007
RALEIGH – North Carolina electricity customers could soon be forced to pay as much as $125 million a year for electricity they’ll never use. A new John Locke Foundation Spotlight report notes that money would fund out-of-state electricity use instead.
That cost is one of the little-known details of Senate Bill 3, which lawmakers approved on the last day of the legislative session. S.B. 3 awaits action from Gov. Mike Easley.
“Barring a governor’s veto or the legislature fixing this problem, North Carolinians will be mandated by their own legislature to pay for public services in other states,” said report author Daren Bakst, JLF Legal and Regulatory Policy Analyst. “It is unclear whether most legislators realized that when they voted for this hastily enacted energy bill, they also would be requiring state citizens to help pay the electricity bill for Texans, Californians, or other out-of-state individuals.”
S.B. 3 started as a measure to mandate that utility companies generate at least 7.5 percent of their energy from renewable energy sources, while also increasing energy efficiency measures. Much debate about the bill focused on later provisions that affected utility companies’ ability to recover construction costs.
The debate ignored a “slight catch,” Bakst said. “A bill that would require utilities to provide customers at least 7.5 percent of their electricity through renewable resources does not require that all the customers have to live in North Carolina.”
S.B. 3 allows utilities to meet about 40 percent of the renewable energy requirement by purchasing “renewable energy certificates” from out-of-state facilities, Bakst said. “These certificates are designed to allow for investments in renewable energy when electricity from renewable sources is not available inside the state,” he said. “The electricity that is purchased through these certificates likely will never reach North Carolinians.”
North Carolina will need these certificates because the state does not have much potential for generating renewable energy in state, Bakst said. “Southeastern states like North Carolina face extensive physical limitations on renewable energy,” he said. “For example, North Carolina does not have the same type of wind resources as many other states. The N.C. Utilities Commission’s own renewable energy consultant told the legislature it should pursue a target of requiring 5 percent renewable energy use, not 7.5 percent.”
The legislature ignored this advice, presumably to show support for mandating as much renewable energy use as possible, Bakst said. “This is a charade that exists at the expense of North Carolinians,” he said. “Since consultants say the overall cost of the renewable requirement could be $300 million, these renewable energy certificates could cost ratepayers $125 million a year for electricity use in other states.”
Environmental advocates should take no comfort in the more stringent renewable energy mandates, Bakst said. “Even if renewable energy helps North Carolina, the use of out-of-state renewable energy certificates does nothing to help North Carolina’s environment,” he said. “This provision does nothing to reduce the need for coal-fired power plants. In other words, this cost is completely pointless.”
The “stakeholder” process that created S.B. 3 was bound to lead to problems, Bakst said. “The ‘stakeholders’ who drafted the bill were primarily utility companies and environmental groups,” he said. “These special interests crafted language to meet their needs and likely attempted to hide problems in plain sight. That led to a bill that forces the most important stakeholder, the electricity customer, to pay for the electricity use of out-of-state individuals.”
This new mandate is either a dangerous precedent or a mistake resulting from trying to rush special interest legislation through the legislature, Bakst said. “Either way, this is an embarrassment for North Carolina,” he said. “In the future, one has to wonder if North Carolinians will be paying for roads in Wyoming, schools in Tennessee, and other public projects that benefit other states.”
Daren Bakst’s Spotlight report, “Electric Shock: North Carolinians would be required to pay for electricity in other states,” is available at the JLF web site. For more information, please contact Bakst at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].