• Power bills are going up quickly in North Carolina
  • The problem is multifaceted, starting with the state’s Carbon Plan to close down working coal plants and dictate how to replace them and prepare for future electricity demand
  • The current incentives structure, however, promotes the most expensive and least reliable sources, which means even higher rates for people, unless the General Assembly acts to align incentives with the people’s great need for least-cost and reliable power

The North Carolina Utilities Commission (NCUC) recently approved large, three-year rate hikes on Duke Energy Progress (11.3 percent) and Duke Energy Carolinas (14.6 percent) customers. Worse, the NCUC’s Public Staff has warned that rates could be “approximately double” after the next round of rate hikes beginning after 2026.

North Carolinians are worried. Electricity is a critical household need. Energy poverty is already a problem for North Carolina. Lately those worries are being echoed by the politicians and activists seeking more solar and wind facilities, including Gov. Roy Cooper, Attorney General Josh Stein, the North Carolina Sierra Club, and others.

Why Are Rates Going Up?

The problem in the eyes of the politicians and activists is Duke. As they see it, Duke is intent upon building traditional power plants and lots of transmission lines when they ought to be building tremendous amounts of new solar and wind. After all, they think, there are no fuel costs for solar and wind, and the federal government is greatly incentivizing and funding those sources.

The actual problem is multifaceted. Worse, it’s exacerbated by the politicians and activists’ chosen “solutions,” their other policy choices, state law, and perverse incentives. Here is a rundown:

1. Closing down working power plants and building new ones

Retiring all of North Carolina’s baseload coal-fired power plants — over one-fourth of the installed capacity in the state — is at the heart of NCUC’s Carbon Plan. But existing power plants are cheaper than new ones. As explained here and elsewhere, closing working power plants and building new ones necessarily means higher electricity rates.

2. Having to build even more new power plants to account for expensive policy choices

Duke, however, expects much higher future electricity demand than would be accounted for by a mere population increase. So Duke seeks to add even more new power plants, which would impose even higher costs on electricity customers. Why?

One reason is the political push from Pres. Joe Biden, his administration, and Cooper to force most new car sales by 2030 to be electric vehicles. All of that power generated within people’s cars to make them go would suddenly have to be generated outside of people’s cars and somehow transmitted into them. It would take place either with charging at home (mostly in the evenings or overnight, which of course is when there is no solar production) or with a significant number of charging stations, which the Biden and Cooper administrations want taxpayers to fund or incentivize. Both options require expensive new sources of power generation and costly upgrades to the state’s power grid.

Another reason cited by Duke is “growth in economic development,” especially “high-tech and power intensive manufacturing projects.” Duke specifically mentioned three of Cooper’s major corporate welfare projects getting state money — Wolfspeed ($76 million over 20 years), Vinfast ($854 million for 32 years), and Toyota ($315 million over 39 years). Not only do North Carolinians have to fund Cooper’s exorbitant corporate welfare giveaways for decades, we will also have to pay higher electricity rates because of their power needs.

3. Legally guaranteeing Duke shareholders a profit for building new power plants

State law requires the utility to provide “adequate, efficient and reasonable service” in return for “just and reasonable” rates that guarantee a “fair return” to shareholders. By law, Duke is going to make a profit by keeping the power on. If Duke has to build and interconnect a great deal more sources of power generation, then Duke will go before the NCUC seeking — and receiving — higher rates.

4. Dealing with different productivities of various generation sources

Power generation sources differ not only in terms of emissions but also in reliability, productivity, levelized costs, manner of use, federal funding received, and amount of land needed, among other things. The productivity factors of the different sources in North Carolina (how much power they generate when needed in comparison with how much they are expected to generate according to their stated capacity) are:

  • Nuclear (baseload): 100 percent
  • Hydroelectric (dispatchable): 86 percent
  • Natural gas (baseload, dispatchable): 80 percent
  • Coal (baseload): 51 percent
  • Wind (intermittent, not dispatchable): 39 percent
  • Solar(intermittent, not dispatchable): 4 percent winter average; 45 percent summer average

In other words, while zero-emissions nuclear is producing as much power as it advertises and is a baseload source, intermittent solar varies wildly depending upon the time of year, and at its best it still falls below half its stated capacity, as does intermittent wind.

5. Needing to overbuild solar and wind plus construct their necessary backup power sources

The low productivity factors for solar and wind are taken by advocates as reasons for building redundant facilities — up to five to eight times more than the actual capacity needed — in order to approximate the reliability of thermal sources (nuclear, natural gas, and coal). Overbuilding requires erecting lots of new transmission lines and leads to curtailment on days when wind and solar output is up, further adding to the cost of electricity.

Their intermittency means that solar and wind need dispatchable backup generation (usually natural gas), and those sources add greatly to their full costs to ratepayers — especially because the backups are used inefficiently. Highly expensive battery arrays can provide only one to four hours of backup. Even the solar and wind advocates at MIT’s Climate Portal acknowledge that more solar and wind make electricity more expensive.

6. Powering up perverse incentives over least-cost and reliable electricity

When politicians like Cooper and Biden promote the very sources that need the most new capital expenditures, and when the utility can put it all in the rate base and make customers pay for it, then market incentives are in complete disarray and perverse incentives reign.

Basically, the current incentives structure promotes the most expensive and least reliable sources to the detriment of Duke’s captive customers.

Is There an Answer to the Problem?

The people will need the North Carolina General Assembly to act, and not just to enforce the least-cost and reliable guardrails that the NCUC’s directives are legally supposed to uphold. The legislature also needs to find a way to align incentives in electricity provision with longstanding law — and people’s expectations — of least-cost and reliable service.

Upcoming briefs will discuss a potential solution: new model legislation to bring incentives in line with North Carolinians’ great need for least-cost and reliable electricity provision. Powering our homes and businesses is too vital to let those standards fall away.

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