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Duke Energy: Renewable Power Has Poor Subsidizing Wealthy

Utility head urges legislators to phase out ‘green’ energy mandates

Jan. 9th, 2014
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RALEIGH — Affluent North Carolina residents who put solar panels on their rooftops are being subsidized by lower-income customers because of the state’s renewable energy subsidies and regulations, the president of Duke Energy North Carolina told a legislative panel Tuesday.

“The average household income of customers installing solar panels and using North Carolina’s net metering rate is $110,000 per year. The average household income for all of our North Carolina customers is $67,000 per year,” Duke Energy’s Paul Newton testified before the Joint Legislative Commission on Energy Policy.

A practice called net metering is among the major concerns. Homeowners or small generators of solar power provide electricity generated from their solar facilities to a utility. That offsets the amount of money they pay in their monthly bill.

“While net metering customers use the same utility infrastructure as any other customer, they pay a significantly lower utility bill due to the full retail rate credits they receive for the power their system produces,” Newton said. “That full retail rate includes infrastructure costs, but that’s being reimbursed.”

Because solar generators produce electricity about 20 percent of the time in a year, Newton likened them to a neighbor whose car starts only once in every five attempts, and he borrows his neighbor’s car the other four times. He pays for the gas, but not the monthly payment, insurance, maintenance, and other costs of the vehicle.

“If we charge a customer 10 cents for a kilowatt hour they use, we also pay them 10 cents for a kilowatt hour they sell back to us,” Newton said. “That’s more than the actual value of the energy when compared to other available generation sources.”

The cost then for net metering shifts to households with fewer resources to spare, “and this has to change,” Newton said.

These cross-subsidies will continue without a remedy to the rules, Newton said.

The energy policy commission was formed after one of its co-chairmen, state Rep. Mike Hager, R-Rutherford, was unable to persuade the 2013 legislative session to enact House Bill 298. That measure would have phased out provisions of state renewable energy law. The commission is collecting data on tax and regulatory costs of complying with the statutes.

Senate Bill 3, passed in 2007, requires utilities to purchase renewable energy, and schedules mandatory increases in the usage of those energy sources. Utilities can pass on any higher costs to consumers. The heavily subsidized solar energy market has had the most growth since then. Swine and poultry waste, along with biomass renewables, have been far less popular.

Hager isn’t planning to revive his legislation in the short session.

“I think we’ll probably take this session to look at [data], make sure we’ve got a level playing ground, make sure everybody’s fair, make sure everybody’s paying the right costs,” he said. “We’ll tend to sharpen that saw” on legislation at a later date.

Newton said now is the time to revisit and rework the law.

“When the state’s tax incentives were created, the General Assembly determined that a fair expiration date for those incentives would be the end of 2015. We supported the sunset of those incentives at that time, and we continue to do so,” Newton said. “The conditions that led to their creation no longer apply.”

“We plan to ask the Utilities Commission to take a look at the rules around net metering in the state and to ensure those rules are fair for all of our customers,” Newton said.

He cited a recent California Public Utilities Commission report “confirming claims that net metering entails the wealth transfer from low- to high-income customers.” The cost shift will be $1.1 billion per year by 2020. The study further determined that the average net metering customer has an income almost twice the state average.

Advocates for solar power defend the subsidies by saying the industry creates jobs, he said.

“What single-issue advocates typically fail to recognize is that research shows once the high cost of renewables reaches a tipping point, states lose industrial and manufacturing jobs due to the high cost of electricity,” Newton said.

“Countries and states that have gone all-in on renewables have not experienced sustainable job gains, they’ve experienced net job losses,” he said.

Ivan Urlaub, executive director of the North Carolina Sustainable Energy Association, a trade group representing the renewable industry, said a study by RTI and La Capra showed that for each dollar of state tax credit there was a return of $1.87, and that should continue rising.

The state Department of Revenue has said $214 million was invested in renewable projects in 2012, and $27.9 million in taxes were paid.

Research shows the state is more competitive, not less, because of its renewable energy sector, Urlaub said.

South Carolina and Georgia now have renewable tax credits partly because of what has happened in North Carolina becoming “the hub of the clean energy industry in the southeast,” Urlaub said.

A report to be released later this month concludes that the 570 North Carolina firms responding had 18,404 full-time equivalent employees, and $3.6 billion in revenue.

Economists at the Beacon Hill Institute of Suffolk University in Boston have criticized past reports from the trade association, especially the RTI/La Capra study.

In a peer review of the study, Beacon Hill researchers concluded the RTI/La Capra study results “are mismeasured and spurious. Orthodox cost-benefit analysis will not find anything like what the report's authors estimate.”

The Beacon Hill analysis also found that most of the savings from the Renewable Energy Portfolio Standards derive from mandated energy-efficiency programs in government buildings and building code mandates rather than the use of green energy itself.

“The Beacon Hill study says one thing, the La Capra study says another thing. Where is the truth? It’s probably somewhere in between,” Hager said, while raising doubts about Urlaub’s $1.87 return on investment claim.

“Can you imagine an investment making 87 percent return? I never believe any of those things,” he said.

Hager also noted that the RTI/La Capra study did not address opportunity costs, a standard and fundamental assessment in an economic analysis.

“That $53 million that we have spent in tax credits, could I have done something else with that money? Could I have rolled that money into better investments?” Hager said.

“I think there’s got to be some end to it. There’s got to be a point to where you say, ‘You’re a business, you need to operate on your own,’ ” Hager said.

Dan Conrad, an attorney with the North Carolina Utilities Commission, testified that the swine and poultry waste requirements of S.B. 3 became effective in 2012 but “have not been met to this date.” The commission has delayed them until 2014.

The state’s electric power suppliers have requested the commission modify or eliminate those requirements, Conrad said.

“The arguments have been that the resource is just not there in terms of cost and technology,” Conrad said.

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.