News: CJ Exclusives

Duke Energy: Renewable producers getting a good deal at ratepayer expense

Lengthy contracts and guaranteed access to the power grid forces utility to buy solar and wind energy even if it's more expensive than traditional sources

Kendal Bowman, vice president of regulatory affairs and policy at Duke Energy, tells a House energy oversight committee about the 'favorable terms' the state has given renewable energy producers. (CJ photo by Dan Way)
Kendal Bowman, vice president of regulatory affairs and policy at Duke Energy, tells a House energy oversight committee about the 'favorable terms' the state has given renewable energy producers. (CJ photo by Dan Way)

State Rep. Jeff Collins had enough.

The Nash County Republican sat through two legislative meetings in two weeks hearing Duke Energy officials describe subsidies and carve-outs handed over to the solar energy industry at taxpayer expense. Often the utility was forced to buy renewable power that wasn’t needed, Collins learned.

“It gives me great heartburn when I hear that we’ve got 60 percent of the qualifying facilities in the United States,” Collins, a chairman of the House Energy and Public Utilities Commission, said after the March 15 meeting.

In the complicated, jargon-filled world of renewable energy, qualifying facilities are money. They’re electric power plants fueled by renewables (including solar and wind) that generate 80 megawatts or less. The federal Public Utilities Regulatory Policies Act forces public utilities to buy power from those facilities.

“Any time you’ve got more than half of anything in the country, it doesn’t mean you’re doing it right. It doesn’t mean you’ve got it figured out and nobody else does,” Collins said of North Carolina’s dominance in qualifying facilities.

Nor does he believe the law requires enough transparency to let policymakers know how much extra ratepayers must pay as a result of the good deal North Carolina has given to renewable energy producers.

“I think there’s a lot of things in the base rate even that are a result of [renewable power], and whether we’re putting in duplicative systems, and that kind of thing,” he said.

The “favorable terms” described by one senior Duke Energy official include long-term contracts that lock in payments for renewable producers at high rates even as the cost of their energy falls. Those have translated into North Carolina’s high rates of “avoided costs” — the money a utility saves from not having to build new plants or purchase power elsewhere because it buys renewable energy from qualifying facilities.

Even though the PURPA law gives states a lot of flexibility in how they regulate qualifying facilities, North Carolina has given renewable power producers a bargain relative to other states, Duke Energy vice president for policy Kendal Bowman told Collins’ committee. This good deal for producers has led to headaches for the power company and higher rates for consumers, she said.

She said the state should consider scaling back some of the special treatment renewable facilities have gotten.

As an example, North Carolina law requires 15-year, guaranteed, fixed-term rates to qualifying facilities.

Some states have been reducing contract lengths. In 2015, Idaho’s Public Utilities Commission cut its terms from 20 years to two.

The Idaho commission said shorter contracts lead to a more accurate picture of true avoided costs, which determine the size of payments to solar plants. Having more timely and better information trims costs to ratepayers, Idaho officials found.

Compared to other Southeastern states, North Carolina “has some of highest avoided cost rates,” Bowman said. Combined with the long-term fixed contracts, “That has driven North Carolina to have about 60 percent of all the QF contracts in the nation.” The good deal North Carolina has given the renewable industry, rather than our abundant sunshine, has led to its growth.

“We are starting to see some operational impacts on our system from this large deployment” of qualifying facilities, Bowman said. One problem is that PURPA does not let the utility shut off, or dispatch, solar power from qualifying facilities, even if the solar energy is much more expensive than power from natural gas or nuclear sources.

“We can dispatch, and we can curtail those facilities only in emergency situations, and to designate something an emergency is very rare,” Bowman said. “So we’re starting to see some reliability implications on our system, and we see it only getting worse.”

Duke Energy wants to reduce contract lengths from 15 years to 10. It wants the option not to buy from renewable power plants during years Duke’s energy resource plan shows it doesn’t need their capacity. Under current policy Duke must buy from those sources for all 15 years of the contract even if the utility doesn’t need the power, Bowman said.

Current state law requires Duke to pay higher standard contract rates to all qualifying facilities generating 5 MW of electricity or less. Rates for renewable power generators above that limit are negotiated. The utility wants to limit that costly mandate by reducing standard contract rates to qualifying facilities generating 1 MW or less.

Bowman said Duke also would like the law to allow a competitive bidding process run by an independent third party “to allow us to have market-based prices, which could be lower than avoided costs. It would also give us that dispatchability right that when we don’t need that excess energy on our system we can ask a solar facility to curtail until we need to ramp back up.”

Those changes would provide “a much smarter, more sustainable way to integrate renewables into our system in North Carolina,” Bowman said.

Rep. Hugh Blackwell, R-Burke, asked if the regulations under current law have forced Duke to build more fossil fuel-powered units because energy it buys from renewable sources is not as reliable.

“The wind doesn’t blow all the time, and the sun obviously doesn’t shine all of the time,” Bowman said. So Duke must keep a number of power stations permanently running and on line “so that you keep the lights on throughout the system” during storms or when there is no wind.

“Sometimes you’re paying for electricity that you’re not able to use?” Collins asked.

“We have situations, yes, where we have excess,” Bowman said.

PURPA “was passed at a time of energy hysteria during the failed Carter administration, and it’s about time we moved on from that,” said Rep. Dana Bumgardner, R-Gaston. “The reason we’re having a stampede into our state of solar panel farms is because we’ve given generous subsidies to them, and it’s advantageous for them to come here.”

“That has helped to spur the development of the solar facilities we see in North Carolina,” Bowman said.

Collins told Carolina Journal he hopes the House would look favorably on Duke’s recommendations to revisit North Carolina’s highly advantageous PURPA terms.

Lowering utility rates “helps poor, and low-, and middle-income people probably more than anything else we can do,” Collins said. Inexpensive energy “also drives industry and businesses here.”



  • caesar

    Government should not pick winners or losers nor should it force industry to buy power it doesn’t need nor force it to buy at a non competitive price!

  • Nunyadambizness

    I’m all for alternative energy sources. However, if they need a subsidy from the government to operate, they have no business being in business.