RALEIGH — North Carolina utility customers would face $100 million annual rate increases for 15 years if all renewable energy facilities now under consideration were online and complied fully with a 1978 federal law requiring utilities to buy electricity from those more expensive renewable sources, a utility official says.
Paul Newton, president of Duke Energy North Carolina, said the regulatory culprit is the federal Public Utility Regulatory Policy Act, passed in 1978 during the Carter administration, which was intended to reduce American dependence on foreign oil.
PURPA set in motion heavy subsidies for renewable energy produced by “qualifying facilities,” commonly referred to as QFs. Those can be individual homeowners’ solar panels or small power generators of renewable energy. QFs receive subsidies for 15 years regardless of market conditions or costs.
“We essentially can’t say, ‘No thanks,’ ” Newton said. “The price our customers pay for QFs coming onto our system is higher than they would otherwise pay for electricity. QFs represent the highest cost generation on our system.”
Testifying recently before the state’s Joint Legislative Commission on Energy Policy, Newton said PURPA does give states authority to draft their own implementation rules.
In 1984, “under very different circumstances than are in place today, the North Carolina Utilities Commission established some of the most generous implementation rules in the country for QFs,” including generous solar power subsidies, Newton said.
Duke Energy recently asked the Utilities Commission to consider re-examining the implementation rules, and perhaps ease the requirements to give consumers some relief.
“We’ll look at qualifying facilities, which is over and above the renewable energy portfolio, to make sure we’re doing the best thing for our consumers and our constituents,” said state Rep. Mike Hager, R-Rutherford, co-chairman of the legislative Energy Commission.
“I do not believe that North Carolina needs to wait for the brunt of the unintended consequences of well-meaning initiatives,” Newton said.
Duke Energy had less than 10 megawatts of solar projects in its interconnection queue in 2010, Newton said. “In North Carolina today we have more than 2,000 megawatts of QFs in the queue” awaiting permits.
It is unlikely all of those will be approved, but “if they were it would mean an annual rate increase to our customers of around $100 million,” Newton said. Without changes to the rules, “every customer class is facing annual rate increases to pay for the costs.”
To put that in perspective, he said, last year’s rate case was the first in 25 years and was a one-time hike of $176 million.
Further, it is impossible to predict how many additional projects might seek the 15-year subsidized payments between now and the end of 2015 when the program awarding a 35-percent state tax credit for renewable energy equipment expires.
“I have deep concern that unless we get the rules right for renewables, North Carolina could become uncompetitive with neighboring states at just the time we should be most competitive in attracting new and expanding industry and manufacturing into our state,” Newton said.
Newton cited California’s decade-long push for renewables. Over that time, he said, “California has not gained jobs, but it has lost a third of its manufacturing jobs.”
In Germany, where 34 percent of installed generation capacity is solar and wind, “electric rates have skyrocketed,” he said.
“Industry is migrating away from Germany to less costly environments and, ironically, Germany’s carbon emissions are … actually higher today than they were before because of the need for fossil fuels to back up the intermittent and sporadic output produced by renewable wind and solar, and from walking away from nuclear,” Newton said.
“I don’t think we’re going to have anything like the Germany or California experience,” said Ivan Urlaub, executive director of the North Carolina Sustainable Energy Association, a trade group representing the renewable industry. “It’s kind of an apples and automobiles comparison.”
Germany paid a “phenomenally high” subsidy, he said. North Carolina has the advantage of coming on board later with its renewable energy push and is able to see and avoid mistakes others have made, Urlaub said.
“We can’t power everything 100 percent … with green energy,” he acknowledged, and that is why North Carolina’s ultimate requirement of 12.5 percent renewable energy in the state power grid mix by 2021 is smaller than what most states require.
Urlaub noted that the North Carolina renewable energy sector is “far more robust” than just solar installers. Manufacturing and research and development sectors are growing and creating good-paying jobs, he said. He presented a graphic showing the state has 537 alternative fuel stations, 1,295 renewable energy projects, and 2,289 energy efficiency projects.
But state Rep. Mike Stone, R-Lee, said he is uncomfortable “just taking more money from the citizens of North Carolina, divvying it up, and deciding who we’re going to pay.” He said the average consumer “has no clue” how much they are paying for renewable energy.
State Sen. Ronald Rabin, R-Harnett, asked Utilities Commission Executive Director Christopher Ayers how much of a ratepayer’s bill is tied up in regulatory compliance.
“That’s a good question, and no one has actually tried to quantify that,” Ayers said.
“How do I explain this [to constituents], that they are paying higher taxes … and when do we find the break-even point” for renewable energy subsidies, Sen. Bob Rucho, R-Mecklenburg, an Energy Commission co-chairman, asked Urlaub.
“I don’t have an answer off the top of my head” for the break-even point, Urlaub said.
“I guarantee you these companies are competing on price and quality to get down their costs as fast as possible,” he said. The first firm to enter the market without the need for tax credits “has a significant advantage” and has “every incentive” to do so.
“All of this is focused on growing the economy. You can’t grow the economy with high energy costs,” Hager said of the Energy Commission’s purview and hearings.
If renewable costs are coming down, as proponents claim, Hager said, “we need to look at where do we stop this [subsidization] … and let [renewable companies] operate like a normal business.”
Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.