The company formerly known as Progress Energy, now part of the Duke Energy monopoly, is seeking a 14 percent hike in electric rates for households in its North Carolina territory. That won’t happen – but what will happen is bad enough.
The proposed hikes – 14 percent for residential consumers and up to 12 percent for businesses – won’t happen for two reasons. First, Duke Energy’s executives badly damaged their relationship with state regulators, politicians, and community leaders during the utility-merger fiasco. Their credibility is shot.
Second, the proposed hikes were never intended to happen in the first place. They are the opening bid in a negotiation with the state utilities commission that will result in smaller, but still costly, increases in electric rates – and thus in the cost of living, working, and doing business in North Carolina.
With one of the worst-performing economies in the country, we ought not to be in the business of chasing away business, investment, and entrepreneurs. Traditionally, North Carolina had relatively low power rates, which help to compensate for other factors that made our state less competitive. But during the past decade, the state legislature – with the full cooperation of the electric utilities – decided that chasing elusive gains in air quality was a higher priority than chasing new jobs.
In 2002, the General Assembly passed the Clean Smokestacks Bill. Based on model language from environmental activists, the legislation imposed more-stringent emission caps on coal-fired power plants in the state. At the time, proponents claimed that the public would derive significant health benefits from reducing ground-level ozone and particulates. They didn’t put hard numbers on these benefits, however, and they underestimated the compliance costs. Originally the new rules were going to cost $2.3 billion to implement. By 2009, the price tag had risen to $3.2 billion. It wouldn’t surprise me at all if the final cost ends up approaching $4 billion.
As for air quality, I haven’t seen good data on particulate matter yet. But when it comes to ozone, the trend lines don’t appear to have budged at all. The number of ozone-exceedance days had been declining in North Carolina before the passage of Clean Smokestacks. It continued to decline afterwards, at about the same rate as in neighboring states without the new regulations.
In 2007, the General Assembly decided to move from the local to the global by enacting Senate Bill 3, including a mandate for utilities to buy high-cost “renewable” energy in a bid to combat global warming. Again, there was no formal cost-benefit analysis performed for the bill, since it would have inconveniently shown the renewable-portfolio standard to be all cost and no benefit. Even shutting down every coal and natural-gas power plant in North Carolina tomorrow would have no discernible effect on climate change or average global temperatures. So using state mandates to push wind and solar generation up a bit is obviously not going to make any difference whatsoever, except in higher energy costs.
The John Locke Foundation commissioned a 2009 study of those costs. We found that the renewable-portfolio standard would push North Carolina’s electric rates up $1.8 billion by 2021 and destroy thousands of jobs in the process.
Higher regulatory costs are not the only reason why Progress/Duke is seeking a rate increase. But they’re a major part of the story, and a good example of how state lawmakers has repeatedly let symbolism and good intentions trump sound policymaking.
Many of the factors dampening economic growth in North Carolina are beyond the control of politicians in Raleigh. Unfortunately, of the few levers that state leaders can control, they managed to push the energy-cost lever in the wrong direction. If the next governor and legislature can at least avoid making such costly errors in the future, that would be progress.
So to speak.
Hood is president of the John Locke Foundation and author of Our Best Foot Forward: An Investment Plan for North Carolina’s Economic Recovery.