A compromise energy bill that could reshape North Carolina’s energy industry passed the state Senate on Wednesday and will now return to the House of Representatives, which passed an earlier version. Approved by a voice vote, H951 authorizes the state’s Utilities Commission to “take all reasonable steps to achieve a 70% reduction” in carbon emissions over 2005 levels by 2030 and net-zero emissions by 2050.

The commission would be responsible for formulating a plan, updated every two years, that would ensure a least-cost, technology-agnostic portfolio of resources to ensure affordability and reliability, Newton told the Agriculture, Energy and Environment Committee. It would also be able to establish performance-based regulation (PBR) that would link utility profits to specific, measurable performance goals, while also decoupling profits from power consumption by residential customers.

Rolled out by Gov. Roy Cooper (D) and a small bipartisan group of lawmakers on Friday, the bill is a slimmed-down and tightened-up version of the original H951 introduced in the House in June. The result of closed-door negotiations between Duke Energy (NYSE:DUK) and Republican lawmakers, the bill was widely criticized for promoting natural gas as a replacement for coal and undercutting the authority of the Utilities Commission, provisions that would benefit Duke and open the door to big rate increases. (See NC Republicans Roll Bill to Close Coal Plants, Add Renewables.)

Cooper praised the revisions as setting “a clean energy course for North Carolina’s future that is better for the economy, better for the environment and better for the pocketbooks of everyday North Carolinians.” It could also significantly improve on his own initial carbon emission reduction goal of 40% by 2025, set in 2018’s Executive Order 80.

“Bipartisanship is at the heart of this bill,” Sen. Paul Newton (R) said on Tuesday, as he shepherded the bill through two Senate committee hearings. “This is a policy bill first and foremost, focused on achieving carbon reductions at least cost and in a way that maintains our grid’s reliability. We know renewables cannot do it alone. … It will take diversification of fuel sources to achieve this goal.”

At the same time, he noted that the bill gives the commission some wiggle room on meeting the emission deadlines if it “determines that reliability or least cost would be compromised by meeting these goals. In other words, we’re giving them room to do the right thing at the right time, even if it means we’ll reduce more carbon at less cost beyond the deadlines in this bill,” Newton said.

Such loopholes raised concerns among some clean energy and environmental advocates, who saw the bill as an improvement on the original but still needing stronger protections for utility customers and a wider range of emission-cutting policies. Maggie Shober, director of utility reform at the Southern Alliance for Clean Energy, pointed to a PBR provision that would give utilities environmental incentives but only based on existing environmental standards, which could result in “utility profit windfalls for doing the bare minimum.”

A statement from the Southern Environmental Law Center called for “provisions to provide bill payment assistance and comprehensive energy-efficiency programs for low-income customers.”

PBR and PURPA

The bill essentially sailed through a one-hour hearing before the Senate Agriculture, Energy and Environment Committee on Tuesday afternoon, followed by an even quicker approval from the Senate Finance Committee. In both instances, lawmakers did raise questions about the bill’s impact on low- and moderate-income customers, which Newton answered with a list of consumer protections.

For example, he said, the bill sets a 4% cap on utility rate increases, allows utilities to offer on-bill financing for residential energy-efficiency improvements and provides for “securitization” of Duke’s retiring coal plants, under which the utility would recover only 50% of a plant’s costs.

“So, we’re protecting customers,” Newton said. “It brings the rates down lower than they would have been to securitize some of this net book value that’s left in these plants that we’re telling them to shut down, even though they have economic life left.”

While recognizing Newton’s efforts, Sen. Don Davis (D), speaking before the vote on Wednesday, made an impassioned plea for lawmakers to do more to protect low-income residents from rate hikes and potential power shut-offs.

“Everyone here that’s been involved in this legislation, I’m begging you that as you vote in support of this bill today … when you press the button today, and when we go out to laud how wonderful this is, that we still have in the back of our minds a commitment of coming back, a true commitment, a genuine commitment of coming back to try to do something to help the least of those amongst us,” Davis said.

Other key provisions in the bill:

• • • Solar procurements would be split, with 45% coming from power purchase agreements with third parties and 55% utility-owned. These requirements would also apply to procurements of solar plus storage and any solar “procured in connection with any voluntary customer program.” The bill also calls for competitive procurement of 2,660 MW of renewable energy allocated over a 45-month period.
    • Multiyear rate plans are part of the bill’s PBR provisions, allowing Duke to file a rate case only once every three years, after which it could raise rates up to 4% without Utilities Commission approval. Utilities will have to apply for PBR incentives and multiyear plans, and the commission can approve, modify or reject the applications. The bill includes a list of considerations for PBR approval, including whether a utility’s plan will encourage peak load reduction, energy efficiency and deployment of distributed energy resources, while also reducing energy costs for low-income consumers and supporting equity in contracting.
    • Solar projects originally built under contracts mandated by the federal Public Utility Regulatory Policies Act will have the option of renegotiating and extending their contracts with utilities for another 10 years, albeit at a lower rate. Under PURPA, utilities are required to offer contracts at a standard price to qualified facilities, which in North Carolina were originally sized at 5 MW and below. The state passed a bill (H589) in 2017 that reduced the maximum size of projects down to 1 MW and shortened the contract length from 15 to 10 years.

Rep. John Szoka (R), who was a sponsor of the original House bill, says he supports the revisions, noting that the current bill’s PBR and PURPA provisions are taken from the original.

“What we were trying to do was to continue what we’ve started in 589 to keep a downward pressure on energy costs for the state,” Szoka said in a phone interview with NetZero Insider. The original bill may have been too prescriptive, he said, but it brought out the proposed legislation’s good points and opponents’ objections, “so when it got to the Senate, I believe, it was easier for them to deal directly with the governor and come up with something that was agreeable.”

He expects the bill to pass in the House with a “very good majority.”

“My belief is the lower-cost forms of energy, which today are renewable, will eventually win out,” Szoka said. “It might be one of those deals where solar and modular nuclear end up getting more market share than they would have, had we stayed with a more prescriptive approach.”

Could All-source be Least-cost?

Underlying the bill’s mandate for least-cost resources is an assumption that natural gas will continue to be competitive with the falling costs of solar, wind and storage. Opponents speaking at both hearings on Tuesday warned that renewable procurement would translate to higher electric rates.

However, the Utilities Commission is now studying technology-neutral, all-source procurements that could help accelerate coal retirements in the state and replace that generation with a portfolio of cheaper, cleaner resources optimized to improve system efficiency and savings. Advocates are similarly pushing Duke to adopt all-source procurements in its next integrated resource plan. (See NCUC Debates Best Path for Duke Coal Retirements.)

At a two-day technical conference on Thursday and Friday, Commissioner Dan Clodfelter quizzed Duke executives on the utility’s procurement practices versus an all-source approach.

“As I hear it, you are defining need in a more discreet, ‘componentized’ way and looking at procurements relative to components or elements in that need,” he said. “And what I hear the other party’s advocating for is that we should define what they call ‘total system need,’ and then you should seek procurement of a portfolio of resources that in the aggregate will satisfy that total system need.”