Tag Archives: Electricity

Climate Choices Part I — N.C. and the Regional Greenhouse Gas Initiative

January 4, 2023.  By coincidence rather than design,  two different approaches to reducing greenhouse gas emissions from the electric power sector have been under discussion by North Carolina agencies since 2021. This post will describe draft rules being considered by the N.C. Environmental Management Commission (EMC) in response to a petition for rulemaking submitted by Clean Air Carolina and the N.C. Coastal Federation.  The rulemaking petition asked the EMC to adopt rules requiring units serving electric generators of 25 MW or greater to participate in a market-based program to reduce CO2 emissions.

A later post will cover the North Carolina Utilities Commission (NCUC)  Carbon Reduction Plan.  The two approaches share goals of reducing greenhouse gas emissions 70% by 2030 (from a 2005 baseline) and achieving carbon neutrality by 2050.  The approaches differ in the generating units affected (although there is overlap) and the mechanism relied on to achieve the reductions.

The  Proposed  EMC Rules: The draft rules being considered by the EMC would set the stage for North Carolina to join 11 other states in a  market-based program — the Regional Greenhouse Gas Initiative (RGGI) — to reduce carbon dioxide (CO2)  emissions from electric generators.   RGGI relies on a market concept similar to the “cap and trade” program EPA used to incentivize reductions in sulfur dioxide (SO2) emissions contributing to acid rain.

Background on RGGI.  Seven northeastern states created RGGI in 2005. Over time, RGGI has expanded to include eleven east coast states:  Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Virginia.

RGGI uses cost to drive down CO2 emissions from electric generating units (EGUs) by requiring each EGU to buy an “allowance”  for each short ton of carbon dioxide it emits annually. In the RGGI context, an “EGU”  means a unit generating electricity for distribution to customers —  an electric utility. Each participating RGGI state sets an annual emission budget that caps CO2 emissions from those EGUs; the combined state CO2 budgets become a regional budget for the RGGI states.  The CO2 emissions budget gradually declines over time; currently, RGGI has a goal of reducing CO2 emissions by 30% (from a 2020 baseline) by 2030.

RGGI conducts quarterly auctions of available allowances (the number based on the CO2 emissions budget and other factors).  EGUs can also purchase allowances directly from other emission sources.   The net proceeds of the RGGI allowance auction (minus an administrative fee)  go back to the participating state governments in proportion to the  state’s share of the total RGGI  emissions budget. RGGI characterizes itself as a “cap and invest” program  because many of the participating states direct their auction revenue to support renewable energy; energy efficiency; measures to mitigate climate impacts; and assistance to low-income households.

Note:  This is a very simple overview  of the way RGGI operates. The RGGI program includes complex provisions on the conduct of auctions; calculation of emissions; emissions record-keeping and reporting; and measures to prevent allowance prices from going either too high or too low. More detailed information can be found through the RGGI website homepage.

The RGGI rulemaking petition. N.C. General Statute 150B-20 allows anyone to petition a state agency to adopt or amend a rule. In January 2021, Clean Air Carolina and the N.C. Coastal Federation filed a  rulemaking petition requesting the EMC to adopt draft rules (included in the petition)  creating the regulatory framework necessary for North Carolina participation in RGGI.

In July 2021, the EMC voted to approve the rulemaking petition. Approval of the  rulemaking petition just means that the EMC has agreed to begin the rulemaking process based on draft rules submitted by the petitioners; it does not commit the EMC to adopt the rules.  The EMC is still in the first stage of the  rule-making process, which requires preparation of a regulatory impact analysis describing the rule’s effects,  including the potential fiscal impact on state government, local government, and others affected by the rule. Once the fiscal analysis has been completed and approved by the Office of State Budget and Management, the  draft rule and the regulatory impact analysis will be released to the public for review and comment.

At this stage of the rulemaking process, the EMC cannot change the draft rule as proposed by the petitioners.  Once the public comment period has closed, the EMC can take one of three actions: 1. adopt the petitioners’ rule draft; 2. adopt the rule with changes to address questions or concerns raised in public comment or EMC discussion; or 3. decline to adopt the rule in any form.

Comparison of the Proposed N.C. Rules to Existing RGGI States. The draft rules submitted to the EMC by Clean Air Carolina and N.C. Coastal Federation use the basic structure of the RGGI program — a state CO2 emissions budget that declines over time and a requirement that each regulated generating unit must purchase an allowance for each short ton of CO2 that it emits. The draft rules differ from those adopted by other RGGI states in some key ways:

The rules apply to a broader set of CO2 emission sources. In the other RGGI states, only electric generating units (EGUs)  associated with electric utilities are required to hold allowances for CO2 emissions.  The proposed N.C. rules would also apply to generating units  of 25 MW or greater that are operated by industries or institutions to generate electricity for their own use. As a result, the N.C. rules refer to “CO2 budget units” rather than EGUs. Under the draft N.C. rules, EGUs are a subset of “CO2 budget units”.

The rules apply to emissions from additional types of fuel. The proposed N.C. rules would apply to CO2 emissions associated with biomass or biofuels as well as fossil fuels.

♦  No North Carolina state agency would directly participate in the RGGI auction process.  Unlike other RGGI states, North Carolina would not allocate the state’s CO2  allowances to the RGGI auction directly. Instead,  the state would develop a state CO2 budget;  create “conditional” allowances based on the budget; and assign those allowances — at no cost — to the regulated generating units in N.C.  The draft rule requires those units to consign their allowances to  RGGI and purchase the allowances back through the RGGI auction before they can be used to comply with the rule.

Net proceeds of the RGGI auction would go back to the CO2 budget units  instead of becoming state revenue.  In other participating RGGI states,  a designated state agency receives the net auction revenues and directs the use of those funds consistent with state law. The draft N.C. rules have the net auction revenues return to the regulated generating units. As a result,  no N.C. state agency would have any direct involvement in the RGGI auction process at either the beginning (consignment of allowances to the auction) or end (receipt of revenues from the auction).

The draft N.C. rules include a provision allowing  CO2 budget units to  use auction proceeds “for public benefit, strategic energy, or other purposes approved by the [N.C. Utilities] Commission”.  Note that a number of the CO2 budget units covered by the draft N.C. rule are not EGUs regulated by the N.C. Utilities Commission;  municipal and co-op systems fall outside the NCUC’s jurisdiction. The Division of Air Quality has determined that the draft N.C. rule would also cover a small number of generating units  operated by an institution or industry to generate power solely for its own use.  In any case, the draft rule language  seems to be sufficiently broad to allow most generating units to use auction revenue just as they use revenue from rates or other sources.  Units that fall under the NCUC jurisdiction would continue to be subject to that commission’s usual oversight with respect to rates and plans to meet electricity demand. 

Since the fiscal analysis of the N.C. rule hasn’t been completed, there is not yet an estimate of the amount of revenue likely to return to the electric generating units covered by the N.C. rule. But the revenues returning to existing RGGI states (reported on the RGGI website ) have been substantial. For example, the state of New York’s revenue  has ranged from  $300,000,000  to $500,000,000 for each 3-year RGGI auction cycle.

♦ The draft rules propose a steeper reduction in CO2 emissions than that required by current RGGI states. The draft N.C. rules require a 70% reduction by 2030 (from a 2005 baseline) and carbon neutrality by 2050. The existing RGGI program has  a goal of 30% reduction in CO2 emissions by 2030, although the participating RGGI states have decided to review the goal given progress to date. The difference would mean a  steeper reduction curve  for N.C. sources compared to those in states currently participating in RGGI.

Next Steps. Before the EMC makes any decision about adoption of the proposed rules, the draft rules will be published for public review and comment along with the regulatory impact/fiscal analysis. The Division of Air Quality originally anticipated that the fiscal analysis would be complete in November 2022, allowing the EMC to receive public comments in early 2023 and make a rulemaking decision in May 2023.   Final approval of the fiscal analysis has been delayed, however,  to allow more time for review by the Office of State Budget and Management. The delay means the EMC may not be able to take any action on the proposed rules until later in the summer of 2023.

Yesterday in the General Assembly

May 2, 2013: A brief update on  legislative action:

Renewable Energy. The House Public Utilities and Energy Committee  did not take  up  House Bill 298 again (although it appeared on the committee calendar), but the Senate Finance Committee approved a Senate bill to repeal the renewable energy portfolio standard (REPS). Senate Bill 365 would sunset the renewable energy standard in 2023, but immediately caps the renewable energy portfolio  standard  at 3% of retail sales — a standard that both Duke Energy and Progress Energy have already met. (The  2007 legislation creating the renewable energy portfolio standard  required Duke Energy and Progress Energy to meet  3% of retail sales with renewable energy or energy efficiency measures by 2012 and gradually increased the target to 12.5% of retail sales by 2021.)  Senate Bill 365 keeps  specific set-asides for energy generated by poultry and swine waste  although   renewable energy  from those  facilities  (which are not yet in operation) will not be needed to meet a  3% REPS requirement.   The Finance Committee vote to approve Senate Bill 365 became contentious as the committee chair ignored a member’s request for a show of hands  and  called  a very close voice vote for the ayes. The Senate bill now goes to the Senate Commerce Committee. The House bill remains in the House Public Utilities and Energy Committee and could be brought up for another vote at any time.

Regulatory Reform. Senate Bill 612 passed the Senate, but only after several floor amendments. The most significant amendment removed language that would have eliminated the Neuse River and Tar Pamlico River stream  buffer requirements.  The bill still requires state environmental agencies to repeal all state rules that are more stringent than federal rules on the same subject. The bill now goes to the House.

Renewable Energy Repeal Fails Committee Vote

April 25, 2013

House Bill 298, the bill to repeal the state’s renewable energy portfolio standard (REPS), failed to win approval in the House Public Utilities and Energy Committee yesterday. (See an earlier post for  background on North Carolina’s  renewable energy standard and House Bill 298.)

Although the bill had the backing of conservative political organizations,   the Republican-controlled House of Representatives never seemed particularly enthusiastic.  The bill won approval of the House Commerce and Job Creation Committee two weeks ago by only a one vote margin even after the bill sponsor  revised the bill  to  wind  the REPS program down more slowly.

When the bill reached the Public Utilities and Energy Committee, it  had been modified again to push complete repeal of the renewable energy standard out three more years –from 2018  to 2021. A friendly amendment in committee made two additional changes to soften the  impact of repeal on renewable energy companies that  invested in North Carolina in reliance on the REPS requirement.  The amendment  removed language allowing electric utilities to use power generated by large hydroelectric projects  to meet the REPS standard (returning to language in 2007 legislation creating the  REPS requirement). The change was made to prevent large existing hydropower plants operated by Duke Energy and Progress Energy  from crowding out new renewable energy sources even before the REPS repeal date. The amendment also  extended the time allowed for  electric utilities to recover costs associated with  renewable energy contracts. Americans for Prosperity again spoke in support of the bill and  submitted a letter of support signed by  a number of other conservative political organizations.

In spite of those efforts, the motion to approve the bill failed by a vote of 13-18 in a committee dominated by Republican legislators.  Republicans voting against the bill included members of the House  leadership —  Republican Conference Chair Ruth Samuelson and  Rules Committee Chair Tim Moore.

The bill failed for a very practical reason — the REPS requirement has brought private investment and jobs to North Carolina at a minimal cost to consumers.  “Riders” on electric bills allow the utilities to recover any additional cost of using renewable energy; the riders have never approached  caps included  in the 2007 REPS legislation. The cost of solar energy in particular has fallen by nearly half as solar companies expanded operations in North Carolina in response to REPS incentives and those costs continue to fall.  (Duke Energy’s residential  customers now pay 21 cents per month to cover the additional cost of  solar energy.  In a rate case filed with the N.C. Utilities Commission  earlier this year, Duke proposes to take the residential  REPS rider to -1 cent. Although Duke Energy has proposed rate increases, those increases are  associated with the cost of conventional energy generation.)

At the same time, private  investment in response to the renewable energy standard brought jobs to the state. See  a 2013 report  by Research Triangle Institute/ LaCapra Associates,   The Economic, Utility Portfolio, and Rate Impact of Clean Energy Development in North Carolina,  for more on the economic impact of the  N.C.  REPS requirement and state renewable energy tax incentives. A  September 2012 clean energy jobs census by the N.C. Sustainable Energy Coalition  identified  over  15,000 jobs associated with clean energy companies.

Conservative political organizations like Americans for Prosperity have made  renewable energy standards a  target for repeal nationwide.  Given extremely low consumer cost and increased private  investment and job creation,  there was little in  the N.C.  REPS experience that could be used  as an argument for repeal.  Supporters of House Bill 298  increasingly had to rely on an ideological argument against energy subsidies in general.  That position has a significant weakness — conventional energy sources  (such as coal, natural gas, and nuclear power) also benefit from subsidies, but conservative  opposition  seems to focus only on subsidies for renewable energy.   Bill supporters  also cited  stories of high cost and renewable energy business failures in other states and countries.

Approving House Bill 298 would have required legislators to ignore  real economic benefits to the state  in favor of an ideological argument against renewable energy subsidies. A majority of committee members chose  reality.

N.C. Renewable Energy Update

April 10, 2013:  A little more detail on the new version of House Bill 298. (For some reason, it took a week for the version  approved  in committee last Wednesday to be posted on the General Assembly website).

Instead of  immediately repealing   the entire   2007 renewable energy portfolio standard (REPS)  requirement, the bill would cap the amount of electric generation  to be met by renewable energy sources at 6%  of 2014  retail sales and sunset the REPS requirement  in 2018. The 2007 legislation (Senate Bill 3) required the electric utilities to generate 6% of 2014 retail sales  using renewable energy sources by 2015 and then increased the REPS goal to 10% of retail sales by 2018 and 12.5% of retail sales from  2021 on. SB 298 cuts the renewable energy goal in half and the 2018 sunset means that  the electric utilities could abandon even the 6% renewable energy target after 2018.

Other changes:

●   The amount of the REPS requirement that could be met with energy efficiency measures would immediately increase from 25% to 50%

●   Existing hydropower facilities could be used to meet the REPS goal. Since both Duke Energy and Progress Energy generate a significant amount of electricity from hydropower facilities, the change may allow existing hydropower to crowd out new renewable energy sources.

● Removes the set-aside for solar energy. (HB 298 repeals a Senate Bill 3 provision requiring the electric utiltiies to supply  at least two-tenths of one percent of the electric power sold to retail customers from 2018 on through a combination of new solar electric facilities and new metered solar thermal energy facilities.) The bill keeps the Senate Bill 3 set-asides for energy generated by swine and poultry waste – although those  set-asides  would sunset in 2018 with the REPS requirement.

● Requires any contract between an electric utility and a renewable energy company to end by December 31, 2018 for purposes of cost-recovery.

Although the bill looks less like immediate repeal of the REPS requirement, the effect would be the same.  New renewable energy sources could be crowded out by existing hydropower and energy efficiency even before the REPS requirement ended in 2018.  Swine and poultry waste would continue to have a set-aside through 2018 — but uncertainty beyond 2018 would make construction of waste-to-energy facilities a very risky business. In the end, the bill would completely undermine the Senate Bill 3 goal of encouraging development of new renewable sources of energy in the state as a source of energy security and job creation.

Renewable Energy: Predictions (and Politics) Meet Reality

April 4, 2013

Yesterday in the North Carolina  General Assembly, the House Committee on Commerce and Job Development took up  House Bill 298. (For background on the bill, see an earlier  post  about the proposed repeal of North Carolina’s renewable energy portfolio standard.)   Rep. Mike Hager presented a slightly revised bill, but repeal of the 2007 renewable energy portfolio standard (REPS)  remains at the center of the legislation. The committee approved the bill on a very close vote (11-10);  two Republican committee members voted  with Democratic committee members to oppose the bill.

Discussion in committee set up an interesting conflict between the reality of North Carolina’s REPS experience and the politics of renewable energy.  Those supporting repeal of the REPS requirement   cite both  ideological reasons  (opposition to  energy subsidies in general and subsidies for renewable energy in particular) and fear that the higher costs of renewable energy will hurt consumers and damage  the   economy.  The problem for bill supporters is that the state has had five years of experience with the REPS requirement and none of the predicted economic  horrors have materialized.  Instead, bill opponents can point to  real economic benefits  in jobs created and  private investment attracted to the state –- at minimal cost to consumers.

Of the fifteen (by my count)  members of the public who  commented on the bill in committee, only three supported repeal of the renewable energy portfolio standard. All three represented conservative political organizations — two  speakers from Americans for Prosperity and  another   from the Civitas Institute.  One argument for repeal laid the responsibility for increased electricity rates at the feet of the renewable energy standard.  In reality, REPS costs have been  low and and continue to decline.  For a residential Duke Energy customer, the  fee (or “rider”)  to cover the additional cost of  meeting the REPS requirement  is now 21 cents per month and  falling.   Although Duke Energy has filed a proposed rate increase  with the N.C. Utilities Commission, the justification for the increase has been recovery of capital costs associated with conventional power generation facilities and improvements to transmission infrastructure  — not  the cost of renewable energy.

Dallas Woodhouse, state director of Americans for Prosperity,  and Brian Balfour from the Civitas Institute also argued that the  higher  cost of renewable energy hurts the state’s economy and leads to job loss.   Their  argument  seems to be rooted in a 2009  report on the  projected  economic impact of  North Carolina’s renewable energy portfolio standard  that was put out by  the John Locke Foundation and the Beacon Hill Institute (BHI)  at Suffolk University. The  Locke/BHI Report looked at two different scenarios and even under the more favorable of the two predicted  that:

“… North Carolina will lose 3,592 jobs, investment will decrease by $43.20 million and real disposable income will fall by $56.80 million by 2021. As a result, the state economic output measured in real state Gross Domestic Product (GDP) will be $140.35 million lower than without the mandate.”

That prediction was made  early in implementation of the state  REPS requirement and the 2013 reality looks very different.    The actual impact of North Carolina’s support for green energy:  $1.4 billion in new green energy investment, more than 15,000 jobs in green energy as of September 2012  and an increase of $1.7 billion in the state’s overall economic output.  (My  earlier post has  links to both a 2013  Research Triangle Institute/La Capra report on the economic impact of the state’s green energy policies and a green energy jobs census conducted by the N.C. Sustainable Energy Association.)

Why were the predictions in the  Locke/BHI Report so wrong?  The costs of meeting the REPS requirement have turned out to be much lower than  the report projected.  The Locke/BHI Report assumed that the electric utilities would need to go  to the maximum cost recovery  rider  allowed under the 2007 REPS legislation (Senate Bill 3).  The report also evaluated a second, even more pessimistic, scenario that assumed actual renewable energy costs would exceed the fee caps.  As it turns out, the  REPS  riders are nowhere near the  statutory caps and  the riders continue to drop from year to year.  Senate Bill 3 capped the  REPS cost recovery rider for residential customers at $1 per month for 2012; the  current  Duke  Energy  rider for residential customers is  21 cents per month. In March, Duke filed an  application with the N.C.  Utilities Commission to set the residential REPS rider for 2013-2014 at  -1 cent, which would result in a  rebate to residential customers.  Costs to  non-residential customers have also come in   below the Senate Bill 3 caps and will continue to fall under the riders proposed by Duke Energy for 2013-2014.

The twelve members of the public who spoke against House Bill 298 in committee represented renewable energy companies  with significant investments in North Carolina; large swine producers  investing in waste-to-energy projects as an innovative  way to dispose  of swine waste;   the Warren County economic development director who pointed to the benefits that solar energy development  has brought to an economically struggling  rural county; and a wind energy developer interested in the North Carolina coast.

Based on the committee discussion yesterday, House Bill 298 has the potential to cause serious heartburn for conservative legislators who are being forced to choose  between a real bright spot in the state’s economy and policy positions advocated by conservative political organizations. The bill still has three more committees to get through in the House; the next stop will be the Environment Committee.

Should N.C. Abandon the Renewable Energy Portfolio Standard?

Some members of the  N.C.  House of Representatives have proposed to do just that.   House Bill 298  (the Affordable and Reliable Energy Act)  would repeal  2007  legislation developed  — with support from the state’s major electric utilities — to increase  use of renewable energy sources and energy efficiency measures to meet demand.  Abandoning the renewable energy portfolio standard (REPS) would also mean walking away from the state’s  commitment to renewable energy and energy efficiency as a source of investment and  job creation.

In 2007, North Carolina became the first state in the southeast to adopt a renewable energy portfolio standard.  Session Law 2007-397   (or “Senate Bill 3”) set a two-tiered goal for use of clean energy to meet electric power demand. By the end of calendar year 2018, municipal utilities and electric membership corporations must use a combination of renewable energy sources and energy efficiency measures  to meet 10% of retail sales.  The  two major investor-owned electric utilities, Duke Energy and Progress Energy,  have a slightly higher REPS  goal of 12.5%  by 2021.  Greater use of  clean  energy sources reduces air pollution and greenhouse gas emissions, but Senate Bill 3 also identified renewable energy development as a way to improve the state’s energy security and generate private investment.

According to the most recent N.C. Utilities Commission report on implementation of Senate Bill 3, the electric utilities  have met the first  REPS milestone  ( 3% of 2011 retail sales). Aside from the environmental benefits, the REPS requirement  also appears to have met the goal of encouraging clean energy investment in the state.   A recently released  RTI International/La Capra  Associates study,   The Economic, Utility Portfolio, and Rate Impact of Clean Energy Development in North Carolina, found that North Carolina’s clean energy incentives (including tax credits, investment in energy efficiency and the REPS requirement) spurred $1.4 billion in project investment statewide between 2007 and 2012.   Investments in clean energy took a sharp upward turn in 2011-2012 as the first Senate Bill 3  milestone approached. Even after accounting for the  “cost” of state renewable energy tax credits,  the report found a net economic benefit to the state. A census conducted by the N.C. Sustainable Energy Association identified 15,200 full-time equivalent employees in clean energy jobs as of September, 2012.

The primary sponsor of House Bill 298, Rep. Mike Hager (R- Burke,Rutherford), has said that the renewable energy/energy efficiency standard should be repealed in the interest of lowering electricity rates for customers. There is a small add-on fee (a “rider”) that the electric utilities can use to recover the costs of meeting the REPS goal. Senate Bill 3  put caps on the riders, but also required the N.C. Utilities Commission to approve the actual amount as reasonable and necessary to cover the electric utility’s cost.   Senate Bill 3 capped the REPS  rider for residential customers at $1 per month;   the approved riders are now 42 cents per month for Progress Energy’s residential customers and 21 cents per month for Duke Energy’s residential customers. The riders have never reached the maximum of $1 per month and the actual  amounts  have come down from year to year.

The RTI/ La Capra study concluded that North Carolina’s clean energy incentives (including the REPS requirement) will  have little impact on rate-payers — and may be a net benefit in the long term. The benefit largely comes from reduced costs as a result of energy efficiency measures; energy efficiency gains  translate into new energy generation costs that can be avoided or delayed.

This will be an interesting bill to watch. Skepticism about renewable energy and energy efficiency seems to have become an article of faith  among some conservatives — which may account for the fact that the bill has 27 sponsors in the House. But the bill also has been given four House  committee referrals; the long path through the House likely reflects some counter-pressure on the jobs  and investment side.

One other note about House Bill 298 — it is difficult to know exactly what to make of this, but the bill changes the  definition of “renewable energy resource” to exclude wind energy and include peat and fossil fuels.