January 22, 2023.  A 2021 North Carolina  law requires the N.C. Utilities Commission (NCUC) to “take all reasonable steps” to achieve a 70% reduction in carbon dioxide (CO₂)  emissions from electric generating units (EGUs) by 2030 and achieve carbon neutrality for the utility generation system by 2050.   More below on the requirements of  Session Law 2021-165  (also referred to as House Bill 951) and NCUC action in response. The next post will look at the potential overlap of the S.L. 2021-165 carbon reduction plan with draft rules (described in the previous post) under consideration by the N.C. Environmental Management Commission.

The Reduction Goal.  Session Law 2021-165  set a goal of reducing CO₂ emissions from EGUs 70%  (from a 2005 baseline of 75,865,188 short tons) by 2030 and achieving carbon neutrality by 2050. Under the law, “carbon neutrality” means that for every ton of CO₂ emitted in the state by a regulated EGU an equivalent amount of CO₂ must be reduced, removed, prevented, or offset. The law limits offsets to 5%. The NCUC can extend the CO₂ reduction timelines by two years — or longer if necessary to allow for completion of a  new nuclear or wind energy facility essential to the carbon reduction plan.

The reduction goals apply to electric utilities that are: 1. regulated by the Utilities Commission;  and 2. served at least 150,000 North Carolina retail jurisdictional customers as of January 1, 2021. The law does not apply to EGUs operated by  local government utilities; electric membership co-ops; industrial facilities; or other institutions since the Utilities Commission doesn’t regulate those facilities.  As a result, the carbon reduction plan will only affect EGUs at power plants owned  by the two investor-owned utilities operating in North Carolina — Duke Energy Carolinas and Duke Energy Progress.  As a practical matter, however, those two utilities account for over 80% of the total CO₂  emissions from electric power generation in the state.

A few other things to understand about S.L. 2021-165.  First, the law is directed to the Utilities Commission rather than the electric utilities.  It authorizes the Utilities Commission to take  “all reasonable steps” to achieve the CO₂ reduction goals and adopt a plan by December 31, 2022 to do so. The law does not directly mandate that the utilities meet the reduction goals; create penalties for a utility’s  failure  to meet the goals; or address  how emissions levels will be monitored and reported to show  whether the goals have been met.  Instead, the law relies on the NCUCs  existing authority to approve/disapprove utility-owned generation facilities and related authority to allow the utilities to recover the cost of facilities and operations through rates charged to customers.  

In developing the plan, the law directs  the Utilities Commission to follow existing state law with respect to least-cost generation of power and maintain system reliability.  So the law requires a balancing of consumer costs/system reliability and reduction of greenhouse gas emissions. 

The law also requires “new generation facilities or other resources” selected by the Utilities Commission  as part of the plan  must be owned by the utility. There is an exception for solar; the law provides that 45% of new solar included in the reduction plan must be supplied by third parties through power purchase agreements. The Utilities Commission has interpreted the statute language to mean that power purchase agreements cannot be used to acquire other energy resources (such as wind energy) to meet the reduction goals even though that may be a lower cost alternative to new energy project development.

Carbon Reduction Plan. As a first step, the Utilities Commission required Duke Energy to submit a proposed carbon reduction plan in May 2022.  Instead of a single proposed plan,   Duke Energy submitted four alternative plans for the Utilities Commission to consider. All four plans proposed to phase-out all of the state’s remaining coal-fired power plants although   closure  dates varied. The plans differed in the mix of new energy sources (natural gas, solar, battery storage, nuclear and wind) to replace coal and the timelines for bringing those new sources on line. Duke Energy projected that only one of its four portfolios of energy resources  would meet the 70% interim reduction goal by 2030; others met the interim goal two to four years later.

NCUC Order. On December 30, 2022, the NCUC issued an order that put a number on the 70% reduction target for 2030 (22,759,556 short tons of CO₂), but the Commission did not adopt any of the four plans proposed by Duke Energy to meet the reduction goals. The NCUC declined to endorse a specific energy portfolio capable of meeting the interim and final CO₂ reduction goals at all. Instead, the Utilities Commission authorized Duke Energy to take a number of near-term actions in 2023-2024 and created a process for  reviewing the  electric generation portfolio every two years.

An existing NCUC rule, R8-60-1,  already required electric utilities to submit an integrated resource plan (IRP) to the Utilities Commission every two years. The IRP forecasts electric power demand over a 15 year period and  describes how the utility will meet projected demand through a combination of electric generation; power purchase; demand-side management (such as programs to reduce peak use); and energy efficiency. The NCUC’s order basically repurposes the  IRP as a vehicle for identifying the most cost-effective and reliable mix of energy sources to meet the CO₂ reduction goals.

The NCUC order allows Duke Energy to take initial steps common to most of  Duke’s alternative energy portfolios in the next two years, but defers decisions about the energy mix needed beyond 2023-2024 to meet the reduction goals.  Actions authorized in the near term tend to be low risk (in terms of cost and reliability) and avoid commitments to more complex  long-term projects. The  order also directs Duke Energy to address a number of cost and feasibility questions in the first carbon reduction IRP.  For example, the NCUC has asked for information on the impact of federal subsidies and tax incentives  (such as those in the Inflation Reduction Act) that may reduce some renewable energy costs. The order also directs Duke Energy to further evaluate both onshore and offshore wind projects. The NCUC report notes questions about the practicality of developing an onshore wind project by 2029 and costs related to connecting both onshore and offshore wind projects. Duke Energy’s  first carbon reduction IRP will be due in September 2023 and the NCUC will take action on that IRP in 2024.

This incremental approach  gives the Utilities Commission more time to evaluate alternative  energy projects before committing to a plan, but also leaves a significant gap between actions allowed under the December 30, 2022 order and those needed to meet the CO₂ reduction goals. For example, Duke Energy projects that 5,980- 7,930 MW  of additional solar will be needed to meet the emission reduction goals, but the December 31, 2022 order only authorizes Duke to procure an additional 2350 MW of solar over a two year period  (2023-2024). The order also defers authorization for any wind energy projects as part of the plan although all four Duke Energy plans included onshore wind resources and three of the four also relied on offshore wind generation.

It is not clear how long the NCUC can continue to allow the carbon reduction plan to evolve,  since  Duke Energy will need to make investments in facilities and enter contractual agreements to bring new energy sources on line. The window for flexibility will close soon for financial and contractual commitments needed to meet the 2030 reduction goal. Realistically,  the first carbon reduction IRP  (2024) will need to  result in a much firmer plan to achieve a 70% reduction in CO₂ emissions to have any possibility of meeting the 2030 goal. The 2024  plan will also need to lay the foundation for meeting  the goal of carbon neutrality by 2050.

In short,  the December 30, 2022 NCUC order does not deliver the step by step plan to meet the reduction goals set in S.L, 2021-165  many in the public (and perhaps the legislature) expected. It effectively defers approval of a plan to meet even the interim goal until the 2024 IRP at the earliest. The order takes a conservative approach to acquisition of additional solar generation, authorizing only the amount of solar generation proposed for 2023-2024 out of concern about the cost of connecting more solar more quickly.  It  also withholds authorization for  onshore and offshore wind projects pending additional information on cost; per Duke Energy’s proposed plans, wind projects will be necessary to achieve the 70% reduction goal by 2030-2032.

Among the  near term steps authorized in the NCUC order:

♦  Pursuit of closure plans for existing coal-fired units.  Although timing varied,  all four Duke Energy carbon reduction plans assumed closure of all existing coal fired units by  2036.

♦ Planning for additional natural gas generation (combined cycle units and combustion turbines) to offset lost coal-fired generation. All four Duke Energy carbon plans proposed to add natural gas generation for an extended period of time. The approach has been controversial since natural gas also produces CO₂ emissions although at lower levels than coal combustion.  The Utilities Commission accepted Duke Energy’s justification for increased natural gas generation, but requires the first carbon plan IRP to model the cost and assumptions for natural gas units proposed to operate beyond 2050. Any new natural gas generating units will require individual NCUC approval before construction and the order directs Duke Energy to address natural gas availability in those project proposals.

♦ Pursue extension of federal licenses for existing nuclear power plants serving North Carolina.

♦ Target procurement of 2,350 MW of new solar during the 2023-2024 period.

♦ Begin initial development and procurement activities for 1,000 MW of standalone battery storage and 600 MW of Solar Plus Storage.

♦ Meet with onshore wind stakeholders; explore the potential for a successful request for proposals to develop an onshore wind project;  and consider onshore wind as an additional source in the first carbon reduction IRP if that is supported by modeling.

♦ Take the preliminary steps identified in Duke Energy’s 2022 proposed carbon plan toward development of small modular and advance nuclear reactors.

♦ Further study offshore wind energy leases off the North Carolina coast and report back to the NCUC on the feasibility of including an offshore wind generation project in the  carbon reduction plan. Duke Energy had proposed to acquire a wind lease in the Carolina Long Bay lease area (Cape Fear) currently held by Duke Energy Renewables. The NCUC declined to authorize transfer of the lease, citing questions about the cost of bringing power onshore and creating interconnections with the transmission system. The scope of the study is to include all three areas off the N.C. coast where the federal Bureau of Ocean Energy Management has approved wind energy leases.

♦ Model a higher rate of energy efficiency as part of the total carbon reduction plan. Duke Energy’s proposed plans assumed energy efficiency improvements at 1% of “eligible” retail sales. A number of commenters pointed out that  “eligible” retail sales leaves out wholesale customers and retail industrial customers that opt out of the EE program.  The NCUC order directs Duke Energy to model both a 1.5% improvement in energy efficiency among eligible retail customers and explore programs to extend energy efficiency improvements among wholesale customers.

The entire Utilities Commission report can be found here.  The report is organized around findings of fact and the basis for those findings (by topic) followed by the order listing near-term actions authorized by the Commission at pages 130-135.

Consumer impacts. It is important to understand the influence of the Utilities Commission Public Staff on any carbon reduction plan. The Public Staff  (entirely independent of the NCUC staff)   exists specifically to represent consumers in matters before the NCUC  — particularly with respect to utility rates. As a consumer advocate, the Public Staff  focuses on cost and reliability of service.  One of the challenges of a major transition from fossil fuel to clean energy can be the tension between cost/reliability in the near term versus the long-term benefits of a carbon neutral electrical system.  In developing its report and December 30, 2022 order, the Utilities Commission was very responsive to cost concerns expressed by the Public Staff. Many of the NCUC requests for additional cost information and modeling in the first carbon reduction IRP reflect issues raised by the Public Staff in review of Duke Energy’s proposed plans. The push/pull between competing goals will be something to watch.