Duke Energy proposal pits profits vs. public interest

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BY AVRAM FRIEDMAN

By proposing to replace its Lake Julian coal plant with new natural gas/fracking-fired units, Duke Energy is moving in an anachronistic direction that inhibits the transition to energy efficiency and renewable energy needed to address rising energy costs and climate change.

Massive investment in energy efficiency is a much more economical way to meet demand than building, operating and continually fueling a new power plant of any kind. No one knowledgeable in the field of commercial energy production could dispute this. The cheapest kilowatt is the one that isn’t needed due to efficiency improvements by users. Energy efficiency programs aimed at reducing energy waste cost utilities only about 3 cents per kilowatt-hour; generating the same amount of electricity from sources such as fossil fuels can cost two to three times as much.

Given the negative economic, health and environmental impacts of burning fossil fuels or using the nuclear fuel/fission/waste cycle to generate electricity, it would be logical for public policy to require maximum efficiency and minimum production capacity. But because North Carolina’s antiquated public utility system is a regulated monopoly, the reverse incentive applies.

Currently, state law guarantees Duke Energy a 10.2 percent rate of return on infrastructure capital expenditures, on self-financed projects. If the company spends $1 billion to build a new power plant, the law requires that rates be adjusted to produce a $102 million profit. Get it?

This is a no-risk “investment” with a huge return for Duke Energy shareholders, at the expense of the ratepayers — you and me — who’ll foot the bill for the construction and the legally required profit, even if this isn’t the best or most economical way to meet energy demand.

At one point in our history, this kind of regulated monopolistic arrangement may have helped guarantee the economic health and stability of a new and growing energy industry that promised to provide reliable electricity to light homes and run factories. In that era, the promise of reliable electric power overshadowed any health or environmental concerns, which weren’t as fully understood as they are today. The priority, then, was to incentivize growth in the energy industry to modernize North Carolina.

But while providing all North Carolinians with electricity is still essential today, circumstances have changed substantially. Our awareness of the health and environmental impacts of conventional electrical energy production has increased dramatically, and meanwhile, we’re in the midst of a quickly evolving energy efficiency revolution. Our current utility system’s highly centralized, rapid-growth model no longer meets the criteria for sensible public energy policy: This outmoded system has become counterproductive.

In 2011, 2013 and 2015, state legislators in both houses sponsored a bill titled “Efficient and Affordable Energy Rates.” Support is growing: 15 state lawmakers are sponsoring the 2015 versions, House Bill 377 and Senate Bill 483, which call for steeply incentivizing private investment in energy efficiency to reduce statewide energy consumption and production. The proposed rate structure would substantially lower monthly energy bills for those who invest in efficiency, aided by low-interest loans from a dedicated Energy Efficiency Bank. Similar measures have been successfully implemented in at least seven other states and several nations, cutting consumption while fostering the growth of new industries and creating thousands of jobs. In North America, this has been done in Arizona, New Mexico, California, Nevada, Vermont, Iowa, Washington state and the Canadian province of Nova Scotia.

As you might expect, however, Duke Energy has sought to protect its sweet deal as a regulated monopoly, brushing aside the two bills as unworkable in North Carolina. The real bread and butter for their shareholders lies in the guaranteed profit realized by building more power plants and infrastructure while nurturing a steady growth in energy consumption. But continuing this business model conflicts with the public interest. What would most benefit residents and ratepayers is implementing programs that reduce consumption and eliminate the need to build more centralized power plants.

If we want to reverse Duke’s plans, citizens must rise up and demand a basic change in our state’s public energy policy. It will be necessary to adopt the type of measures introduced in the Efficient and Affordable Energy Rates bill. If you really want to stop this power plant construction, tell your state legislators, the governor and the state Utilities Commission to push for its passage.

Avram Friedman is executive director of The Canary Coalition, a nonprofit environmental organization based in Sylva.

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10 thoughts on “Duke Energy proposal pits profits vs. public interest

  1. “Duke Energy is moving in an anachronistic direction that inhibits the transition to energy efficiency and renewable energy”

    Mr. Friedman is 100% wrong. Even the Secretary of Energy has declared natural gas to be the “Bridge Fuel” needed to move in the direction he says is desirable.

    We’re all looking forward to the day when we can rely on clean, renewable forms of energy. But we’re not there yet — and realistically, we won’t be anytime soon. Natural gas can be the “bridge fuel” to that greener future — and it can buy us the time we need to get there. President Obama’s Secretary of Energy, Ernest Moniz, had this to say: “The way I look at it is that this natural gas boom is a boon … gas as kind of a bridge to a very low carbon future … it affords us a little bit more time to develop the technologies, to lower the costs of the alternative technologies, to get the market penetration of these new technologies.”
    http://nchouse103.com/fracking-awesome/#bridgefuel

    It’s not surprising, or unwarranted, that Duke Energy should be guaranteed a profit for making this important change. Shame on Friedman for his anachronistic mindset that equates profit with evil. Profit is what makes any business enterprise worthwhile. I’m glad that state law will make it worthwhile for Duke Energy to move to natural gas.

    • bsummers

      Government-mandated “guaranteed profit”. Now there’s a concept straight out of Randian philosphy.

        • bsummers

          Ooh, good one… But not really.

          Solyndra was a failed start-up that defaulted on a loan, from a program that despite that, wound up turning a profit for the public.

          http://www.npr.org/2014/11/13/363572151/after-solyndra-loss-u-s-energy-loan-program-turning-a-profit

          What we’re talking about is a regulatory structure guaranteeing billions of dollars in profits to a company that has no incentive to do the responsible thing, ensuring that we’ll be hooked on fossil fuels for another generation at least.

          • Lulz

            LOL, but why do you need them to change anything lulz? Last I heard, renewable energy products are for sale and Duke is not preventing you from buying it LOL.

  2. Grant Milin

    There is no scenario where the US leaps off natural gas next year, even with a perfect liberal democracy outcome on the political dimension.

    SB 483: Efficient and Affordable Energy Rate, HB 245: Utilities/The Energy Freedom Act—which allows for onsite power, and HB 571: Implementation of Carbon Dioxide Regulations, are important stepping-stones and critical. What more can be done?

  3. Time is needed to convert over to zero carbon energy. If the gas fired plants can load follow the renewable energy as it changes its production, then it is a good investment. If it does it poorly, then that is just poor planning on Duke Energy’s part. Eventually all natural gas must be replaced. I certainly hope they have a plan for that.

    • bsummers

      After they spend the billions to establish the pipeline network and other infrastructure to convert these plants and others all over the southeast to natural gas, does anyone believe they’ll simply mothball all of it when renewables become more viable? Hell, no. They’ll tell us that it only makes economic sense to extract every last erg of fossil fuel energy out of the ground before even entertaining the notion of encouraging conservation or shifting to renewables. Why? Because that’s where the profit (for them) will reside.

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