The way North Carolina's electricity rates are set will change with a new law
The way North Carolina's big electric companies set rates is changing in a big way. State regulators adopted rules last week to carry out a new law that, among other things, lets utilities seek multiyear rate plans and earn performance-based bonuses.
The rules follow Gov. Roy Cooper's signing last fall of a major energy reform bill, House Bill 951. They apply to state-regulated utilities Duke Energy and Dominion Energy but not to town-owned systems or electric co-ops.
The new rules spell out how the companies can seek rate increases for new transmission lines or generating facilities in the future, instead of in the past as the state has done for a century.
"The way utilities have been regulated is they go and build stuff, and spend money, and then come into the Utilities Commission and say, 'Hey, we would like to recover the money that we already spent,'" said Peter Ledford, general counsel and policy director with North Carolina Sustainable Energy Association.
The new law lets companies submit three-year plans for raising rates to pay for future investments. And it allows for bonuses or penalties depending on whether the companies meet targets set by regulators, Ledford said.
"Let's say the average customer loses power X hours a year right now. If Duke reduces that they might get a financial bonus. If somehow power outages get worse, Duke would pay a financial penalty," Ledford said.
Ledford said the order lacks some consumer protections his group wanted.
"There were a lot of opportunities where the commission could have provided stronger consumer protections, but instead failed to do so. And in a lot of ways the order favors the utility," Ledford said.
One element the group opposed and lost is that when a three-year rate plan expires, high rates automatically continue, he said.
"NCSEA and various consumer protection groups argued that it was unfair and that there should be a new rate case at that point in time," Ledford said. "The (utilities) commission decided against us and said that those rates could continue in perpetuity after the rate period."
Kendal Bowman, Duke Energy's vice president for regulatory affairs, said the rate-making changes came out of negotiations between the governor and lawmakers and incorporate reforms that have been introduced elsewhere around the country.
"These are to better align utility investment to customer and state policy goals and needs to give customers more cost certainty," Bowman said.
"These are appropriate ways to achieve our statewide energy policy goals. And they received strong bipartisan support with the passage of House Bill 951," she said.
Bowman did not say when Duke Energy might file an application under the new rate process. In last week's order, the North Carolina Utilities Commission suggested it won't be ready to act on any application until early 2023.
The rate-making changes are just one part of the energy reform that will keep the utilities commission busy this year. Regulators also have until year's end to approve a statewide plan for reducing carbon emissions from energy. That will determine how coal plants are closed and how quickly the state shifts to renewable energy as it tries to slow down climate change.
In January, the utilities commission laid out the process for that work. Duke Energy has until mid-May to submit a proposed carbon reduction plan. Regulators will hold hearings later in the year and draft their own plan, which must be approved by Dec. 31.