December 27, 2012
North Carolina

Progress, Duke want to slash payments for green energy

By John Murawski | The News & Observer | Dec 25, 2012 |

At a time that Progress Energy is seeking a 14 percent rate increase for residential customers in North Carolina, the Raleigh power company wants to slash payments as much as 29 percent for electricity it buys from solar generators and other renewables producers.

If approved by the N.C. Utilities Commission, the request would reduce rates the electric utility pays for green energy to levels not seen since 1984, when there was no green energy to speak of in North Carolina.

The power company’s request is tied to the plummeting cost of natural gas, which is lowering the market price of electricity nationwide. Progress contends that it is now overpaying for the green energy it has to buy under state law, and passing on those inflated costs to its customers, who ultimately bear the financial burden in their monthly bills.

The move to cut rates comes at a crucial time for solar power in the state as the industry has nearly weaned itself off a key subsidy.

Only a few years ago, power companies paid solar generators a premium of about 12 cents for every kilowatt hour of power, roughly twice as much in subsidy support as the solar producers made from selling electricity. Today, solar producers typically receive less than 1 cent a kilowatt hour as a subsidy.

The shrinking subsidy – known as a “renewable energy certificate” – had solar advocates congratulating themselves for creating a self-sustaining industry in relatively short order. With the subsidy expected to go away in the near future, North Carolina’s solar industry is operating on razor-thin margins and could come to a standstill if Progress significantly cuts payments for electricity, advocates warn.

“There would be a big curtailment,” said Richard Harkrader, chief executive at Carolina Solar Energy, a Durham developer. “The stuff under contract would go ahead, but it would be very difficult to build any new (solar projects).”

Cuts up to 29% sought

Both Progress and its parent company, Charlotte-based Duke Energy, are requesting to cut the electricity rates they pay to green energy projects with a capacity of 5 megawatts and less.

Projects larger than 5 megawatts are not covered by regulated rates. They negotiate power purchase agreements with utilities individually. However, any rate established by the Utilities Commission for the smaller producers is expected to set a precedent for the way power companies deal with the entire renewables industry, Harkrader said.

The two utility companies want to offer similar rates, but Progress, which currently pays more than Duke, is asking for a greater reduction to achieve price parity.

Progress is asking for cuts between 14 percent and 29 percent for 15-year contracts to buy power from solar, biomass and wind power producers. Duke is asking for cuts between 3 percent and 14 percent. There are more than two dozen rates, based on various factors.

“It is important that the costs paid to qualifying facilities reflect the utilities’ true cost,” said Progress spokesman Mike Hughes. He said utilities must “ensure that retail customers do not have to subsidize energy sources priced above the market.”

Charge more, pay less?

Hughes said there’s nothing hypocritical for the company to ask households to pay more for electricity while it seeks to pay less for electricity bought from solar producers. From an accounting perspective, not all electricity is equal.

The rate increase for retail customers is designed to cover the cost of transmission line upgrades, new power plant construction and other operating expenses.

The cost for electricity bought from green energy producers reflects something much more specific: the avoided cost of not having to build a “peaker” power plant that runs only a few weeks out of the year.

The N.C. Utilities Commission has scheduled a public hearing for Feb. 12. Given the complexity of the case, the commission is not expected to decide until this summer at the earliest.

Progress and Duke are required to use a certain amount of green power, even if they have to pay subsidies, to comply with a 2007 state energy law. The subsidies were intended as a temporary step to jump-start green industries.

North Carolina solar producers also benefit from a 35 percent state tax credit that can be combined with a 30 percent federal tax credit to reduce the material, equipment and installation costs of a project by more than half.

Reasoning raises questions

The utilities’ requests for lower rates are based on two factors. One factor – historically low natural gas prices – is indisputable. The other factor is anything but: Progress and Duke say that building power plants is becoming cheaper because modern plants are more efficient and last longer.

Those claims will be scrutinized by experts hired by renewables producers and by the staff of the N.C. Public Staff, the state’s consumer advocacy agency.

“They’re not actually using the cost of a power plant they’re building,” said Gisele Rankin, a senior lawyer at the Public Staff. “They’re using a hypothetical one that a consultant came up with.”

Progress officials felt the urgency to reduce the rate paid for clean power was so great that they asked the Utilities Commission to approve the rate cut Nov. 1, rather than wait until next year for a decision. Facing charges of blatant unfairness, however, the company backed down and instead agreed to let the current (higher) rate apply to any green energy project proposed by Dec. 1. The Utilities Commission is expected to rule on this proposed deadline soon.

In a Dec. 5 filing to the Utilities Commission, Progress dismissed the green industry’s position as self-serving: “It is unlikely that (alternative energy developers) would fault this proposal if (Progress Energy’s) proposed rates were increasing, and not decreasing.”

In the month leading up to the deadline, about 130 alternative energy producers, most of them solar, filed proposals for new projects representing more than 200 megawatts of power, Hughes said.

There’s no guarantee all will be built, but for now they have locked in at the higher rates.

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