Former NC Sen. Paul Newton (R – Cabarrus), who resigned from the General Assembly in March, led the charge for Senate Bill 261, “Energy Security and Affordability Act,” (SB261). The bill would allow Duke Energy to increase base rates outside of the normal ratemaking process before the NC Utilities Commission (NCUC) when it wants to build new gas or nuclear power plants by expanding provisions governing construction work in progress (CWIP). SB261 would also eliminate North Carolina’s interim carbon emissions reduction requirement date of 2030 set in House Bill 951 (HB951), which was passed with bipartisan support after extensive negotiations in 2021. NCSEA opposes SB261. The Senate passed the bill with a vote of 31-12 and sent it to the House, where it sat for months without action. Senate leadership also included the provisions of SB261 in its budget bill (SB257), but the House did not keep the measure in its version of the budget. A conference committee continues to negotiate a final budget, which could include aspects of either chamber’s budget proposal.
Unfortunately, in June, SB261 was taken up by the House in the form of a new bill: Senate Bill 266 “The Power Bill Reduction Act” (SB266). Previously focused on building code rule changes related to Hurricane Helene, SB266 was stripped of its original language and replaced with an updated version of SB261, plus 24 additional pages of proposed new energy policy. This process is known in legislative parlance as “gut and amend.” Duke Energy, the Carolina Industrial Group for Fair Utility Rates (CIGFUR), and the NC Retail Merchants Association agreed on this lengthier version of the bill. The new version keeps language from SB261 to eliminate the 2030 interim carbon emissions reduction requirement and still includes an expansion of CWIP but narrows the CWIP language to only apply to construction financing costs. New SB266 sections modify fuel cost recovery, performance-based regulation, multiyear rate plans, and coal plant retirement securitization.
The House Energy and Public Utilities Committee debated SB266 on June 5. Reps. Maria Cervania (D – Wake) and Pricey Harrison (D – Guilford) raised objections to the bill, focusing on the lack of information shared by proponents about ratepayer impacts and consumer protections. The committee approved SB266 with a divided vote. Next, the bill was approved by the House Rules Committee, then the House approved SB266 with a vote of 75-36. The Senate voted to concur with the House changes in SB266, and the bill was sent to Gov. Josh Stein to either sign, veto, or let the bill become law without his signature after ten days.
Read more details on the content of SB266 and what it may mean for North Carolina’s energy future and your power bill:
Section 1: Eliminate the interim date for carbon reduction by certain electric public utilities
This section of the bill would eliminate the 2030 interim carbon emissions reduction requirement in N.C. General Statute § 62-110.9, known as HB951, which was passed in 2021. Current law requires the NCUC to take all reasonable steps to achieve a 70% reduction in emissions of carbon dioxide (CO2) in the state from Duke Energy from 2005 levels by 2030 and carbon neutrality by 2050. SB266 would eliminate the interim carbon emissions reduction mandate of 70% from 2005 levels by 2030.
However, HB951 already contains sufficient exceptions for the NCUC to allow flexibility with the interim target. The NCUC recently exercised its discretion to waive the requirement that each Carbon Plan/Integrated Resources Plan (CPIRP) filed before 2030 include at least one resource portfolio that achieves the 70% reduction target. In the 2024 CPIRP Final Order, on pages 84-85, the NCUC delayed compliance with the interim target of 70% emission reductions beyond 2030 and directed Duke Energy “to pursue ‘all reasonable steps’ to achieve the Interim Target by the earliest possible date.” This means that the NCUC will no longer require Duke Energy to propose a plan that meets the 2030 interim requirement.
HB951 has resulted in economic benefits for North Carolinians, including deploying additional reliable energy resources with stable prices, business investments in the state, and new market opportunities. Maintaining the bipartisan law set by the NC General Assembly is imperative to ensure that Duke Energy examines all cost-effective energy resources that are commercially available to keep monthly electric bills affordable for North Carolina’s residents and businesses. A new study from NC State University shows removing the interim target set forth in HB951 “could cost ratepayers up to $23 billion in added fuel expenses through 2050.”
Section 2: Modify construction work in progress (CWIP) for baseload electric generating facilities
SB266 would allow Duke Energy to increase electric rates outside of the normal ratemaking process at the NCUC and opens the door to further incentivize substantial utility investments in energy technologies that may never come online. This presents a potentially significant financial burden on ratepayers who will primarily bear the costs and risks of constructing these technologies at a time when North Carolina is already experiencing some of the highest electricity rate increases in the country.
CWIP is a regulatory mechanism to record the costs of developing and building new baseload generating facilities (such as natural gas or nuclear power plants) and determines how the utility recovers those costs. Typically, a utility’s rate base includes the fair value of a utility’s property that is used and useful (i.e., in operation and benefiting customers), or to be used and useful within a reasonable time, and utility expenditures that were reasonable and prudent. CWIP is currently only included in the utility’s rate base if the CNCUC determines that the inclusion of certain construction costs is “in the public interest and necessary to the financial stability of the utility.” Construction costs incurred by a utility for baseload electric generation facilities may be included in the rate base following the conclusion of the utility’s next general rate case, which normally occurs every three years. SB266 would amend existing CWIP provisions to allow utilities to move the financing costs associated with constructing new baseload generating facilities into their rate base annually, subject to certain conditions. This change would make it highly likely that the financing costs for planned construction would be collected from ratepayers even if the facility is never built.
This change in law would shifts even more risks onto ratepayers, and away from the utility and its shareholders, to cover the costs of constructing technologies that may be speculative (like small modular nuclear reactors) or have been subject to significant cost overruns throughout their development cycle (like the AP-1000 nuclear reactors deployed in Georgia). SB266 expands the scope of CWIP and may result in ratepayer subsidization of technologies that are not currently used and useful through customer rates.
Other states in the Southeast have already learned this lesson the hard way, while ratepayers paid the price. Similar CWIP provisions in South Carolina led to ratepayers being on the hook for $9 billion in construction costs for a nuclear facility that was never completed due to higher-than-anticipated costs. North Carolina has already experienced some of the highest rate increases in the country over the past year, and approving another mechanism for the utility to further collect from ratepayers outside of the normal ratemaking process could exacerbate these rate hikes.
Section 3: Fuel cost recovery modifications
SB266 will do nothing to address volatile fuel and fuel-related costs, a primary driver of residential rate increases since 2017 in Duke Energy’s North Carolina territory. A 2024 EQ Research report found that increases in fuel costs account for 68% of the residential rate increases in the Duke Energy Carolinas service territory and 46% of the residential rate increases in the Duke Energy Progress service territory.
Rather than identifying a solution to reduce power bills, SB266 would shift certain fuel and fuel-related costs from commercial and industrial customers onto residential customers. SB266 represents an unreasonable cross-subsidy of large businesses’ power bills and an unfair allocation of energy costs onto residential customers. Multiple analyses have confirmed that this section of the bill changes the way purchased power costs are allocated, including this analysis by EQ Research.
Section 4: Performance-based regulation changes
This section of SB266 creates an exception to the $500 million cap on new generation plants that can be included in a multiyear rate plan (MYRP). The exception would allow Duke Energy to include the costs of new natural gas plants in multiyear rate plans, even if they cost more than $500 million. The provision that SB266 proposes to alter was enacted to protect ratepayers and prevent significant rate increases while implementing an MYRP. This change would make it easier for Duke Energy to seek approval from the NCUC for expensive generation options by removing ratepayer protection.
Section 5: Codify securitization for costs to retire coal plants
Securitization is a helpful financing tool that can help ratepayers save money and was previously authorized to reduce the cost burden of retiring outdated coal plants. This section codifies certain NCUC’s rules for securitization and increases the potential amount eligible for securitization of retiring coal plants from 50% to 100%.