Senate Bill 261 (SB261), “Energy Security and Affordability Act,” was filed by Senate President Pro Tem Phil Berger and Sens. Paul Newton and Lisa Barnes on March 10 and passed the Senate on March 13. The House then sent the bill to the House Rules Committee; it is unclear when a House committee may take it up or if SB261 will be assigned to more committees.
SB261 would allow for rate increases outside of the normal ratemaking process and eliminate the interim requirement set in House Bill 951 (HB951), “Energy Solutions for North Carolina,” which was passed with bipartisan support in 2021.
Impact on Electricity Rates and Electric Customers
SB261 would allow Duke Energy to increase rates outside of the normal ratemaking process at the NC Utilities Commission (NCUC) to pay for construction costs for facilities that are not yet operational — also known as “construction work in progress” (CWIP) — a potentially big cost to ratepayers. SB261 would amend how rates are fixed by expanding CWIP and allowing requests for rate increases for CWIP more often.
Similar CWIP provisions in other states have cost ratepayers millions — and in some cases, billions — of dollars without the projects ever coming online. In South Carolina, CWIP led to ratepayers being on the hook for $9 billion for the construction of a nuclear facility that was never completed due to higher-than-predicted 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) and utility expenditures that were reasonable and prudent. CWIP is currently only included in the rates in limited circumstances, like when the NCUC determines that the inclusion of certain construction costs is “in the public interest and necessary to the financial stability of the utility.”
SB261 would expand CWIP. SB261 would allow baseload electric generating facilities that receive a certificate of public convenience and necessity (CPCN) the opportunity to seek an increase in rates outside of the normal ratemaking processes if (1) the NCUC determines there is an overall cost-savings for customers over the life of the generating facility and (2) the facility was subject to annual review that determined the expenditures were reasonably and prudently incurred. This would shift more risks onto ratepayers to cover the ongoing costs of designing, developing, and constructing technologies, such as Advanced Nuclear Reactors, that historically have NOT been deployed on budget and on time in the U.S. SB261 would mean that ratepayers may be responsible for financing large energy projects that would be unfinanceable in the marketplace because of the high risk. SB261 would unreasonably expand the purpose of CWIP by subsidizing the development of technologies that are not currently used and useful through customer rates.
The proposed language does not include adequate ratepayer protections. It does not implement limits for how many times and how much a utility can seek to increase its costs and estimates for CWIP through these ongoing review processes. SB261 could incentivize a utility to prematurely seek a CPCN for a baseload electric generating facility before it is capable of providing accurate estimates for construction costs. This bill would make it easier for utilities to seek higher rates while revising proposed construction plans. Customers could see high rate increases every year while unfairly taking on more of the risk of developing the utility’s assets.
Another issue with SB261 is it doesn’t do anything to address volatile fuel costs, a primary driver of residential rate increases since 2017 in Duke Energy’s North Carolina territories. A 2024 EQ Research report found that increases in fuel costs account for 67% of residential rate increases in the Duke Energy Carolinas territory and 46% in the Duke Energy Progress territory.
Impact on Progress Toward HB951 Interim Requirement
HB951 requires the NCUC to take “all reasonable steps” to achieve 70% carbon emissions reductions from 2005 levels by 2030 and achieve carbon neutrality by 2050. HB951 was designed to help reduce cost burdens on ratepayers and diversify our state’s energy mix for improved reliability and resilience.
HB951 is drafted with sufficient exceptions for the NCUC to interpret the law to allow flexibility with the interim requirement. For example, the NCUC already exercised its discretion to waive the requirement that each carbon plan filed before 2030 include at least one resource portfolio that achieves a 70% reduction from 2005 carbon dioxide emission levels by 2030. The NCUC delayed compliance and is allowing the interim requirement to be achieved by the “earliest possible date.”
The interim requirement is important as it ensures Duke Energy is not setting itself up for failure and is appropriately planning for a resilient and cost-effective electric generation mix by 2050. Utility energy resource modeling does not project far enough out to capture 2050, so an interim requirement is necessary to monitor progress and address uncertainty in modeling and planning.
As experts testified in the 2024 carbon plan hearing, the further out into the future the modeling looks, the more uncertain inputs become, from overall load to the availability of technologies to the price of inputs. Utilities traditionally deal with this uncertainty in the 10–15-year timeframe. Having an interim requirement allows the utility to plan in a way that ensures they stay on target to meet the long-term requirements.
HB951 is driving long-term savings by diversifying investments in clean energy, helping control costs, and avoiding more costly, risky technologies.
Overall, adopting the CWIP provision while simultaneously removing the interim reduction requirement effectively incentivizes poor system planning by Duke.
“SB261 is a giveaway to one technology that transfers significant risk and cost to ratepayers,” said NCSEA Executive Director Matt Abele. “This bill could lead to unacceptable financial cost to North Carolinians who can no longer accept out-of-control rate increase.”
Want to get involved? Urge your House Representative to protect you and other North Carolina ratepayers from higher energy bills by saying no to SB261. Click this link to contact your representative via email.