Comments on Senate Bill 3
House Energy and Energy Efficiency Committee
July 17, 2007
Dan Besse
Chairperson Harrison, ladies and gentlemen, thank you for the invitation to appear today and comment on Senate Bill 3.
My name is Dan Besse. I am an attorney and City Council Member in Winston-Salem. At present, I also serve as a member of the N.C. Climate Action Plan Advisory Group, in my role as an elected local official. I am one of North Carolina's representatives on the Energy, Environment, and Natural Resources Policy and Advocacy Committee of the National League of Cities. I chair the stakeholders committee of the Piedmont Triad Early Action Compact, which represents over 30 local governments in the Triad region in designing and implementing a regional strategy for cleaner air. I served for 12 years on the N.C. Environmental Management Commission by appointment of Governor Hunt. I have advised consumer, conservation, and public health groups on matters including energy policy for more than twenty-five years.
Having noted that for background, I should note also that I am speaking for myself only today. I am not a representative for any group before the General Assembly at this time. While I have circulated my comments on the proposals contained in this legislation fairly broadly, my opinions delivered today are my own and not that of any organization.
In sum, I am deeply concerned about the impact of Senate Bill 3 in its current form on electric consumers—residential, commercial, industrial, municipal, and other institutional customers alike. Taken as a whole, the provisions of Senate Bill 3 as they stand before this committee today are likely to result in substantial and entirely avoidable electric cost increases that will hurt our families and our economy.
The central problem lies in the predictable effects of the baseload construction provisions on the planning and construction programs of our electric utilities. These provisions dramatically shift the financial risks of new baseload plant construction, from a shared risk between utility stockholders and public ratepayers, to a risk carried entirely by the public ratepayers.
In doing that, these provisions badly distort the utilities' planning processes. The utilities are given every incentive to overproject baseload needs, and guess high at every demand growth calculation. At the same time, they are effectively encouraged to lowball both the costs of that new construction, and the alternative potential for managing demand through energy efficiency and renewable energy resources.
That is because once a certificate has been issued for a new baseload unit's construction, the utility is virtually guaranteed that the public will pay for every dollar spent on the unit, beginning without delay, and continuing even if the plant is ultimately never completed or used. And, by placing the construction costs for that unit in the utility's rate base immediately, it is earning profits on those costs even during the construction period.
If we have time for me to do so, Chairperson Harrison, I can refer you to the specific language of key provisions which create this imbalanced effect.
We have historic experience with this planning-distortion phenomenon in our state. During the late 1970's and early 1980's, electric demand growth dramatically slowed in our state. At that time, however, North Carolina had one of the most extreme forms of "construction work in progress" financing in the nation, a law which acted to require the Utilities Commission to include CWIP in utilities' rate base upon request in a general rate case.
In 1982, the General Assembly changed that law, requiring the Utilities Commission to instead examine CWIP requests on a case by case basis, and approve its inclusion the rate base only when it is in the public interest to do so and financially needed by the utility for its construction programs. That is the law which remains in effect today. It was only after the passage of this change that certain unneeded units were cancelled.
The provisions of Senate Bill 3 which relate to baseload construction would not only return us to that automatic mandatory inclusion of CWIP in the rate base, but go beyond to an even more extreme form. In particular, Section 7 of the bill, adding new NCGS Sec. 62-110.7, allows a utility to request inclusion in its rate base of the development costs for a new nuclear unit even before it receives any certificate of approval from North Carolina or any other state. If the utility's decision to incur any project planning or development costs is considered reasonable, then the Commission is required to include all such costs in the rate base or have them otherwise paid for by the public. This is an unheard-of and unlimited subsidy by the public for a particular kind of generation, and one without the careful cost controls built into Senate Bill 3 on all energy efficiency and renewable costs. Again, this imbalance dramatically skews the planning process and financial incentives to the utility.
Plants and technologies which have been rejected by the private capital market as too expensive and speculative to constitute a good risk for investors suddenly come back into play.
In the meantime, other provisions in Senate Bill 3 strictly limit what can be spent on energy efficiency and renewable energy development, and further give the Utilities Commission unlimited discretion in postponing or reducing the strong-sounding requirements for a Renewable Energy and Energy Efficiency Portfolio Standard. (See Section 2.(a), new NCGS 62-133.7, subparagraphs (g) and (h).)
As a cumulative result, the financing incentives set up by Senate Bill 3 in its current form practically guarantee that overprojection of baseload plant demand will drive out investment in energy efficiency and renewable energy development. The bill as a whole turns the original intent of this legislative initiative completely on its head.
I consider Senate Bill 3 in its current form to represent a consumer catastrophe in the making.
Please consider this: Estimates of the benefits of a strong REPS, based on reports made to the N.C. Climate Action Plan Advisory Group, indicate that we can save consumers more than $1.8 billion over the next two decades by implementing a REPS that effectively promotes energy efficiency and renewable energy development.
However, the cost of a single additional baseload power plant unit starts at that cost—Duke's current estimate of its proposed Cliffside coal unit—and escalates from there.
What would be the ultimate cost to North Carolina's consumers and economy of a single unnecessary new nuclear unit promoted by this bill's provisions? Four billion dollars? Five billion? Six? Pretty soon, we're talking about real money.
Legislation which distorts the utility planning and financing processes in this fashion will produce adverse impacts on our economy with family-unfriendly and job-killing results, as resources that are needed elsewhere are drained into unnecessary and overpriced baseload plant construction.
I urge the members of this committee to retain jurisdiction of this bill until you can carefully examine and rewrite its presently wildly imbalanced provisions. Thank you for your time and consideration.