Why the Energy Bill Matters

| April 30, 2013

John Hood Headshotby John Hood

In a legislative session featuring proposals to rewrite the tax code, take important next steps on regulatory reform, give parents more school choice, and restructure the state’s transportation and Medicaid programs, Rep. Mike Hager’s idea of putting a time limit on North Carolina’s renewable-energy mandate might seem comparatively inconsequential.

Although the bill is sometimes called a “repeal” of the 2007 mandate that electric utilities buy solar energy and other costly sources, Hager’s legislation was a compromise. It actually allowed the mandate — and thus its effect on our monthly electric bills — to grow over the next few years, not shrink. It also authorized a study commission to examine the issue in greater detail. What the solar industry and allied groups objected to was the provision that by the beginning of the next decade, the public would no longer be compelled to subsidize their industry by paying electricity surcharges.

In other words, a special-interest group is trying to use its political clout to preserve its stream of politically obtained largesse. The matter is really not much more complicated than that, although opponents of Hager’s bill have spent the past several months trying to make it so — and apparently snookering a few conservative lawmakers in the process.

When the energy bill creating the renewable-energy mandate was enacted in 2007, proponents sold it primarily as a means of combating air pollution and global warming. Given that North Carolina’s air-quality trends had been improving for decades and its emissions were too small to influence the world’s climate, however, the legislation was essentially symbolic as an environmental measure back in 2007. Today, with America’s carbon-dioxide emissions declining as the power grid transitions to an abundance of low-cost natural gas, North Carolina’s “blow, glow, and show” mandate is even less connected to reality.

Unless, of course, you happen to be in the business of importing solar panels, installing solar panels, or marketing land to those who install solar panels. To you, the mandate isn’t symbolic at all. It’s cash in your pocket.

Although the cost of solar energy has come down since 2007, so has natural gas. According to the U.S. Energy Information Administration, the full cost per megawatt-hour of electricity produced by a new natural-gas plant is between $66 and $105, depending on the type of plant. The full cost per-megawatt-hour of electricity produced by a new solar-power facility is $144.

The solar industry disputes its lack of cost-competitiveness, arguing that alternative calculations place its product closer to that of its non-mandated rivals. But that’s the point, isn’t it? If North Carolina ratepayers won’t pay more for solar, then there’s no need to mandate its purchase.

Stripped of its political camouflage, the solar-power industry is almost entirely a creation of government policy. While nearly all types of electricity generation benefit from some federal tax or expenditure policy, solar’s reliance on political patronage is way off the charts. The federal subsidy for solar amounts to nearly $800 per megawatt-hour, vs. about $3 for nuclear and less than $1 for natural gas.

Tax credits and grants cover a large chunk of the cost of building a solar farm. Then, in states such as North Carolina, government regulations require utilities to buy the resulting electricity production. Obviously this is a sweet deal for solar companies. What is not so obvious is why the rest of us should be compelled to finance their sweet deal.

I began by discussing consequences. I’m not going to claim that if North Carolina’s electricity mandate becomes permanent, our economy will be devastated. It won’t. We’ll pay higher electric rates than we need to, but they won’t soar. My chief concern, ironically, lies in symbolism.

The mandate has no quantifiable environmental benefits. Knowing this, its defenders resulted to fanciful estimates of job creation and consumer benefit. They used the same models, and even the same terminology, that the Obama administration employed to sell its silly stimulus package. If you truly think that digging a hole near your right foot and piling the dirt near your left foot results in a pile of previously nonexistent dirt, you’ll be easily bamboozled by such economic malpractice.

But conservative lawmakers are supposed to know better. Whose “job years” scheme will they fall for next? That’s my real concern, and why I hope cooler heads will prevail in the coming weeks

John Hood is president of the John Locke Foundation and an NC Spin Panelist

Category: NC SPIN Perspectives - Opinions from NC Leaders & Organizations

Comments (1)

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  1. dj anderson says:

    I’m taking the John Hood argument and turning it around on him to help the poor, struggling economic class. The Democrats should have done it, but did the opposite.

    Before all else, I would like to see relief given every electric customer on the first $50 worth of electricity, paying only a minimum amount for having service and doing away with the flat charge of what, $12 a month now? Make that a $12 minimum. That would help the poor guy, the one who doesn’t even have the money to use air conditioning in the summer and only heats the room he’s in the winter.

    Would Republicans or John Hood support this idea? Why haven’t Democrats already advocated this, and done it in the past when in power, instead of putting more burden on the little lady on social security?

    I don’t care if those who have the money pay more. Let them, but let’s not keep making those who are baring getting by here and now pay for your dream of something better, greener & cleaner, in twenty years.

    I did have a couple of Progress Energy’s GREEN vouchers added to my bill, so I paid $4 a month for each of them, gaining a promise that money would go to wind, solar, hydro- power sources. I don’t do that anymore because I’m paying for it in my bill anyway, and I’m not seeing the fruit quick enough.

    Going further, why not put a surcharge on any home base on the heated/cooled square footage? There are couples, even single people living in 2000 and 3000 square foot homes, heating and cooling every room. They can pay more to get the carbon free energy. They do pay more, but those couples living in a 800 sq ft apartment should pay even less than they do.

    John Hood has his point, but I’m not thinking of the cost to the heavy users that business are, but to the put upon burden of the apartment or trailer renter whose landlord isn’t inclined to invest in a heat pump to get more efficiency.

    We could restructure the utility rates to favor the little user, and we should take off added burdens on the poorer user to push new technology. Utilities are a licensed, regulated monopoly and the state could and should structure the cost structure to minimize the expense on the first 1000 watts or so each month.

    Certainly, a first step would be to change the current fixed monthly basic distribution charge, the customer charge just to be hooked up, and make it a minimum amount to pay based on usage. Every customer pays, what, $12, just to have electricity, and then pays per KW after that, and then the surcharges for varying overheads. The customer who uses a thousand bucks worth of electricity pays the twelve bucks just like the little retired lady sitting under her blanket in the dark using only thirty bucks of electricity but still paying twelve bucks to be hooked up. A minimum charge replacing the flat customer charge would ease her burden, and yes, raise my and your bills a bit, but it would be fair, and more fair that the current abuses, of which this flat customer charge is just one. Think about it, please.