Utilities commissioner warns against ‘throwing good money after bad’

Few of us would meet our transportation needs by buying seven substandard cars and hoping at least one works properly at all times.

We prefer a dependable vehicle. When we need to replace that vehicle in the future, we want another reliable option.

But a member of the North Carolina Utilities Commission used the seven-car analogy recently while grilling Duke Energy executives. He questioned their plans for incorporating solar projects into the state’s mix of energy sources.

Those plans will affect power bills across much of the state.

“I’m struck that what we seem to be doing here is throwing a lot of good money after bad,” said Donald van der Vaart during a March 9 Utilities Commission meeting. Van der Vaart joined the commission last summer. He served as state environmental secretary in Republican Gov. Pat McCrory’s administration.

“I’m reminded of an analogy that a former Duke executive gave one time,” van der Vaart said during the March meeting. “I’ve got two cars in my garage. One works all the time. It might be paid for. I might have to put [in] a little more oil and do a little more maintenance, but it runs every time I want it to run.”

“I’ve got another car. It only runs sometimes,” van der Vaart continued. “Instead of saving my money to buy a third car that runs 99% capacity factor, that’s clean — we’ve got tons of fuel for it — instead, what it sounds like you’re doing is buying seven cars of this intermediate one so that hopefully one of them will go when you can.”

“You’ll distribute them around the state,” van der Vaart said. “Maybe there won’t be some clouds one day. You’ll go over there, and you’ll be able to drive it. At night, you develop a hill system where you run it uphill at night so that it will run back downhill. … You might use that to charge one of the other seven cars. Your driveway now, instead of going one way, you’ve got a two-way driveway. The lanes in your roads are now seven lanes to accommodate surges.”

“A lot of this is purely due to the addition of solar,” he concluded. Plus “the solar car — when it does drive — it drives too fast.”

When a Duke expert disagreed, van der Vaart fired back. “If you didn’t add any solar going forward, do you have the cost of how many of these projects you’d have to do?” he asked. “I’m just trying to make sure that that which is due purely to solar is then attributed to those solar resources instead of socializing them across the system. That’s my main concern.”

“It does seem like we’re going to [an] amazing extent to try to accommodate an inferior technology at a great cost,” van der Vaart argued.

The car analogy resurfaced as van der Vaart discussed Duke’s “return on equity.” That’s the profit regulated utility companies can earn on capital investments.

“If I kept driving the car that’s old, but I have to put more fuel in it, more oil in it, you’re not going to make any ROE on it,” he said. “But if I buy seven cars, you’re going to make ROE on all those cars and all the hills you’re building.”

“I’m just concerned that we’re not getting sort of a fair shake from a ratepayer standpoint,” van der Vaart added. Even ideas Duke presented as cost-saving measures faced a skeptical response. These are “savings that you wouldn’t have to incur … if you drove that first car.”

“You’re … getting money for buying the seven cars, and then you’re getting money for all the fixes,” he said. “Then you’re telling us that some of those fixes are going to avoid some of the mishaps that you got when you got those seven cars, and you ought to be happy because those are savings to the customer.”

“I am concerned that a lot of this is just being added because of a problem that maybe we ought to just cut loose,” van der Vaart concluded. He suggested sticking with traditional power sources — driving the old car, in his analogy — “until we get nuclear online.”

Van der Vaart casts just one vote on the five-member Utilities Commission. He’s registered solitary dissents in multiple commission votes on new solar projects approved for North Carolina.

Yet his concerns are worth taking seriously. They could affect electric ratepayers’ bills for years.

Mitch Kokai is senior political analyst for the John Locke Foundation.