North Carolina orders Duke Energy to evaluate coal retirements

Coal retirement evaluations, carbon dioxide reduction plans, and evaluation of all - yes, all - resources are now firmly required by the North Carolina Utilities Commission. Duke Energy has until November to meet certain requirements, with the remainder being filed in 2020.

John D. Wilson | August 28, 2019 | Coal, Energy Policy, North Carolina, Solar

On October 19, 2018, Duke Energy imploded the Buck Steam Station, one of several coal-fired power plants that have been retired over the past decade. [click picture to watch video] The North Carolina Utilities Commission has just ordered Duke Energy to closely evaluate the potential to retire more coal-fired power plants.
The North Carolina Utility Commission has ordered Duke Energy to evaluate the potential to retire each and every one of its coal plants in the state. This is a huge victory for everyone who has advocated for clean energy in the Carolinas. While it will take more proceedings to see what steps Duke Energy will actually take, this is a huge turning point and could affect other utilities in the Southeast.

For over a decade, SACE has worked closely with our attorneys at the Southern Environmental Law Center and allies from a number of organizations who have joined us from year to year, particularly Natural Resources Defense Council and the Sierra Club. Each time, we have shared evidence that Duke Energy’s Integrated Resource Plan – which lays out its plans to acquire and retire power plants – was not cost-effective. In recent years, the Commission has given perfunctory consideration to our evidence, and essentially accepted the utility’s integrated resource plans. This year, the Commission has acted, showing it will review utility plans with a more critical eye.

The rulings affect Duke Energy Carolinas (DEC) and Duke Energy Progress (DEP). Although the jurisdiction of the Commission is limited to North Carolina, the utilities file the same plans in South Carolina, so the impact will be felt in both states. Below, I summarize the most impactful issues and quote extensively from the full order. The Commission’s order speaks well for itself, but I will add a bit of commentary, explaining how the order has the potential to save customers money as well as moving towards a cleaner energy mix.

Coal Retirements

“To address the issue of economic retirement of aging coal plants, in the 2020 IRPs DEC and DEP shall include an analysis that removes any assumption that their coal-fired generating units will remain in the resource portfolio until they are fully depreciated. Instead, the utilities shall model the continued operation of these plants under least cost principles, including by way of competition with alternative new resources. In this exercise the full costs of disposal of coal combustion wastes shall be included in making any comparison with alternative resources. If such analysis concludes that continued operation of the utilities’ existing coal-fired units until they are fully depreciated is the least cost resource alternative, then the utilities 2020 IRPs shall separately model an alternative scenario premised on advanced retirement of one or more of such units and shall include in that alternative scenario an analysis of the difference in cost from the base case and preferred case scenarios.”

We submitted a report by the Applied Economics Clinic that showed how Duke Energy hard-wired the projected lifespans of their existing coal units. Duke Energy’s plans showed that their coal units would serve as “peaking” plants, operating only occasionally at a very high average cost.  Based on the Commission’s order and my interpretation of the independent studies that have been completed, Duke Energy is very likely to advance the retirement date of several plants, resulting in a lower cost plan that will benefit customers.

The Commission’s additional requirement is significant. By requiring Duke Energy to study advanced retirement of coal plants, even those they claim are cost-effective, we will have the opportunity to see how much (or how little) it would cost to advance retirement of additional units – perhaps the entire fleet.

Carbon Dioxide Reduction Plans

The Commission requires DEC and DEP to submit updated modeling by November 4th describing their “most current strategic plans to reduce carbon dioxide (CO2) emissions, including:

(a) The implementation plan … that results in the attainment of DEC’s and DEP’s most current goals for reductions in CO2 emissions.

(b) Modelling of the carbon reduction goals in the draft Clean Energy Plan released … by the North Carolina Department of Environmental Quality and Duke’s current carbon reduction plan. The modelling should not only show the resource portfolio needed to achieve these goals but should also show any cost differentials (increases or savings) from the base case and the preferred case. In modelling cost differentials, the plans should include anticipated costs attributable to disposal of coal wastes from ongoing and continued operation of coal-fired plants and anticipated cost savings attributable to earlier retirement of such plants.

(c) A comparison of DEC’s and DEP’s most current plans for CO2 emission reductions to the Governor’s Executive Order No. 80 which states that ‘The State of North Carolina will strive to accomplish the following by 2025: a. Reduce statewide greenhouse gas emissions
to 40% below 2005 levels.’

This is a huge step forward for Governor Cooper’s Executive Order No. 80. Compelling Duke Energy to submit quality modeling of plans to meet the goals set out in his order and the draft Clean Energy Plan will demonstrate what is needed to take serious action on climate in the Carolinas.

Consideration of All Resources

The Commission requires that Duke Energy submit additional examinations and explanations of its analysis of battery storage by November 4th, and that their 2020 IRPs “explicitly include and demonstrate assessments of the benefits of purchased power solicitations, alternative supply side resources, potential DSM/EE programs, and a comprehensive set of potential resource options and combinations of resource options … including:

(a) A detailed discussion and work plan for how Duke plans to address the 1,200 MW of expiring purchased power contracts …

(b) A discussion of the following statement [from the Applied Economics Clinic report submitted by our organizations]: ‘The Companies’ analysis of their capacity and energy needs focuses on new resource selection while failing to evaluate other possible futures for existing
resources. As part of the development of the IRPs, the Companies conducted a quantitative analysis of the resource options available to meet customers’ future energy needs. This analysis intended to produce a base case through a least cost analysis where each company’s system was optimized independently. However, the modeling exercise fails to consider whether existing resources can be cost effectively replaced with new resources. Therefore, Duke has not performed a least-cost analysis to design its recommended plans.’

(d) A stand-alone analysis of the cost effectiveness of a substantial  increase in EE [energy efficiency] and DSM [demand-side management] …

(e) In 2009, … the Commission … reiterated the importance of Rule R8-60(d), which requires that the utilities ‘assess on an ongoing basis the potential benefits of soliciting proposals from wholesale power suppliers and power marketers.Provide a discussion of the advantages and disadvantages of periodically issuing ‘all resources‘ RFPs in order to evaluate least cost resources (both existing and new) needed to serve load.

This represents another major change. What this means is that the Commission expects Duke Energy to submit a resource plan that comprehensively evaluates the options available to it, and to look well beyond its own business model for solutions. If the best plan for North Carolina means a shakeup at Duke Energy, then Duke Energy needs to start shaking!

Other Issues: Load Forecast and Reserve Margin

While the Commission’s decisions on Duke Energy’s load forecast and reserve margin are fairly wonky, they are also significant. Duke Energy’s load forecast depends on questionable assumptions that underpin its claim that winter peak demand is the main driver for future power generation needs. Also it has been using this load forecast and other assumptions to suggest that it needs extra reserve power generation capacity, and that that reserve capacity needs to be gas-fueled for the winter. The Commission’s requirements on these issues extend for over two pages, and include numerous specific references to issues that Duke glossed over or would not explain in its filings, as well as a reference to a report to FERC by one of the consultants Duke Energy used that is somewhat at odds with these issues.

These technical issues put solar power at a disadvantage. While Duke Energy has raised some legitimate issues, it has marred its own analysis by putting a thumb on the scale. When these issues are sorted out, it is our expectation that solar power will be shown to be an even more promising resource, worthy of continued investment.

While these two issues are particularly wonky, I am personally thrilled that they are getting the attention that they deserve. I am gratified that the Commission took notice of their importance and is directing Duke Energy to address these problems.

John D. Wilson
For more than a decade, John has directed SACE’s research activities and led SACE’s utility reform campaigns. He often represents SACE in formal or informal stakeholder engagement with utilities, and…
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