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Do Ratepayers Exist to Serve Utilities? Or the Other Way Around?

image credit: Web Picture of Fort Bragg
Diane Cherry's picture
Principal Diane Cherry Consulting, LLC

Diane Cherry is a woman owned small business providing clean energy consulting services for local government, clean energy companies, non-profits and educational institutions. Her projects and...

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Like most of the Southeast, North Carolina has a vertically integrated electric system in which government regulated monopolies own most power production and delivery and essentially receive a guaranteed rate of return. The state is also home to large energy ratepayers including agriculture, technology companies, manufacturing plants, and the United States military. In each of these industries, operations run around the clock and energy is one of their largest costs – if not the largest.

Most of these companies and organizations have adopted increasingly stringent and ambitious policies for greater reliability, affordability, and pollution reduction. For example, the Department of Defense has required an expansion of on-site generation for carbon pollution-free electricity at military bases and installations. 

Onsite renewable energy generation is something that large energy consumers across America require when deciding where to locate or expand operations. So far, the government regulated monopoly model in the Carolinas has prevented major employers from having reliable, low cost energy they can control. This leads to a fundamental question for large energy users: Should ratepayers who are not getting what they need (i.e., onsite renewable energy generation that they control) be forced to be the ‘customers’ of government regulated monopolies? Or should utilities, which receive massive state and federal benefits, focus more on effective transmission and helping employers get what they need at a reasonable price? It’s clear from market trends that customers want to be in the driver’s seat, and having energy choice provides that autonomy. If North Carolina can’t meet employers’ needs, the state’s jobs and tax base will pay the consequences.

Fort Bragg as One Example

In the fall of 2021, Sunstone Energy worked with Ft. Bragg to file Docket SP-100 Sub 35, which would allow the company to sell solar energy to the North Carolina-based Army military base. The Army has been trying to complete this project for over seven years. As one of the largest military installations in the world—54,000 military personnel located over 250 miles in Eastern North Carolina—Ft. Bragg needs control over its own power supply. The base, together with Sunstone Energy, hopes to generate solar energy for an Army partner that owns and controls the on-base service member housing. In the recent hearing (January 6th 2022), Fort Bragg testified that “the project is emblematic of the Army’s approach to what it believes is its sovereign authority on the base”. Duke Energy’s excuse for thwarting Ft. Bragg’s effort is that this “is a third party sale of electricity”.

Even before President Ronald Reagan fought to reduce the costs of government, Americans understood that federal bureaucracies shouldn’t own and run every single kind of business where competitive markets existed. It is unprecedented to expect the U.S. Army to have to own all of its own power generation and housing in order to get the energy security it needs.

Meanwhile, similar projects have been able to go forward within other Army installations in Louisiana and Kansas – which are vertically integrated just like North Carolina. In North Carolina, Ft. Bragg and Sunstone Energy argue that Ft. Bragg is a federal entity and therefore is not subject to state law; Sunstone Energy should be able to enter an energy service agreement with Bragg Communities to provide solar and energy services to the privatized military housing company managed by BCL.

As recent as this week, the U.S. Department of Defense and the General Services Administration have announced a Request for Information (RFI) to gather data on supplying carbon free electricity for the federal government.  This is an important step in changing how the U.S. government buys and manages electricity and another move for military bases to manage their own electricity generation.

What Ft. Bragg Example Shows

The military did not take advantage of Duke Energy’s Green Source Advantage program under NC House Bill 589 because of the large transaction costs associated with the program (all 100 MW were left unused). Outside of the green source allocations set aside for the military and the UNC system by the NC General Assembly in H 589, it doesn’t appear that a single private sector company has been able to take advantage of the green source rider. After cutting a settlement deal with Walmart, Duke Energy pursued green source rules that make the program uneconomical and unusable for large buyers.

Base security is an essential reason for Fort Bragg to site energy production within its borders. If an extreme weather event or terrorist attack takes down the Duke Energy grid, military installations need to be able to generate their own energy on a moment’s notice. These concerns aren’t so different from those of North Carolina businesses that cannot afford to have significant outages when the grid fails. 

On the heels of the N.C. Utilities Commission developing a state carbon plan under NC HB 951, CCEBA hopes that large energy consumers will be given flexible, cost competitive opportunities to meet their needs as employers – while also contributing to the resilience of the overall grid. 

Competitive energy markets offer customers savings, budget certainty (locking in prices at a fixed rate), clean energy options, and control. And who doesn’t want to have control of their own business? 

 

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Matt Chester's picture
Matt Chester on Feb 4, 2022

I'm curious what the international view of this would be-- is this an area where the U.S. is unique?

Diane Cherry's picture
Diane Cherry on Feb 6, 2022

Yes it is unique to the US and in particular the Southeast. More and more large energy consumers are pushing back on the monopolistic structure we have here and this is just one more example (the military).

Ed Reid's picture
Ed Reid on Feb 7, 2022

The US federal government declared utilities to be "natural monopolies" subject to both state and federal regulation. Utilities are "guaranteed" an opportunity to earn a regulated rate of return on net physical plant in service. If regulators require the offer of services which cannot earn the regulated return on investment, other services must be permitted to earn a higher rate of return to compensate. State regulators accomplish this result in a variety of different ways.

 

I do not understand: "If an extreme weather event or terrorist attack takes down the Duke Energy grid, military installations need to be able to generate their own energy on a moment’s notice." If the military intends to use renewable electricity generated onsite, that energy generation is controlled by the weather. If the bases contract to store renewable electricity generated onsite, that electricity can be distributed "on a moment's notice" and electricity generated contemporaneously can also be distributed or used to recharge storage. The type of storage required to support the base grid through a long utility grid outage is not currently available. Also, base onsite generation must have the capacity to meet the contemporaneous demand of the base grid and to recharge depleted storage capacity.

Diane Cherry's picture
Diane Cherry on Feb 8, 2022

I understand the natural monopoly argument; my article is meant to make you think about the implications of why this isn't working for some large energy users.

 

I talk with military bases in NC and the Southeast all the time. The problem is that they want to own the generation onsite but they can't in states where third party sales of electricity is illegal. Dealing with a utility makes it immeasurably harder given the military's business. Large scale microgrids on the base controlled by the base is one way around the problem. Sure weather can take anything out, but allowing the base to own and control their own energy use makes it much easier.

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