Squeaky Clean Energy Podcast Transcription: Episode 112
Expediting OSW Development and Resource Diversification in NC (CPIRP)
Duke Energy’s Carbon Plan (CPIRP) proceedings will continue to have huge impacts on the state of North Carolina for decades to come, defining how quickly our state can transition to renewable energy sources and who will reap the benefits. In a series of regulatory proceedings, NCSEA, along with a variety of interveners, have given detailed testimonies focusing on a range of topics.
Our organization focused on Duke’s proposed use of long lead energy resources, a type of energy that takes a longer time to design and build before generating power for customers. NCSEA’s testimony, as outlined by our guest on this episode of the podcast, is focused on the accelerated development of offshore wind, as the technology has already proved to be quite successful in other regions.
Below is a full transcription of the latest episode of the Squeaky Clean Energy Podcast which discusses these issues in depth. Joining host Matt Abele is Justin Somelofske, NCSEA’s Regulatory Counsel. Justin brings numerous years of clean energy experience to the table working for energy focused non-profits, and is a graduate of Bates College and Vermont Law School. Hear what he has to say below.
Matt Abele
All right, so to start off the conversation, can you help us do a little bit of level setting for our listeners that may not have been following what’s known as the CPIRP or carbon plan integrated resource planning proceedings closely to let them know what this proceeding is and where we currently are in the process?
Justin Somelofske
Thanks Matt. I’ll take you back to the beginning. In 2021, the North Carolina General Assembly and the governor reached a bipartisan agreement to establish the first carbon emission reduction goals for a state in the Southeast as it relates to the electricity sector. This agreement is known as House Bill 951, and it requires Duke Energy or generally utilities with 150,000 customers or more, to reduce their carbon emissions by 70% from 2005 levels by 2030 and to achieve net zero emissions by 2050.
To achieve this goal, the law requires the utilities commissions to develop a plan commonly known as The Carbon Plan, and they need to update it every two years. Carbon plans have been merged with this integrated resource planning docket, and in those proceedings, we, interveners and Duke Energy, help map out the next 15 to 20 years of energy resources to be used and how our electricity grid is going to be powered. So, right now we’ve just entered the phase of prep for the evidentiary hearing. We filed our expert testimony on May 28th, and come July 22nd, we will be presenting and cross-examining Duke’s witnesses before the commission.
Matt Abele
Timeline-wise beyond that, when is when are we expecting to receive a final order from the Utilities Commission that actually authorizes the generation technologies that are currently being debated or on the table right now in these proceedings?
Justin Somelofske
Thanks, Matt. That is an important aspect of the law. HB 951 required that the first carbon plan issue its final order by December 31st, 2022, and then every two years after. So, the commission has adopted the posture that that requires them to issue a final order on the last day of the calendar year of any biannual proceedings. We’re looking at a December 31st, 2024 deadline to receive the final order in this docket. Being that the carbon plan is a big umbrella planning exercise, there will be many other dockets to help facilitate and execute on what’s in this plan. December 31st of this year is when we’re expecting the final order.
Matt Abele
I think you covered it well and in your comments there that we’ve already received the first version of the carbon plan at the end of 2022 and NCSEA has put together some extensive write ups on that order and that proceeding on our blog and on our website, and we’ll make sure to link to those resources in the show notes here so folks can get caught up on what has transpired thus far to date. So, why does an organization like NCSEA have a vested interest in the outcome of a proceeding like this and why intervene?
Justin Somelofske
Thanks again, Matt. Another excellent question. Intervening parties to administrative proceedings before the Commission play a crucial role in ensuring that utilities like Duke Energy are prudently planning for an electricity system that reliably serves its customers at just and reasonable rates. I know I just answered that question by sharing the underlying principles and many of the legal standards that I look for when assessing these proceedings.
Essentially, interveners play an important check on our electric utilities with the intent of ensuring that the customers of Duke Energy, meaning the folks that live in North Carolina and pay their electricity bills to Duke Energy, are equally balanced with the interests of the utility’s shareholders, the folks that may not live in North Carolina but invest in Duke Energy because they view the company as durable and a reliable investment that pays out dividends. So, neither the customers nor the shareholders should be bearing an unreasonable proportion of the utilities business operations and interveners play an appropriate role in striking that balance. Most of that balance is litigated in general rate cases. They are scheduled to happen every three years, while this integrated resource planning exercise happens every two years. The commission will authorize a return on Duke Energy’s capital investments in those rate cases.
Right now, both Duke subsidiaries, Duke Energy Progress and Duke Energy Carolinas, I believe their authorized return on capital investment is just a tick under 10%, but it is these resource planning dockets that will determine what are those capital investments that Duke will be making. Different resources have different price tags. So just as an example, gas plants. You have the capital investments to actually design and build the physical plant, and that includes the engineering schematics, the steel, the copper, and other raw materials to build the physical asset. Then gas plants also require fuel in order to generate electricity and that fuel cost is passed directly on to the customers. Duke does not share those fuel costs with their shareholders and that means over the 30 to 40 years of these gas plants as a generating asset, ratepayers, customers of Duke Energy will be on the hook for the capital investments to build, but they will have an ongoing bill tab to pay back the fuel used to generate electricity.
Compared to another large generating asset like offshore wind, there is the same design and raw materials needed to build the physical plant, but there is no fuel cost associated. We are just looking at capital investments and no ongoing payments for the next 30 years of this generating asset. So, this is really the first step in trying to balance how much customers will actually pay for their electricity and is the first step in ensuring a lower energy bill that helps improve the environment and their health.
Matt Abele
So, I think you’ve really hit on the importance of these proceedings for the everyday ratepayer here in North Carolina, especially as you think about the rate increases that ratepayers have had to bear over the past year and will be bearing over the next couple of years. In fact, North Carolina from 2023 to 2024 saw some of the largest, if not the largest rate increases of any utility in the country. So, a lot of that, as some of our partners have have outlined, is attributed to fuel costs and fuel cost volatility to the point that you were just talking about of passing along those fuel costs to shareholders.
The selection of generation resources as part of these carbon plan proceedings will really dictate how much of that fuel cost ratepayers will have to pay for in the future and how much of that volatility they are going to have to bear as well. You know a lot is on the table here as we look to the future of North Carolina and our electricity grid, but more importantly to money in people’s pockets across the state of North Carolina. So, who are some of the other interveners involved in this proceeding besides NCSEA?
Justin Somelofske
We have statutorily required parties to these proceedings, like the public staff and the attorney general’s office. They help represent the using and consuming public, the customers, and they really serve as the consumer advocate in these proceedings. You have public interest organizations like NCSEA. We also have environmental organizations like the Southern Alliance for Clean Energy, Sierra Club, and Natural Resources Defense Council that NCSEA collaborated with to co-sponsor some additional expert testimonies in both the initial carbon plan and this carbon plan IRP.
Additionally, you have trade associations representing the interest of solar developers. You have commercial and industrial customer groups. You have offshore wind developers intervening in this carbon plan IRP. You know there’s just so many other organizations that have an interest in this proceeding because it’s going to impact the next generation of utility customers. So, you also see the Department of Defense, environmental justice organizations, and numerous cities and municipalities also intervening and providing testimony and comments.
Matt Abele
Thanks for sharing all of those different parties that are intervening. I think you know it highlights the diversity of interests you know are interested in the outcomes of these of these proceedings as a whole from large manufacturing interests and large corporate customers all the way down to the individual ratepayer with the public advocate of public staff. So, lots of groups are represented here, and it’s good to have you know as many folks interested in this as there are.
NCSEA, as a part of its filing, was really narrowed in or focused on long lead resources, and there are a lot of other topics to be focused on and some of those were covered under the joint filing with SCLC and some of those other partners that you had mentioned, but our individual filing was really focused on long lead resources like offshore wind and small modular nuclear reactors. Can you talk a little bit about what Duke had originally proposed related to each of these resources in their supplemental modeling/ filing made towards the end of 2023?
Justin Somelofske
Thanks again, Matt. But before I expand on Duke Energy’s proposals, I also just wanted to mention that I think interveners, particularly public interest organizations like our own, have the most success when they can identify an issue that may be overlooked or go unaddressed and provide detailed scrutiny on that issue. I’m a big believer that interveners have the most success when they can plug in on an issue and help make the big problem small to facilitate the progress our staff and members seek. Accordingly, that is why NCSEA, in the lead up to this carbon plan IRP filing, identified some interesting choices that Duke Energy was making regarding their treatment of certain long lead resources, particularly the treatment of offshore wind and new nuclear as an area we could plug in. Long lead resources, just to add some context, is just a classification of technologies that take a long time to design and build prior to them actually generating electricity and delivering a service to customers. These tend to be more massive projects with large capacity factors that tend to operate for long periods of time.
To tell the story of Duke’s filing, I think I need to break it down into two parts. Before the updated load forecast and after the updated load forecast. Before the updated load forecast, which Duke filed in August of 2023, Duke Energy was relying heavily on new nuclear technologies like small modular reactors to help meet their carbon emission goals, which the company’s preferred portfolio identified to be achieved in 2035. Which is past the statutory timeline, but that’s another story that we can get into elsewhere. The companies were projecting that the first unit of SMRs will come online in the first quarter of 2034 with a second unit in 2035. That is a very ambitious timeline given that there are currently no small modular reactors that are in operation and have succeeded in getting all the necessary federal approvals to license and design a small modular reactor. The closest was NuScale out in the West Coast and that went under last year due to cost overruns and delays.
This is compared to offshore wind, which in Duke’s initial plans was to be selected and developed in some unspecified time in the late 2030s. So, significant delay between a speculative technology like SMRs and offshore wind, which is a mature industry that has been generating electricity across the world for the past 30 years. Just recently the United States is experiencing some offshore wind generation coming online. Every day there’s a new development that’s positive for offshore wind, particularly along the East Coast.
One other aspect of Duke’s initial plans I’d like to highlight is that the companies were requesting significant amounts of money to be authorized for the early development activities of other long lead resources. For example, Duke was requesting an additional $365 million for early development activities of their small modular reactor fleet on top of the $75 million that the commission already authorized in the initial carbon plan proceeding, and they also requested significant amounts of fund for pumped hydro storage that crosses $165 million dollars. So, we’re not talking about insignificant amounts of money here that the company is seeking for early development activities. Because offshore wind was not selected until the late 2030s, there was no early development activities pursued by the companies in their initial filing.
Come November 30th, 2023, Duke Energy noticed parties that they need to do some supplemental modeling and produce a supplemental portfolio to address unforeseen and significant increase in the company’s load forecast. They were projecting an additional four gigawatts of energy demand that needed to be served, and in response, the company accelerated its plans for offshore wind so that the resource could be developed by 2033. But, the company ultimately wanted to push back that commercial operation date to either 2034 or 2035 because they wanted to complete this acquisition request for reacquisition request for information process. The only development funds the companies were requesting for offshore wind for early development activities was $1.4 million dollars to execute that ARFI. All the plans for the long lead resources, including the requested funds, remained mostly the same. There were some marginal changes, but nothing that’s going to ultimately change the reliance on SMRs and the investments they are requesting.
Matt Abele
And while we’re talking about long lead resources here, that supplemental modeling also included a lot of additional resources necessary to cover that increased load forecast, including natural gas as well. We’ve got details on what was proposed by Duke on a new carbon plan webpage that we recently rolled out at NCSEA. Again, we’ll include a link to that as well. So, as part of its own independent filing, NCSEA retained expert witnesses to provide some perspective on long lead resources for our utility’s generation mix moving forward. So, you outlined what Duke had proposed. Where is some pushback from NCSEA and the expert witnesses retained on that proposal, and what our experts shared in in their report?
Justin Somelofske
Thanks, Matt. NCSEA retained Dr. John O’Brien and Philip Moore to opine on Duke’s long lead resource plans. These are both veterans of the nuclear industry. Both got their start there. Dr. O’Brien started at the Brookhaven National Laboratory working on safety and security issues with nuclear fuel prior to becoming a founder of several small utility companies and then serving as a commissioner on the Florida Energy Commission, where he was the chair of the Subcommittee on Climate Change. Mr. Moore is an engineer that spent nearly his entire career consulting and constructing nuclear power plants, including small and advanced reactors, and he has served as the chair of American Nuclear Society President’s Special Committee on Small Modular Reactor Licensing for several presidents in that society.
We really wanted to retain some prominent voices in the nuclear industry as that’s an important perspective to break down: is Duke over relying on this resource? Is Duke being super aggressive and overly ambitious? And with the help of Dr. O’Brien and Mr. Moore, we were able to conduct an apples to apples comparative analysis on Duke’s treatment of long lead resources, focusing in on the offshore wind, and the advanced nuclear technologies like small modular reactors. Overall, their main takeaway is that there was no objective benefit to prioritizing the development of one resource, whether that be offshore wind or SMRs over the other, and that prudent planning requires a certain level of redundancy to ensure that the companies can reliably serve its customers, particularly if the updated load forecast proves accurate.
In other words, what we were saying is because offshore wind has had some challenges and small modular reactors are still a nascent industry that really hasn’t taken off, there’s some risk. So, what we are asking the commission to approve is a plan that develops these two long lead resources in parallel so that if one technology falls through for whatever reason, there is something in its place, so we’re not just falling back on additional units of natural gas generation. That’s what I mean when I say there needs to be redundancy. It is a measure to ensure the reliability and that there’s not going to be a shortfall in electricity generation, which will prove more costly to customers if and when that scenario arises.
Matt Abele
I want to hone in on something really quickly that you just mentioned, which is if the if Duke’s updated load forecast proves to be accurate. Right, there is that risk that what is being projected is an over forecast and obviously from a utility’s perspective, you want to make sure that you are planning for enough generation to meet that demand. But there’s always that risk that you are planning for a lot more demand than may actually come to fruition, especially in an era where there is a lot of economic development activity happening in the Southeast. I’m sure a lot of companies that are considering multiple states at the same time. There could be instances of double counting, for example, of companies that are considering states like both North Carolina and Georgia at the same time. Maybe we miss out on some of those opportunities.
I think there will be a lot of conversation moving forward about that load forecast and how much of that actually comes to fruition. But we’re not here to litigate that on this podcast today. And that is not the focus of NCSEA’s filing at the Utilities Commission. But I just wanted to elevate that as you know something that is particularly important to be thinking about and is not something that is exclusive to North Carolina, but is happening all throughout the Southeast and many of our different states as we see massive you know migration into this part of the country and lots of economic development activity.
So, one item that’s on the table in this proceeding is the need for, as you mentioned earlier, an acquisition request to gather more information about the development of offshore wind in North Carolina. I was originally going to frame this question as whether you feel like this is a necessary step, given that offshore wind is already a proven technology and is now already been deployed just to our North in Virginia. Maybe I’ll reframe that a little bit to ask: is the proposed ARFI or acquisition request for information by Duke, the appropriate structure moving forward for offshore wind and the timeline proposed for that appropriate given that we’ve seen some of these turbines already in the water just to our north. We’ve already got the supply chain of companies that can provide that equipment to be able to proceed with projects moving forward here and in North Carolina and the southeast.
Justin Somelofske
Thanks, Matt. I do agree with your reframing, because I do think the commission and public staff are wielding their statutory obligations responsibly by seeking out as much relevant and accurate information as possible to make an informed decision. At the end of the day, that’s what we really want from the commission, is to make a decision based on data and facts and not just approve what is presented unchallenged. So, one of the biggest critiques of the company’s proposed ARFI is that we do not believe it needs to be as protracted as Duke outlines. The way the company framed it was it was to start after the final order in this carbon plan IRP is issued, which means it won’t kick off until 2025, and then they will provide the outcomes or early conclusions of the ARFI in the subsequent carbon plan filing, which will be you know sometime next summer. Then that will not lead to a final order on the actual ability of offshore wind to be a resource that we can rely on in our planning until the end of 2026 when we go through the whole process of filing new expert testimony, filing additional exhibits, conducting another evidentiary hearing. That is a long process to get information that we believe many of the developers, particularly Avangrid and Total Energies, who are interveners in this case, already have.
At, you know, we’ve sort of touched on this a lot in the last 10 minutes that offshore wind is now generating electricity elsewhere in the United States. Avangrid and Total Energies do have other projects that they have developed or are in development, so they have already worked through a lot of the challenges of siting and sourcing the materials and securing the supply chain they need to execute and build these projects. So, when we view this ARFI, yes, commission, please go forward and get all the information you need to make an informed decision. But on top of that, we need additional structure so that this doesn’t carry on for an indeterminate amount of time, and we get no resolution, no path to market for these resources. Particularly in the near term as we’re racing against the Inflation Reduction Act tax credits, which some start to expire in 2030, particularly the advanced manufacturing credits to get the turbines and the blades and the steel pylons at a lower cost for North Carolina ratepayers. That is the clock we are racing against, and that’s why we don’t want a protracted ARFI.
Ultimately, what we are asking of the Commission is to design an ARFI process with the ultimate goal of developing a detailed procurement schedule with achievable milestones between now and 2032 to facilitate meaningful bilateral negotiations progressing towards an offtake or procurement plan for each wind energy area. The leaseholders already have sorted through these negotiations elsewhere in the United States and have addressed many of the similar issues that Duke and the Commission is looking to address. So, we need to get both these groups in a room and talk to each other. This is an opportunity to have those discussions and to expedite the development of these offshore wind resources.
Matt Abele
NCSEA’s experts are also advocating for the authorization of $75 million in early development costs for offshore wind. And as a quick reminder, as you mentioned a little bit earlier in the conversation, the utilities commission and the first carbon plan proceeding had already authorized $75 million dollars in early development costs for small modular nuclear reactors here in the state. Why are these similar amounts of funds necessary for offshore wind and could they help to expedite the timeline for development?
Justin Somelofske
Thanks, Matt. Totally agree that requesting these funds for the early development activities offshore wind can expedite the procurement. And what is great about this exercise is the activities that need this funding can be done in parallel with whatever the ultimate ARFI and its structure looks like. These geologic surveys and other early development activities are important parts of the construction and operating permits that offshore wind developers need to secure prior to building and developing their offshore wind farm. And these studies are going to determine how many turbines can go into the water, how many miles of transmission is needed, whether you need an offshore wind substation, or you could just go DC cable interconnecting directly to a substation onshore.
Those questions will be answered and be helped answered by the data collection of these early development activities, particularly the geologic surveys of the ocean floor. Since they can be conducted in parallel, we view this as an opportunity for the Commission to get some early preliminary updated information from the developers and Duke Energy through the ARFI and then it could be immediately followed up by the most accurate and specific data. This is all about providing the commission with information and the 75 million we are asking for seems to be a parallel request to what the companies requested for small modular reactors. We thought that was a good baseline. We also just want to leave some room for the developers to ask for the actual costs that they need.
Overall, this is to provide a strong market signal to the developers that North Carolina is interested in this resource. We want to develop it, and we’re going to help facilitate that development.
Matt Abele
Because you mentioned in that last answer, transmission, does Duke or NCSEA in either of their filings address anything around the transmission assets necessary to interconnect these offshore wind facilities into the grid here in the state?
Justin Somelofske
Not specifically. In our expert report developed by Dr. O’Brien and Mr. Moore, we acknowledge that transmission upgrades and new transmission are significant features of interconnecting large quantities of electricity from offshore wind, but our objective in this proceeding was to create a record for the commission to rely on to authorize a path to market for these resources. In framing transmission needs, we identified parallel efforts that NCSEA, the public staff, and others are taking at the local transmission planning processes with the Carolinas Transmission Planning Collaborative and Transmission Advisory Group, where we are seeking studies to be conducted that identify multiple points of interconnection.
Right now, Duke’s plans only has a generic 800 megawatt offshore wind farm being interconnected through New Bern. Given the geographic locations of the wind energy areas, we think there might be some more economic points of interconnection in addition to or in substitute of New Burn. And we’re asking the companies to explore that as well as what other system upgrades will be necessary to accommodate offshore wind at greater megawatts of capacity. Because right now, Duke’s proposed plan is 2.4 gigawatts of electricity from offshore wind turbines. But up till today, the companies have only prepared for an 800 megawatt generic offshore wind resource. So, we’re trying to get additional specificity to interconnect greater volumes of electricity from this technology.
Matt Abele
To that point, to help contextualize for our listeners between the Kitty Hawk Offshore Wind Project and Carolina Long Bay, the two leasing areas within Carolina Long Bay, what is the projected total capacity of those three leasing areas that are available to us and how does that compare to Duke’s proposed 2.4 gigawatts?
Justin Somelofske
That’s a great question, Matt, because right now the 2.4 gigawatts that Duke proposes can only interconnect at least one of those lease areas. The Kitty Hawk South project, the portion of Avangrid’s wind energy areas projected to interconnect into North Carolina, can hold somewhere between 1.6 to 2.4 gigawatts. So right there they can satisfy Duke’s plans in that wind energy area alone.
The Carolina Long Bay could be somewhere around two gigawatts, but Total Energy’s parcel, which they share with a subsidiary of Duke Energy, Synergy, can hold about 1.1 gigawatts. So, the intervening developers in this proceeding already exceed Duke’s 2.4 gigawatts of planned generation from offshore wind, and it comes in somewhere between like 3.6 and 4 gigawatts. So, there are economies of scale that we need to plan for and the easiest way to plan for them this early is through the transmission planning processes.
Matt Abele
All in all, what’s on the table for this proceeding as it relates to offshore wind? Why should listeners be paying attention, especially those who are interested in the future of this technology and the capability that it provides from North Carolina?
Justin Somelofske
Offshore wind is an amazing opportunity for the state of North Carolina. Studies have been done in the past 10 years that identifies North Carolina having the greatest potential for large amounts of offshore wind. Due to our emphasis on public education in the state, the fact that we have a strong manufacturing in state manufacturing industry already in state, North Carolina is primed to be able to so support this industry.
There will be economic development gains, and there will be further creation of jobs if North Carolina is able to develop offshore wind. To get all those benefits, we need the commission to give a positive ruling and to create a path to market that gives confidence that we’ll be able to get these resources online before the Inflation Reduction Act tax credits become conditional and other tax credits expire. So it’s really about trying to create a path to market and send the appropriate signals to not only the developers to complete their projects that they’re already in the middle of working on, but to send a signal to the federal government that North Carolina can also be an appropriate location for additional wind energy areas to be leased. There’s significant benefits and North Carolina only stands to gain if we can create a path to market.
Matt Abele
It’s critical to from a resource diversification perspective that this commission authorizes future build out of offshore wind to hedge against risk of you know repeated incident like we saw with Winter Storm Elliott. Increased resource diversity would have helped us to keep additional generation assets online and potentially mitigate or limit the amount of exposure we had to some of those rolling blackouts a couple of years ago.
At the same time, related to some of our conversations earlier, it’s also hedging against fuel cost volatility. Once you put the steel in the water, you’re no longer paying for fuel costs. So you’re no longer subject to international disputes or supply chain issues. And so that provides a great degree of price certainty for customers moving forward. On top of the added benefits that you te-ed up at the beginning, which was the potential to bring in billions of dollars of investment through the supply chain and thousands of new jobs to North Carolina.
Justin Somelofske
Thank you, Matt. So far, we’ve been talking about the execution, planning, and fuel cost risks, but there are reliability benefits as well. You know, in Duke’s applications, they do acknowledge that offshore wind shows up at our peak needs. So, we are looking at being able to inject offshore wind during winter mornings, which is an area where the sun necessarily isn’t shining and in case of low temperatures again like Winter Storm Elliott offshore wind can be there to help serve that need and reduce rolling blackouts that we experience. Thank you again for identifying that offshore wind does maintain and improve reliability of Duke Energy System.
Matt Abele
Just earlier this week, NCSEA went on a tour with some of our partners up at the coastal Virginia offshore wind farm owned by Dominion Energy. Dominion themselves on that tour stated that had that CVOW project been online during Winter Storm Elliott, ratepayers would have saved $10 million dollars in that one day due to saved fuel costs. So, you know, they were already demonstrating that those projects have pretty significant ratepayer savings and then of course over the lifespan of the projects themselves from the fuel costs aspect of it.
All right. Thanks Justin. I really appreciate you taking the time to detail what NCSEA outlined in the current CPIRP proceedings in your recent filings. I think it’s really helpful to contextualize for listeners what’s going on as it relates to proposed long lead resources, and what’s necessary to expedite development of resources that help to diversify our generation mix moving forward. Justin, thanks again for joining us on this episode of the Squeaky Clean Energy podcast.
Justin Somelofske
Thanks Matt, happy to contribute and really appreciate the opportunity to keep doing this interesting work.
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