Edutor’s note: The N.C. General Assembly is scheduled to begin debate on House Bill 298, which would repeal the state’s Renewable Energy and Energy Efficiency Portfolio Standard. WRALtechWire reached out to both sides of the issue to discuss the bill. The law should be changed, says the John Locke Foundation.

Jon Sanders, director of regulatory studies at the John Locke Foundation, writes:

A bill currently before the state House, H.B. 298, introduced by Rep. Mike Hager, would effectively cap North Carolina’s renewable energy portfolio standards — a state mandate that requires electric utilities to provide 7.5 percent of their power from renewable energy sources, including especially wind and solar, that are far more expensive than conventional sources. The John Locke Foundation has long argued that the mandate, established in 2007 under SB 3, would raise electricity rates and harm the state’s economy through net losses in jobs, investment, GDP, and disposable income.

Though 30 states and the District of Columbia have RPS mandates, North Carolina is the only state in the Southeast to have one. Strangely, state lawmakers imposed ours the very same year in which the North Carolina Utilities Commission had joined with peers in other Southeastern states to urge Congress to reject a federal RPS. Their reason? Because the effect of the federal RPS would be this: “our retail electricity consumers will end up paying higher electricity prices, with nothing to show for it.”

Instead, North Carolina imposed an RPS mandate on itself, and retail electricity consumers are paying higher electricity prices with little to show for it. The past two years have seen consecutive double-digit residential rate hike requests from Duke Energy. Duke obtained a 7.2 percent residential rate boost from the NCUC last year after requesting 17 percent; this year Duke is seeking an increase in residential rates by 11.7 percent, and industry analysts expect another rate-increase request from Duke later this year specifically to address renewable energy costs.

Duke subsidiary Progress Energy’s pending rate hike, still under discussion with the NCUC (for residential rates it was originally 14.2 percent), will be its first in over a quarter century. Progress seeks the higher rates to help make the transition to clean energy, i.e., to afford the RPS mandate.

Hiking rates works as a highly regressive tax on poor households. Electricity is a basic household necessity, not a luxury item. Consumers have no choice in who provides them electricity. The main issue to captive ratepayers is what it costs them to turn on the lights. That cost has been eating increasingly larger portions of their budgets. For ratepayers earning $30,000 a year or less, electricity consumes from one-tenth to as much as one-third of their after-tax income.

Leaving consumers less to spend on other goods and services is a surefire way to put the brakes on a state’s economy. Economists at the Beacon Hill Institute at Suffolk University in Massachusetts estimated that by 2012, our RPS mandate cost North Carolinians almost $50 million in real disposable income and 3,275 jobs, while causing a loss of nearly $135 million in real state GDP.

Other states are waking up to the overarching costs of their RPS mandates. Studies in several states are finding their RPS requirements to be net negatives on their economies (see table). Bills are currently pending in a dozen RPS states that would either repeal, lessen, or at least modify the mandates. (See chart accompanying this post.)


The fight over North Carolina’s RPS has brought heavy lobbying from the renewable industry. Their case in favor of keeping the expensive mandate is to point to an industry study by RTI International finding of “21,163 job years created or retained” and argue that state subsidies drive investment in renewable energy sources. That they need to use verbal chicanery and ignore opportunity costs shows how poor the case for keeping the mandate is.

It is a useless endeavor to try to sort out jobs created from “job years created or retained” — rhetorical tools invented by the Obama administration to inflate the stimulus’ paltry returns. The study cuts some of the fog by saying 4,233 jobs a year, but even that doesn’t account for permanent jobs vs. temporary construction work, let alone how many jobs were merely “retained.”

Of course the mandate and state incentives have prompted investment in renewable energy in North Carolina. The question is whether that change is a net positive. Resources are scarce and have alternative uses. Diverting them coercively takes them away from where they would be employed voluntarily, i.e., where they offer the best return on the investment, creating the most wealth and employment opportunities. The mandate creates economic benefits in the state-directed area, but those benefits come at the price of lost investment, wealth, and employment from other, more lucrative uses. That is why Beacon Hill economists estimated that by 2012, North Carolina’s RPS mandate caused a net reduction in investment, by over $38 million.

Worse, forcing investment in state-favored sources rather than efficient energy sources drives the latter out. The long-term result is even higher electricity prices and less economic growth.

But the mandate’s supporters are ringing the jobs bell hard. Theirs is an interesting case to make: that the mandate is (a) creating a solar success story in North Carolina that (b) would collapse in a heap once the subsidies ended. That isn’t an argument for a successful industry any more than perpetual life support is an argument for a successful patient, let alone a strong case for raising rates on poor captive ratepayers.

About them, the mandate’s supporters say the RTI study found that the mandate saves ratepayers $173 million by 2026. The study itself locates “$173 million in generation cost savings” and notes that they owe to energy-efficiency programs, not renewable energy sources. A peer review of the study by Beacon Hill put it this way: “What the analysis actually shows is that all of these investments haven’t done a thing to reduce prices and that the state should only expect to save energy expenditures because the state spent money on things like energy efficient windows.”

Finally, the RPS mandate’s supporters are comfortable citing poll results showing overwhelming support of renewable energy sources in electricity. The question behind that poll result studiously avoided the higher rates those sources bring about.

The same poll found a majority of ratepayers reporting that their electricity rate is too high. It is just as the NCUC warned, years ago, in trying to keep the federal government from imposing an RPS mandate on us, right before we did it to ourselves.

Note: The N.C. Sustainable Energy Association provided an opposing view.