As Jeremy Kalin, a fuel-cost sharing expert and clean energy finance lawyer, put it, “The utilities are the ones that have all the power, all the visibility, all the expertise — and none of the risk.”
Sharing costs and benefits
Fuel-cost sharing would shift the balance. In a February report, clean energy think tank Rocky Mountain Institute evaluated one way that North Carolina could structure such a policy: Duke would tell regulators how much it expected to spend on fuel over the course of a year. If the utility went over that estimate, investors would cover 10% of the extra cost — up to a small cap. If fuel ended up costing less than expected, investors would get to pocket 10% of the savings.
The policy, said Oliver Tully, RMI’s carbon-free electricity manager and one of the report’s authors, would “reduce some of the risk exposure that customers have — and essentially give utilities some skin in the game.”
With the 10% sharing scenario in place from 2020 to 2024, RMI concluded, Duke’s roughly 3.8 million customers in North Carolina could have saved a total of $100 million in 2021, 2022, and 2023 — a small but meaningful fraction of the fuel cost increases that followed the pandemic and the invasion of Ukraine. Duke investors, meanwhile, would have gained an extra $9.9 million in 2020 and $1 million in 2024. The net benefit to customers over the study period: $89 million.
Tens of millions in consumer savings is meaningful in and of itself, Tully and other experts stress. But the policy also gives utilities an incentive to reduce their fuel expenses, both in the long term by building fewer gas plants and in the near term by relying less on coal and gas during periods of high demand.
“They have a lot more control, especially compared to ratepayers, over overall fuel costs,” Tully said. “They can decide how much gas-fired generation to build or control. They can choose to invest in resources that don’t have fuel costs, like renewables.”
Ideally, Tully and other experts say, the cost-sharing policy would create a win-win situation that aligns Duke’s incentives with its customers’. Both investors and customers pay more when fuel costs are high and save when fuel costs are low.
“The goal is to get shareholders and customers on the same rope,” Kalin said, “pulling in the same direction.”
Nine states have implemented some form of fuel-cost sharing, according to RMI. Five are in the Northwest, including ruby-red Idaho and Wyoming. Last year, lawmakers in Nevada authorized regulators to study the policy, and Virginia just enacted a law doing the same.
Hope for progress?
Despite its advantages for customers and even shareholders, the cost-sharing policy’s prospects in North Carolina are uncertain.
The North Carolina Sustainable Energy Association pushed for a study of fuel-cost sharing last year at the North Carolina Utilities Commission as part of its annual deliberation on the fuel charge itself. But regulators rejected the idea, saying they lacked the authority to order such an analysis — at least in the context of a fuel proceeding.
“The commission has historically had a pretty conservative view of its statutory authority,” the association’s Brooks said.
Still, his group plans to raise the issue as part of Duke’s active bid to regulators to increase residential rates by 18% over two years. Proponents will also look for ways to advance the policy during the state legislative session that begins next month, even while expecting that lawmakers will focus their time on other matters.
“That’s not going to stop folks from advocating for some kind of change,” Brooks said.