North Carolina Gov. Josh Stein has vetoed key energy legislation that would back off prior mandates to cut carbon emissions by 2030 and allow utilities such as Duke Energy Corp. to request cost recovery of ongoing construction projects while shifting the cost burden of purchased power to residential customers.
"This summer's record heat and soaring utility bills has shown that we need to focus on lowering electricity costs for working families — not raising them," Stein said in a statement accompanying his July 2 veto of Senate Bill 266. "As our state continues to grow, we need to diversify our energy portfolio so that we are not overly reliant on natural gas and its volatile fuel markets."
"This bill not only makes everyone's utility bills more expensive, but it shifts the cost of electricity from large industrial users onto the backs of regular people — families will pay more so that industry pays less," said Stein, a Democrat.
Republicans hold a majority in both chambers of the legislature, and Senate President Pro Tempore Phil Berger (R) said in a statement he plans to lead an effort to override Stein's veto. When the bill passed the Senate on June 19, Berger described the carbon reduction mandates as "arbitrary targets."
"Senate Bill 266 ensures that North Carolina will have reliable energy at competitive prices to serve our citizens and businesses," Berger said at the time.
The vetoed legislation also aims to overturn key provisions of 2021's House Bill 951, which would speed the retirement of coal-fired power plants in the state and directs the North Carolina Utilities Commission to "take all reasonable steps" to reach a 70% reduction of carbon emissions by 2030 from 2005 levels.
The 2021 legislation also sets a state target of carbon neutrality by 2050. The original legislation placed responsibility on regulators to determine the generation mix that would accomplish those goals while keeping costs low, including for Duke, the state's largest electricity generator.
SB 266 eliminates the 70% carbon reduction mandate, though it retains a goal of carbon neutrality by 2050.
The legislation includes a requirement for state regulators to develop a plan, no later than Dec. 31, 2026, working with utilities and other stakeholders to outline how the utilities will achieve carbon neutrality.
State regulators in November 2024 extended flexibility to Charlotte, North Carolina-headquartered Duke on generation planning through a settlement agreement for a resource plan, allowing leeway to stop modeling for the 70% goal and to add significant gas generation. By accepting the settlement, North Carolina regulators effectively waived Duke's requirement to model 70% carbon reduction by 2030, aiming instead for 2032.
The order directed Duke to continue to pursue "all reasonable steps" to reach a 70% carbon reduction "by the earliest possible date."
Cost shifting
SB 266 includes limits on purchased power in the state, including renewables, and shifts the costs of purchased power toward residential customers.
An analysis of SB 266 by North Carolina State University researchers found that eliminating the interim carbon emissions target could increase gas generation in the state by nearly 40% between 2030 and 2050, and that the legislation could cost ratepayers up to $23 billion in added natural gas generation expenses if gas prices rise. Researchers found that keeping the interim carbon reduction target would help protect ratepayers from volatile fuel markets and potentially sharp increases to electricity bills.
Utilities Commission staff found that SB 266 could shift about $24.8 million in annual fuel costs from larger commercial customers to residential customers.
The change comes in a directive to state regulators to divide purchased power costs based on which customers are using energy at peak demand times, rather than the existing system of dividing purchased power costs by which groups of customers are using the most power during the year. Peak electricity use in North Carolina generally falls on cold winter days, when residential customers are less able to cut their energy use.
A study by the Environmental Defense Fund found the legislation could increase costs for residential customers as much as $87 million per year.
Ongoing projects, coal retirements, gas generation
The bill also would give utilities such as Duke more freedom to petition the Utilities Commission to include the cost of new baseload generation in customer rates while projects are under construction, and outside of the typical rate-making process.
The Utilities Commission is directed under the legislation only to allow such recovery if regulators determine the asset would create overall cost savings to customers over the lifetime of the facility.
The legislation also would require utilities to cease recovery of such costs if a project goes unfinished, as happened with the abandoned V.C. Summer nuclear expansion effort in South Carolina. Regulators would then have to determine which costs from an unfinished project would be allowed.
The bill includes a measure to require state utility regulators to consider any increased or decreased risk to individual utilities or ratepayers that could result from recovery of financing costs when regulators decide on an electric utility's authorized rate of return on equity.
SB 266 could allow utilities to securitize 100% of the value of retiring coal-fired assets, and alters the multiyear ratemaking process established under House Bill 951 to allow utilities to recover the cost of gas peaker plants, including them in the rate case ongoing when they enter service.
Lawmakers used provisions from SB 261 as the basis for SB 266, seemingly leaving the prior bill sponsored by Berger to die in committee. SB 266 originally included language to address rebuilding homes in floodplains following major storms, intended to help rebuild homes in low-lying areas of western North Carolina in the wake of Hurricane Helene. But lawmakers removed language about rebuilds from the bill entirely.
The House voted 75–36 on June 10 to pass the legislation, sending it to the Senate. Twelve House Democrats were among those voting in favor; only one House Republican voted against it. The Senate voted 29–11 on June 19 to approve the bill and send it to the governor's desk, with all Republicans voting in favor and most Democrats voting against.
Bill supporters said the legislation could save North Carolina energy customers as much as $15 billion.
