Power Grid Cost Deserves Attention | Eastern North Carolina Now

    Publisher's note: This post appears here courtesy of the Carolina Journal, and written by John Hood, chairman of the John Locke Foundation.

    As Election Day approaches, you will continue to hear a great deal about hot-button issues that candidates believe may either swing your vote or motivate you to cast it. But few will be as consequential as an issue you probably won't hear about in 2018 but will matter a lot in 2019: upgrading the grid that delivers electricity to your home.

    Duke Energy, the Charlotte-based utility that either generates power for or delivers it to most of North Carolina, proposed a $13 billion plan last year to transform the grid. Of that amount, $4.9 billion will be used to bury existing power lines, $3.5 billion will go to hardening distribution equipment, $2.2 billion will modernize the power lines themselves, and $1.2 billion will modernize the system's capacity to react quickly to outages and inefficiencies.

    The remaining $1.2 will improve Duke Energy's data analytics, communications, and metering technologies, including the installation of "smart meters" to provide Duke and its customers with real-time information about power usage.

    With so many North Carolinians having lost their electricity during Florence and Michael, in some cases for many days, you would think that the idea of burying lines, hardening substations, and increasing the resiliency of the power grid would be popular ideas. And you would be right - in theory.

    But in practice, all goods are "good" at some price and not-so-good at some (higher) price. "I know Duke takes it on the chin when a storm comes through," Preston Howard, president of the North Carolina Manufacturers Association, recently told the Charlotte Business Journal. "But customers have already paid for that infrastructure one time, and now Duke wants them to pay for it again."

    In other words, while burying power lines may be a wise and standard practice for new residential, industrial, and commercial development, spending billions of dollars to bury lines serving existing customers is not necessarily cost-effective. Nor is it necessarily cost-ineffective.

    It is partly a math problem: you have to compare the cost of burying the lines against the probability of outages over the ensuing decades and the costs that those outages impose. But it is also a legal problem: whose responsibility is it to pay for burying the lines? Both Duke Energy shareholders and customers would presumably receive whatever net benefits there would be in the long run. What is the likely relative proportions of the benefit? Are those the proper proportions of legal responsibility for the cost?

    The line-burial component of the $13 billion plan is probably its most controversial. But a broad coalition of skeptics, extending from business groups to environmental activists, has other concerns, as well. The North Carolina Utilities Commission has already ruled that it lacks the authority to approve the series of rate hikes that Duke Energy requested to finance the modernization of the grid - rate hikes that over the course of the next decade would have raised the average electric bill for residential customers by 25 percent, or roughly $26 a month per household.

    That wasn't an explicit rejection of the plan, mind you. It was a recognition that the General Assembly will have to be involved if North Carolina's power grid is going to get such a sweeping upgrade.

    I think state lawmakers will, indeed, take some action on this issue during the 2019 session. I suspect the original plan will be scaled down significantly. At the same time, however, it will be hard to argue against the concept of making the system more efficient, more resilient (against both storms and intentional attack by foreign adversaries or terrorists), and more accommodating to consumers with differing preferences with regard to both production and usage.

    The distribution of electricity, at least, is not a competitive market. Private, municipal, and cooperative utilities enjoy exclusive franchises in their respective territories. At present, there is no alternative to a regulatory system that requires government to make complex decisions with the best information available.

    North Carolinians have billions of dollars at stake in the outcome.