North Carolina’s failing incentives could hurt you in an unexpected way — your power bill | Opinion

It’s easy to look at North Carolina’s economic incentives as play money. The millions of dollars the state doles out are supposed to be covered by the jobs the companies bring. So if a business backs out — no harm, no foul, right?

Wrong. When an incentive deal falls through, our state feels the impacts in unexpected places — maybe even your power bill.

I wrote last week about how North Carolina’s economic incentive deals are unraveling at an extraordinary rate. Companies aren’t taking them seriously, especially without repercussions for backing out.

But one company does take these incentives very seriously: Duke Energy. North Carolina’s dominant power provider uses these announcements to shape its long-term plans.

And over the past two years, Duke Energy has dramatically ramped up its investment plans, citing “significant new economic development wins” as the reason, according to a company report.

“Our confidence in this forecast is underpinned by significant economic development projects coming online, particularly in the Carolinas,” CFO Brian Savoy told investors this month.

Who pays for all this construction? You do.

Duke Energy is a regulated monopoly, meaning it earns a guaranteed return on every dollar it spends. The more infrastructure they build, the more profit they make. If their demand projections are inflated — even unintentionally — ratepayers could be stuck covering the costs.

Cloudy forecasts

Predicting the future is a fool’s errand, but sometimes it’s unavoidable. Power plants take a lot of time and money to build, and you can’t ask somebody to wait when they want to turn on the lights.

That makes accurate forecasting one of Duke Energy’s most important responsibilities.

Duke updates and reports its demand models frequently, but recently, those forecasts have been increasingly aggressive. In early 2023, Duke told state regulators that it was predicting eight times the demand growth it had envisioned just two years before. It’s hard to know exactly how much of that projected demand growth comes from incentives-based job announcements — but the company did cite “recent economic development successes.”

Now, the company is using those numbers to justify an $83 billion capital investment plan, another 12% larger than the previous one. Duke executives cite expected growth in data centers and advanced manufacturing, both of which require significant energy.

To keep up, Duke has already secured state approval for two new natural gas plants slated to go online in 2028. The company is also waiting for approval on a third and plans to request a fourth, according to an investor presentation.

It’s hard to square this unbridled optimism with other, more dour projections from our state government. Economists with the Office of State Budget and Management say economic growth will slow later in 2025, and warn of a drop in tax revenue that Gov. Josh Stein is labeling a “fiscal cliff.”

The incentives aren’t aligned

To be honest, I trust Duke Energy’s forecasting a bit more than the Stein administration’s. Duke is intimately involved in economic development efforts, since the state’s pitch to potential relocators includes the prospect of discounted electricity.

North Carolina’s economy is undoubtedly growing and will need more power. Our state needs more capacity to avoid problems like the rolling blackouts we went through during a cold snap on Christmas Eve 2022.

Duke is in a tough spot, especially given the fact that North Carolina has required it to retire all of its coal-burning plants. I spoke with energy expert Jon Sanders, the director of the Center for Food, Power, and Life at the John Locke Foundation, and he’s more concerned about overreliance on intermittent renewable energy than with new gas plants.

“I don’t know if Duke’s demand expectations are realistic. Demand has been relatively stable here for years, but we have seen some relatively new and major changes,” Sanders told me. “But Duke does have an incentive to foresee a big demand.”

For its part, Duke Energy also claims that its projections on demand are conservative. They only take into account economic developments that are “turning dirt or have letter of agreements, or near-letter of agreements,” soon-to-be CEO Harry Sideris told investors on an earnings call this month.

All of that is to say that I don’t know whether Duke’s projections are accurate. Nobody does. The system leaves plenty of wiggle room, and the incentives are not aligned in our favor. Pun intended.

Governors are incentivized to dole out economic deals that make them look good. The more big headlines they get, the better their election chances — regardless of whether the deal ultimately falls through.

And Duke Energy is incentivized to be bullish on demand forecasts. Once regulators approve new power plants, Duke is almost guaranteed to recover its costs through higher electricity rates. The state allows the company to earn a 10% return on investment — so the more Duke builds, the more it profits, whether or not the demand materializes.

It’s all the more reason to take a harder look at North Carolina’s economic incentive deals and require companies to put more skin in the game. And as Duke Energy begins public hearings on its new capital plan in March, let’s make sure we’ll actually get what we pay for.