- Even though the costs of regulating reserves, certain grid improvements, and backup generation are inseparable from adding a new solar facility to the grid, the North Carolina Utilities Commission (NCUC) does not include those costs when comparing and approving electricity sources
- Utility shareholders are incentivized to overbuild unreliable, inefficient resources because it means more guaranteed returns on investment
- The NCUC should compare the all-in costs of different electricity generating sources, and policymakers should pass “Only Pay for What You Get” legislation to make utility shareholders — not ratepayers — foot the bill for the unreliable portions of new power resources
State utilities law in North Carolina requires “adequate, reliable and economical utility service to all of the citizens and residents of the State.” That means guaranteeing plenty of power is available at the flip of the switch and as affordable as possible.
The law also requires finding “the least cost mix of generation and demand-reduction measures which is achievable.” That means what power plants the North Carolina Utilities Commission (NCUC) approves for a utility’s power generation mix must reinforce the state requirement of affordability, so that all the utility’s power plants in combination cost ratepayers as little as possible.
Unfortunately, as discussed in the John Locke Foundation’s new report, “Energy Poverty in North Carolina: Securing Affordable, Reliable Power,” this requirement can be thwarted. The report discusses impediments to selecting the lowest-cost power facilities and offers several policy recommendations to restore affordable, reliable electricity. This brief looks at two of them.
An accounting quirk tilts the scales in favor of solar
The report highlights a big problem in comparing facility costs between solar and other electricity sources such as natural gas and nuclear. A quirk in cost accounting at the NCUC leads to some of the costs of adding solar facilities to the grid being treated as if they are merely the cost of doing business, even though those costs are unique to and inseparable from solar facilities.
This problem is detailed in a previous research brief. Here are the key facts:
- Solar facilities (and also wind facilities) need very large amounts of firming or regulating reserves, according to testimony before the NCUC
- In fact, according to Duke Energy, “1 MW [megawatt] of solar or wind must be backed up by 1 MW of another on-demand resource (such as natural gas or storage) that is not dependent on the weather” (emphasis added)
- Natural gas combustion turbines are best suited to provide this necessary backup
- Critically, without adequate regulating reserves, “grid failures” could result
- Nevertheless, testimony before the NCUC showed that, in comparing the cost of solar facilities against other projects, “no such firming or regulating reserves are included,” only the “cost [of] the standalone solar facility”
As the “Energy Poverty” report explains, “the NCUC excludes the costs of backup generation in evaluating solar projects’ costs to ratepayers, even though those costs still get added to customer bills as if they are a mere cost of doing business as a utility.”
The problem is so serious that on March 16, 2026, the ranking members of the North Carolina Joint Legislative Energy Policy Commission wrote to Deputy Secretary James Danly of the U.S. Department of Energy (DOE) about it. In their letter, committee chair Sen. Tim Moffitt, R-Henderson, and vice chair Sen. Buck Newton, R-Wilson, sought guidance from the DOE in evaluating the inseparable costs of solar “explicitly — rather than implicitly or system-wide.” This guidance would help the NCUC “make prudent, technology-neutral, least-cost determinations consistent with statutory reliability obligations.”
Shareholder incentives favor overbuilding unreliable facilities
A faulty incentives structure also promotes overbuilding less productive and more unreliable generating facilities. As the report points out, “Utilities are incentivized to build unreliable, inefficient resources because they entail more building and more guaranteed returns on investment.” In consequence, “[i]t also means higher rates for their customers.”
Compounding this problem is all the new building made necessary by the state’s Carbon Plan law, which requires “carbon neutrality” from the state’s electricity generating sources by 2050. That means eventually closing all coal and natural gas power plants and replacing their generation with solar, wind, hydropower, battery backup, and nuclear power. The Locke Foundation demonstrated in a 2024 report, “Lighting the Path,” that the cheaper option is to build new nuclear generation, which would require much less transmission infrastructure and acreage. Even so, it would still be very expensive.
How can policymakers better align utility incentives to suit ratepayers’ needs for affordable, reliable electricity? One way would be to reunite reliability with profitability. Here is how.
Legislation introduced in West Virginia in 2025 called the “Ensuring Reliable and Affordable Electricity Act,” also known as “Only Pay for What You Get” legislation, would link electricity rates to the proven reliability of new power plants. In this approach, the utility’s recoverable costs of any new generating source placed into service would be based upon its capacity value. It could still choose any new generation source, but its customers would not be charged for the proportion of new power plants that cannot reliably generate electricity. The risk of adding unreliable resources would fall on utility shareholders instead.
Energy system modelers Isaac Orr and Mitch Rolling have demonstrated “substantial savings for North Carolina electricity consumers” from enacting “Only Pay for What You Get” legislation.
What are the solutions?
For those reasons, the report’s recommendations include:
Require the NCUC to Compare the All-In Costs of New Power Plants
This requirement would aid the NCUC in making proper lowest-cost choices among generation resources.
Pass an Ensuring Reliable and Affordable Electricity (“Only Pay for What You Get”) Act
This legislation would base a utility’s recoverable costs of any new generating source placed into service upon its capacity value, which would better align utility incentives towards least-cost and reliable electricity provision by placing the risk of adding unreliable resources on utility shareholders rather than customers.
North Carolinians need reliability and affordability to be the chief values of state energy policy again.
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