What if Duke Energy shared the burden of fuel costs with its customers? If the utility had to pay a fraction of rising fuel prices, it might rethink its gas buildout and save North Carolinians tens of millions of dollars, a study finds

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If the utility had to pay a fraction of rising fuel prices, it might rethink its gas buildout and save North Carolinians tens of millions of dollars, a study finds.

If the war in the Middle East has proved anything over the last month, it’s that fossil fuel prices are extraordinarily unstable. But global conflict isn’t the only catalyst that can send the cost of oil and natural gas reeling. Factors such as extreme weather, policy changes, and pipeline outages can also set off a price roller coaster.

In North Carolina, all this volatility is prompting calls for change. Advocates want the state to join the handful of others that require electric utilities to absorb a fraction of fossil fuel prices — rather than saddling customers with all of them, as the companies do now.

The point of the policy, called fuel-cost sharing, is twofold. It can bring utility bills down for average consumers, who are increasingly angry about ballooning expenses. And it can aid the clean energy transition: If the state’s predominant utility, Duke Energy, knows that its shareholders will take a hit when fuel prices rise, the company may scale back its dependence on polluting gas plants and instead rely more on emissions-free, fuel-free forms of energy, like wind, solar, and batteries.

The notion of fuel-cost sharing is still very much in its nascence here, where Duke wields incredible power over the Republican-controlled legislature, and neither lawmakers nor regulators have pushed the company to invest in cheap, clean energy.

“Fuel dependence creates vulnerability — whether it’s gasoline for your car or natural gas for your power plants,” said Josh Brooks, chief of policy strategy and innovation for the North Carolina Sustainable Energy Association. ​“Tying costs to volatile commodities means a lot of risk exposure for ratepayers. That’s an issue both regulators and policymakers should take up.”

Utility bills shock and frustrate

North Carolina is far from unique. Most states with vertically integrated utilities allow them to pass 100% of fuel costs to their customers. Utility shareholders don’t earn a return on those outlays in the same way they profit from building new power plants, but they’re insulated from the wild price swings inherent in the global fossil fuel market. Consumers are not.

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Duke Energy has received tax breaks for three data centers that it owns, state Commerce Department records show, while the utility is proposing an 18 percent rate hike on its North Carolina customers and reported $4.9 billion in gross profits last year.

Duke Energy owns data centers in Charlotte and Garner, as well as in Huntersville at the McGuire nuclear plant. The utility declined to provide specific details about the facilities, such as energy and water usage, the amount of its tax breaks and whether it is still receiving them.

“These data centers provide support for Duke Energy operations and enable Duke Energy to deliver the high quality of service and reliability our customers expect,” Duke spokesman Jeff Brooks said. “Our goal is to keep costs as low as possible for customers, and we pass along tax savings to customers, when available, to help keep bills lower. Any changes to federal, state, or local taxes, whether they be increases or decreases, are passed to customers."

Lawmakers enacted sales and use tax breaks for data centers in 2010 and expanded them in 2015. To qualify for the exemptions, data center owners must apply to the N.C. Department of Commerce to be certified. The certification letters are public.

In North Carolina, qualifying data centers don’t pay sales tax, which ranges from 6.75 to 7.25 percent, depending on the county, on certain equipment: heating and air conditioning, computer hardware and software and electrical infrastructure. To receive the tax exemptions, the data centers must meet county wage standards, provide health insurance to full-time employees and invest $75 million in private funds in a project within five years.

Nor do qualifying data centers pay taxes on electricity use.

Duke reported nearly $300 million in investments at its data centers:

  • $95 million at Hagers Ferry in Huntersville from 2016 to 2020; certified in 2018

  • $144.7 million at the Carolinas West Primary Control Center in Charlotte from 2014 to 2019; certified in 2020

  • $126 million at Carolinas East Primary Control Center in Garner from 2019 to 2023; certified in 2020

Sales and use taxes are the second-largest source of revenue for local governments, behind property taxes, according to the Department of Revenue. A third of the state’s general fund comes from these taxes.

Tax exemptions for data centers in North Carolina keep as much as $57 million each year from state and local government coffers, state figures show. Earlier this month, Gov. Josh Stein told his Energy Policy Task Force, which includes several lawmakers, that the legislature should reconsider the exemptions.

Seven Democratic state lawmakers introduced legislation Monday that would repeal sales tax exemptions for data centers.

“It is infuriating, but not surprising, that Duke Energy both benefits from getting sales and usage tax incentives,” said Rani Masri, co-director of the NC Environmental Justice Network, which organizes communities against data centers. “We’re giving Duke Energy money to build something and then we’re paying Duke Energy higher utility rates. It is absolutely absurd. We don’t even know how much money we’re giving away.”

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