A Brief History of the State Energy Office in North Carolina
By Larry E. Shirley, Director

The 1973-74 Arab Oil Embargo prompted the creation of Energy Division in the Department of Military and Veteran Affairs shortly after the onset of the embargo and the stark reality of long gasoline lines and greatly reduced supply. The Energy Division, headed by General Tolson and Admiral Fowler, two retired military veterans, began its life by allocating gasoline, diesel and home heating oil to critical populations through the use of set asides of a percentage of all fuel entering the state. The office, working closely with the Department of Interior on the federal level, successfully managed North Carolina's reaction to the nation's first energy crisis.

Some time after Governor Hunt was elected in 1976, the office was apparently managed directly out of the Governor's Office and oversaw a major natural gas shortage that resulted in massive cutbacks of gas to the state's industrial firms. Another major oil crisis also emerged in 1979 when the Iraq-Iran War caused supplies from both of those nations to be temporarily curtailed, resulting in a reemergence of gasoline lines at filling stations. A major focus of the office throughout the 1970's included monitoring of all energy supplies coming in and available to the state.

In 1977, the office was transferred to the North Carolina Department of Commerce to assist in the recruitment of industry, since energy supplies are a critical factor in siting decisions, and to manage the state's energy efficiency and renewable energy programs. The Carter Administration had made energy a major priority, calling the energy issue and nation's dependence on foreign sources, the "moral equivalent of war." President Carter increased federal funding of energy efficiency and renewable energy programs by a factor of 20 or more during his only term, reaching a level of over $2 billion. Many new pieces of federal and state legislation were passed during this period, including a wide range of tax credits, and many of the programs were administered in North Carolina by the Energy Division.

The Reagan Administration that followed from 1981-89 began an effort to dismantle and curtail federal funding for energy efficiency and renewable energy programs. However, in North Carolina, programs and efforts remained strong and active throughout the remainder of Governor Hunt's second term and throughout Governor Martin's two terms. During the mid-1980's, a new and major source of revenue also began flowing into the state for energy efficiency and renewable energy programs-Petroleum Violation Escrow (PVE) funds. The PVE funds are the result of court settlements or judgements, on the federal level, against oil companies that have overcharged consumers at the gasoline pump. During the 1970's, when gasoline and petroleum prices were closely regulated and capped by the federal government, a number of petroleum companies were caught violating these price controls and were taken to court. The PVE funds, or settlement fines, were ordered by the court to be restituted to consumers through the state.

In all, there were approximately six major PVE settlement cases that resulted in the flow of over $100 million to North Carolina for energy programs. The cases included settlements against Exxon, Amoco, Occidental, and other companies. Guidelines for the expenditure of funds vary by each settlement but all require the funds to be spent on energy efficiency and renewable energy programs. Funds come to North Carolina and are held in trust until allocated by the General Assembly. Through the 20 years since they began flowing, the Energy Division/State EnergyOffice and the NC Housing Trust Fund, operated by the North Carolina Housing Finance Agency, have received the largest amounts of funds. During this 20-year period, the Energy Office has relied heavily on these funds to support more than 50 programs and projects throughout the state. Over time, because such funding was available, their direct state appropriations have been repeatedly cut until they were eliminated in 1999-2000.

During much of this period, particularly over the last decade, the Energy Office has also had another source of annual revenue-the State Energy Program adminstered by the U.S. Department of Energy. This program typically provides between $750,000-1,000,000 annually to support the Energy Office and is now used to support a large portion of the office salaries and related expenses, as well as some program expenses.

Each year since the State Energy Program funds began flowing, the State Energy Office is required to submit an annual plan to the U.S. Department of Energy (D.O.E.) for the expenditure of these and its PVE funds, the latter being brought under this State Energy Program for administration and program purposes. Quarterly reports are supplied to D.O.E. and it oversees the expenditure of the office's funds. In many cases, D.O.E. establishs program priorities and guidelines, strongly encouraging the Energy Office to establish and support programs in these designated areas.

Significant events during this 20-year period have included the following:

• Establishment of the Governor's Task Force on Solar Law and the issuance of a major report of solar recommendations in 1984
• Expansion of the state's tax credits for renewable energy in 1992, 1999 and 2000, resulting in the best state tax credits in the nation
• Creation of the state's first comprehensive energy plan produced through significant public input in 1992 and revision of the state's energy emergency plan in the same year
• Establishment of a strong weatherization program for low-income citizens, utilizing community action agencies as contractors, but which deterioated in the late 1990's and was transferred to the Department of Health and Human Services by the General Assembly in 2000
• Establishment of the NC Solar Center at NC State Energy University in 1988 which went on to become one of the most prominent renewable energy centers in the nation
• Establishment of the Industrial Energy Program at NC State University in 1988, which produced over $100 million in energy savings over the next 15 years for the state's industrial firms through energy efficiency measures that resulted from energy surveys and training of plant personnel
• Establishment of the Center for Energy and Research Technology at NC A&T State University which focuses on energy efficiency in manufactured housing, the commercial sector and other areas
• Resignation of the Director of the Energy Division, Carson Culbreth, in 1997 after 16 years in this position. He was succeeded by T. C. Adams for three years, who resigned in 2000; and
• Legislation in 2000 by the General Assembly that moved the Energy Division to the Department of Administration, where it was renamed the State Energy Office and placed under DOA management on October 1, 2000. All vacant positions were abolished and the Weatherization Assistance Program was transferred to the Department of Health and Human Services. Larry Shirley, the Executive Director of the NC Solar Center at NC State University for 13 years, was named the new director of the State Energy Office.

Beginning in 2001, the hard work began to turn around an office in which staff morale had bottomed out and leadership had been vacant for a long time. A number of marginal staff, who had less than a full commitment to the office's mission, left over the next 1-2 years and were replaced by very capable and enthusiastic staff members. Three years later, the office is fully staffed and working at a very high level of capacity with significant results.

Over the last three years, the following has been accomplished:

• In response to the state budget crisis and at the request of Governor Easley's Efficiency Commission, the Office established the Utility Savings Initiative for State Facilities in July, 2002. In its short life of 18 months, this effort has saved the state well over $1 million in savings from electric rate changes and billing errors, surveyed over 25 million square feet of state buildings and provided energy efficiency recommendation for no-cost/low-cost measures; received energy plans from nearly all of the state's universities and state agencies; and committed to achieving a 4% reduction in energy use in state facilities each year for the next five years, or a total savings of 20% by 2008. This program got out of the gate with such immediate success that it was awarded the Outstanding Program of Excellence Award by the National Association of Chief State Administrators in 2003. It was also awarded Third Place in the Southern region, out of 125 entries, for the Innovation Awards of the Council of State Governments.
• A new State Energy Plan has been completed by the NC Energy Policy Council, which is staffed by the Energy Office, for the first time since 1992. The NC Energy Policy Council, an 18-member commission created by statute in 1975, advises the Governor and General Assembly on energy policy. The new State Energy Plan will provide direction for the state's energy funding and programs in the future and includes 93 recommendations.
• A new Energy Emergency Plan was completed in 2003 for the first time since 1992. It was approved by the NC Energy Policy Council and provides the state with a road map of actions to take in the event of a variety of energy crises.
• The NC GreenPower Program was launched in 2003 with strong funding and sponsorship from the State Energy Office. Although there are more than 80 green power program around the U.S., this is the first one that brings all of the utilities in a state together to offer one principal product: electricity derived from generation from renewable energy.
• The NCSU Industrial Energy Program has been expanded to offer services to state agencies, local governments, K-12 schools and other institutional agencies.
• The Energy Office is planning to sponsor the state's first statewide energy conference in the state's history on March 3, 2004.
• The Energy Office held the state's first comprehensive biomass conference on October 20, 2003, and this has led to establishment of a landfill gas working committee that includes the DENR, DOC and other state agencies.
• The Energy Office has created a NC Industries for the Future Program that focuses on five energy-intensive industrial subsectors to try and lower their energy costs, increase productivity, and provide a conduit for research and development of new energy technologies. The subsectors include wood products, chemicals, mining, glass and agriculture.
• In 2003, the General Assembly allocated $1 million to the State Energy Office to initiate a low-income/affordable housing energy program and the SEO has funded two significant programs to date: (1) an effort to make new manufactured housing more energy efficient by changing out the highly inefficient and costly electric furnaces with much more efficient heating/cooling systems; and (2) funding Advanced Energy Corporation to ensure that new multi-family public housing in the state incorporates an excellent energy efficiency package.
• In 2003, the Energy Office, responding to legislation passed in 2002 and amended in 2003, launched the state's first Guaranteed Savings Contracts for State Agencies. Over the next one to two years, the Energy Office will oversee the issuance of $50 million in contracts up to twelve years in length to update the energy aspects of state facilities, using the energy savings achieved to pay the debt service; and
• In 2001, the General Assembly created a pilot program in the use of high performance building guidelines for state, university and community college facilities. The SEO is administering the program and has chosen 15 univerity, community college and state buildings for inclusion. The guidelines, developed by Triangle J Council of Governments, encourage attention to energy efficiency, renewable energy, water conservation, waste minimization, indoor air quality, use of recycled buuilding materials, and other sustainability factors in new construction and major renovations. If the pilot program is successful, it is hoped that the guidelines can provide a path for future construction of state facilities.

The above descriptions provide only a selected and partial list of the notable accomplishments of the State Energy Office over the last three years.

As the state embarks upon its energy efforts in 2004, however, the State Energy Office has never been stronger and is poised to lead the state into an energy future that is laden with challenges and concerns. U.S. dependence on foreign sources of oil has risen to 55% of all supplies and is headed to near 70% by 2020. All of the state's major metropolitan areas are facing air quality non-attainment status, with most of the pollution directly attributable to energy use in vehicles and power plants. And, each year, $6-7 billion leaves the state's economy to buy energy from other states and foreign nations, providing a significant drain on the states' economy.

It is the role of the State Energy Office to help its citizens, businesses and nonprofit organizations during these difficult times, helping them to save energy dollars for use in other vital areas. With no fossil fuels in the state but an abundant supply of renewable energy sources, it is also the SEO's mission to develop these renewable energy sources that can provide jobs, income and investment to the state's economy while greatly minimizing the environmental damage associated with conventional energy use. And, with a near total dependence on outside sources of energy and great vulnerability to disruption to its energy supplies, the State Energy Office will always be vigilant in taking steps to decrease this dependence and being ready to respond to energy emergencies as they may arise.