When state lawmakers proposed a $7.5 million budget appropriation for the State Energy Office, earlier this year, director Larry Shirley had reason to be hopeful. The amount would help buttress waning federal funds for his office, which had a $7.3 million budget for 2006-07.

Then Shirley learned last month that the governor’s office is rethinking the SEO’s mission: The SEO should no longer be in the grant-making business, because in doing so, it’s crafting policy, which shouldn’t be the office’s prerogative. And by changing the SEO’s mission to focus on energy efficiency in state buildings, the money for grant-making is gone.

The Senate’s proposed budget contains no state money this year for the SEO’s grant work. Many of those grants go to three university energy programsN.C. Solar Center in Raleigh, Appalachian State and N.C. A&T.

Shirley argues that without state funds, there would be no comprehensive resource for energy policymakers or citizens.

“The greatest concern [about the proposal] is the fragmentation of services and lack of leadership,” Shirley says.

Although this year the SEO will still receive $1 million in federal funds, under the Senate budget, four people would lose their jobsabout 20 percent of the staff. (Shirley’s position would be elevated to a deputy secretary.) Of the remaining employees, seven would to go to the State Construction office within the Department of Administration; three would transfer to the Department of Environmental and Natural Resources to oversee grants and a loan fund.

Although there is no state appropriation in 2007, in 2008, state construction and energy grants would receive $1 million each.

Sen. Janet Cowell (D-Wake), long considered an environmentally conscious lawmaker, says there is “a lot of misinformation out there” about the Senate provision. She supports decentralizing the SEO in order to emphasize green state buildings and construction, as they aim for a mandatory 30 percent energy savings goal. “Core construction and facility managers of state buildings are not engaged,” she says. “It is critical that state government get better at saving energy. Working hand-in-hand with construction folks was the thinking behind this.”

The timing is crucial: Major utilities, Duke Energy and Progress Energy, have announced plans for renewable and efficiency measures. Dozens of green bills have been introduced in the legislature, two of them mandating renewables and efficiency goals. General public awareness and concern about fossil fuels and climate change is helping to buoy these initiatives.

“What I’m hearing is that the utilities are trying to kill it,” says state Rep. Pricey Harrison (D-Guilford), who supports continuing and funding the SEO. “And there’s a history of folks over here not having any idea what the SEO does.”

The SEO was created in 1973, in response to the Arab oil embargo. Until the end of this year, it received federal funds from the Petroleum Violation Escrow, money collected from major petroleum producers as a settlement for overcharges in the ‘70s. According to the SEO’s factsheet, it spent $5.8 million in program fundingranging from home energy improvements to biodiesel plantswhile saving more than $91 million in energy costs in 2005-06.

Progress Energy spokesman David McNeill says the fate of the SEO won’t affect Progress’ energy efficiency programs, adding the SEO’s future is a “policy decision for the legislature and administration.”

However, while lawmakers make policy, the utilities have enormous influence over it, hiring cavalcades of lobbyists and doling out political contributions. Two senate Democrats behind the SEO provision (they didn’t return calls or emails seeking comment), John Kerr and David Hoyle, received thousands of dollars from utilities in the 2006 election cycle. According to state campaign finance records, Hoyle received $3,500 from Duke Energy executives, including $2,000 from CEO Jim Rogers, and $8,000 from Progress. Kerr raked in $3,000 from Duke and another $1,000 from Progress.

“My suspicion is the utilities view the SEO as somewhat of a threat,” says Tim Toben, the force behind Greenbridge, a green housing development in Chapel Hill. “In the state we are moving pretty quickly from nuclear and coal to a new and healthier clean energy scheme. The utilities aren’t comfortable with the pace of awareness moving through North Carolina.”

While the new version of the SEO would focus on greening state construction, that office has also served private contractors and citizens interested in renewables and energy efficiency.

“This is the debate we’ve been having,” Cowell says. “Who is the SEO serving?”

Toben says the SEO has been an indispensable clearinghouse for private builders. “When I started doing green building in the state, the two resources I was able to glean info from were the N.C. Solar Center and the State Energy Office.”

At recent meeting at UNC-Chapel Hill, Toben told officials “the prospect of dismantling the SEO would be similar to dismantling the Wilson Library at UNC, spreading the resources around and eliminating the chief librarian.”

Considering the push for renewables and efficiencyat the legislature, among utilities and in general, public awarenessToben says decentralizing the SEO is “inconsistent with the intention of turning the North Carolina into a green state. The real tragedy of the timing is we are on the threshold of some legislation that would mandate renewables and energy efficiency and really stimulate the whole marketplace.”

There is concern among lawmakers that university programs should be saved, and the House is looking at $2 million to fund them; it is too late to insert requests into university budgets.

The SEO’s uncertainty is already being felt at the N.C. Solar Center in Raleigh. Five people have left 20 percent of its workforcebecause many of the Center’s grants are funneled through the SEO. It is unlikely the Solar Center, which is under N.C. State University, would close, but it would become a research thinktank, rather than a technical resource for citizens and builders.

“When you have a situation when you don’t know if you’ll have a job next year, you look elsewhere,” says director Steve Kalland.

Kalland says he’s received so many calls from companies wanting to implement green energy that “I’m running out of engineers to send to those calls.”

“It would be devastating,” adds Dennis Grady, director of Appalachian State University’s Energy Center.

La Capra, the consulting firm whose feasibility study helped launch the renewable energy bills this session, was based on Appalachian State’s research.

“North Carolina doesn’t understand what it has in intellectual capital. It would be a real travesty.”

Correction (June 25, 2007): Progress Energy contributed $8,000 to Sen. David Hoyle in the 2006 election cycle.