A Solar Settlement for the Good of the Grid — Episode 118 of Local Energy Rules

Thad Culley

How many new things are customers enabled to do, and what kind of new values are they creating? And I like shifting the paradigm there. And I think that’s where, if advocates want to take anything away from the South Carolina deal, it’s that we’re broadening the conversation beyond just the typical battle lines between solar and utilities. Hopefully there are going to be more utilities out there that are willing to think about it that way.

John Farrell

Long a laggard in customer owned solar, the Southeast has finally started to see significant growth and the rise of tensions between utilities and customers over solar compensation. In this case, however, solar advocates and the largest utility Duke Energy came together. In what Utility Dive calls a landmark settlement, new policies explicitly align the growth of solar energy with the energy needs of the grid. Thad Culley, regional director for Vote Solar, joined me in October, 2020 to discuss the settlement and its potential impact on solar development in the Southeast. I’m John Farrell, Director of the Energy Democracy Initiative at the Institute for Local Self-Reliance and this is Local Energy Rules, a biweekly podcast sharing powerful stories about local, renewable energy.

Thad, welcome to Local Energy Rules.

Thad Culley

Thank you for the invitation, glad to be here.

John Farrell

So I was hoping you could start just tell us a little bit about yourself, you know, what’s your role at vote solar, and I guess the other thing I’m curious about is why is your dog, according to your bio quote, almost famous?

Thad Culley

Uh, yes. So, well, first of all, I’m a Senior Regional Director for the Southeast and also, uh, an attorney. I, before joining Vote Solar, was in private practice with a law firm called Keyes and Fox doing a lot of work on distributed generation, net metering, rate design, some interconnection. So definitely have been steeped in, uh, and working on these issues for a long time and was thrilled to be able to join Vote Solar and, you know, be in my home state of North Carolina and take, you know, take these issues on where, you know, I think it’s been very timely the last couple of years where rooftop solar particularly has been at the front of the front of mind in the policy world. As for the almost famous dog, uh, that was our previous dog Gracie rest in peace. She, when we were walking her as a puppy here in chapel Hill, where I live in Chapel Hill, North Carolina, we were interrupted by some folks that asked what we were doing the next day, because they were doing a photo shoot. So we went out and did an American Eagle Outfitters photo shoot with our puppy, which I will say they compensate puppy talent very well. It was a $300 for the day, uh, endeavor, but ultimately they did not use the material. So hence the almost famous dog.

John Farrell

And you do have, as you said, a pandemic puppy, so maybe there’s a new opportunity for fame and fortune awaiting you.

Thad Culley

Oh, I think so. I’ll be looking, looking through the Rolodex for the old agent.

John Farrell

Awesome. Well, I want to talk to you a little bit about this settlement, but I, as a bit of background for folks who may not be familiar, there was sort of an infamous report from the Edison electric Institute a few years ago, talking about how the growth in solar and customers generating their own energy would be a quote “utility death spiral” because it cuts into the utility’s market share. Obviously it’s competition in a way that most utilities haven’t faced, as you might expect, you know, rather than crying to state regulators about lost profits utilities have instead advanced an argument about a so-called cost shift from ordinary customers to solar customers. And that has put distributed solar advocates and utilities at odds for years. But last month, Utility Dive described, you know, a landmark settlement between Duke Energy and solar advocates. And I guess just maybe foundationally, why is it important to have an agreement over distributed solar? Why are we trying to solve this problem? This fight between utilities and solar folks.

Thad Culley

Yeah, I’m really glad you highlighted that Peter Kind article that the Edison Electric Institute kind of promoted in 2013. I think that was like the clarion call at a time when net metering and rooftop was really still in its infancy outside of California. There weren’t really too many other big markets to speak of. And certainly the Southeast was, was well under developed. Uh, but that argument, you know, there’s a certain panache to the, uh, utility death spiral. You could give them some, some points for, for  flourish, but there’s not much to it when you look at the numbers. Even in, I think California in 2013, when they had a cost effectiveness evaluation that the total loss revenue associated with net metering was like less than 1% or around 1% of the overall revenues. In the Southeast, where penetration is much lower, and we’re talking like fractions one 10th of 1 percent of utility revenues. So I don’t, I don’t think that anyone’s having a death spiral based on those numbers, even in California. So the death has been much exaggerated. I think the utilities are doing just fine with net metering, but it was certainly a threat to their bottom line and profit, not so much…  there wasn’t an existential threat. So that said, I think the Peter Kind of article and this, this backdrop has really informed how the advocacy has been over since 2013 to now it’s really been at loggerheads pitch battles. We use the kind of military metaphors a lot and winning, winning battles and losing wars or vice versa. But in the South, you know, we hadn’t really seen anything on the scale of what had been experienced in Arizona and Nevada with their net metering cap battles. But we did have a bonafide net metering battle in 2018 when the utilities started seeing their caps getting reached. So that was certainly what really kicked the ball rolling, got the legislature to act, to pass a law last year called the energy freedom act, which laid out the groundwork and all the, all the factors that we needed to consider in advancing a successor tariff. And so that’s really what brought the utilities and advocates together was a desire to fulfill the legislative intent, having a collaborative solution and, you know, credit where it’s, where it’s due. I think Duke energy, you know, they’re not the only utility in the state, but they were the only utility that has really proactively looked for a solution with, with advocates. And I think we’re pretty proud of at least just getting that process going in good faith.

John Farrell

Yeah. So the settlement creates kind of the outlines for a successor to net metering, which as I mentioned in the intro is kind of this foundational accounting policy that allowed ordinary folks to reduce their electric bills with solar. I feel like this is a, this is like a party challenge for anybody who works in the solar industry. Can you explain that metering in just a few words and then maybe why it has some limitations?

Thad Culley

Right, I don’t know about a few words, but I’ll do my best. Net metering at the essence of net-metering is, as you said, it’s more like an accounting function that we’re going to take all the kilowatt hours you inboard over a month and net them out against all the kilowatt hours you export. At the end of that month, you’ll have kind of a net, either a net negative or net positive number where you either owe the utility or, or they owe you in some respect. Lots of net metering policies will treat any monthly excess. So anything you’ve, you know, once you’ve performed that, that netting exercise, they might roll that forward just like cell phone minutes. And you’ll be able to apply that – actually everyone has unlimited plans now, it seems like, so maybe that that metaphor has kind of died, but you know, you can roll that forward and use it as a, on a one-to-one basis with your kilowatt hours in the next month. So there are different varieties of, of netting, but the at its core, you know, the process of netting inflows and outflows over a set period of time. That’s what net metering is. And that’s what makes you give states this kind of discretion to develop a policy that fits their needs. If we were treating everything that goes out, out to the grid, as a sale of electricity, FERC, the federal energy regulatory commission would have jurisdiction. And this was something that I’m sure you’ve followed over the last year, a huge fight at FERC about whether they should have jurisdiction over all rooftop solar policy. So gladly, we have this netting mechanism that is really where the states have the room to play. And as far as this settlement goes, we were able to preserve net metering at its essence. You know, we, we used to have an annual period, so you would roll over credits for a year and at the end of the year, see if you had anything left over and then it gets cashed out. Now we’ve shortened that to a month. So the netting still happens albeit with a time of use rate, which we can get into here shortly, but any excess at the end of the month, we’ll be credited at avoided cost. And so that is kind of a departure from where we were in South Carolina, but it is, it is, it is not giving up the fundamental core tenant of net metering, which is keeping it as a state jurisdictional policy.

John Farrell

What about some of the pieces to this? I found it really interesting, there was this graphic that was in the Utility Dive story. It was like a four-part graphic, almost like a pie chart, except of course they’re not measuring different segments, but just highlighting the four different elements. And I thought it was interesting or would be interesting to have you talk a little bit about, you already talked about one of them just right there, the time of use netting. So you’re actually looking at what’s the value of the energy at the time it’s produced, not just that a kilowatt hour at noon is the same as when at 8:00 PM for example, but there were also three other things here. You talk about dynamic and temporal price signals, which is, I guess, a fancy way of saying you’ve got pricing based on time. The time of day, you’ve got demand response, uh, which is, you know, being able to adjust the energy usage and then you have recovery of costs. Can you just talk about some of these other pieces and why they were important and kind of what they mean for solar owners in the electric grid?

Thad Culley

Yeah, happy to, um, you know, first, the time of use piece of it distinguish that from the dynamic pricing, so that the time of use you’re basically coming up with rates that would be true for a whole season or for a whole year. And, you know, that’s taking a lot of averages. There’s also a critical peak pricing that’s added to the time of use. So let’s say up, up to a maximum of 20 days per year, the utility can look at their projections for the next day and say, we’re going to have some problems. We need to institute this critical peak pricing to let people know they need to back off on using during peak hours. So that would basically add another 10 cents a kilowatt hour to the on peak period, which would be about a total of 25 cents a kilowatt hour. And that should be enough for, for folks to at least back off on doing laundry or firing up the oven on a, on a call day. So that’s the difference between the kind of the, the average time of use rate that that’ll be in effect and these critical peak events, which the utility will have some discretion to call. So that way it’s, it’s a very flexible rate design that lets the utility get a little more control over how customers are going to interact.

And on the demand response piece, now this is kind of the premium level of, of what this policy will provide is customers that are eligible. And those are those that have electric eating or can bring their own devices, uh, eventually we’ll expand this beyond smart thermostat, but for the purposes of the next year or two, there will be this policy where you could install a smart thermostat, get an incentive to offset the cost of your solar installation. And you would agree to let the utility control the thermostat in exchange for getting that up front incentive.

So in that sense, you’re going to transform the customer just from kind of a passive participant in the grid to really interacting and helping address the problems that utility has that maybe solar isn’t addressing. Like if you’re a winter peaking utility, which Duke claims to be, you know, they’ve had some polar vortexes make that, you know, at least on paper, that’s, that’s true, but they can address these very sharp winter peaks with, you know, having solar customers also be able to provide this other service. So it’s, it’s really interesting in terms of broadening out our conversation about solar and what is fair and what is a subsidy or a cost shift and saying, well, here’s an opportunity. You have a policy that’s very popular. Most people want to have solar on their roof. I do. And you know, let’s piggyback on that and try some other policies that are beneficial to the grid. So in that sense, I think this is kind of a revolutionary approach to the, what has been a contentious battle is to say, well, let’s, let’s find a way to kind of hold hands and sing some songs together. I think that’s what we’re going to try and do.

John Farrell

I was hoping you could talk about the one last piece that’s mentioned there around cost recovery. And there are a couple of particular elements they mentioned, one of them is this $30 minimum bill. And I think it’s just useful, one of the things that I think you mentioned in kind of the original notion of net metering was the, hey at the end of the month or at the end of the year, you might, you might have essentially zero payment. And what this is going to change is to say, well, no matter what, every month you’re going to pay something. Can you talk a little bit about, like, why is that important? Maybe, maybe not just sort of politically, why is it important to the settlement, but why, why was that an important issue of conversation?

Thad Culley

Right. I think, you know, in getting to a compromise, I believe that, you know, obviously the minimum bill is something that the solar industry, when they’ve been approached with these battles and other states have pulled out a minimum bill as an alternative to things like demand charges, which are really hard to have control over $30. I’m going to concede $30 as a minimum bill is, is on the very high side, but in the context of the Carolinas where there’s already a $13 fixed charge. So that’s just the $13 entry fee to be on the grid. As far as the utility commission, there is concern that is counted against the $30. So basically what the minimum bill says is you need to buy enough kilowatt hours each month to add up to about $17 of beyond what you were paying before. And there are certain things that could offset that.

So if you do have monthly excess at the end of the month, that can lower the minimum bill or count against the minimum bill, but in terms of how I think a minimum bill works with this type of compromise, I think it provides a justification for regulators that are worried about these arguments that have, have kind of taken these arguments to heart, that solar customers are avoiding paying their share of the fixed cost of the grid. We’re not conceding that to be the case at all, but we’re just saying, as a matter of compromise and fairness, you know, this seems like something where the industry can still survive and actually thrive and where the utility can provide some minimal basis of recovery. Now, in reality, a minimum bill is only going to apply to several months out of the year for most customers. I think going forward as someone is evaluating what to put on the rooftop and they know they have this $30 minimum bill, it may end up shrinking some of the system sizes a little bit. I don’t think it’s going to be too material, but it is, it is a kind of a concession that we’re moving toward a little bit smaller system sizes, which also by the way, monthly netting versus annual netting does because you don’t want to over generate in a given month and lose the full retail value that you would have otherwise enjoyed. So very long story short, it is an important element of a compromise. A minimum bill is a preference to the solar industry. I would find compared to demand charges for residential customers, but certainly not the lead element of this settlement that that probably gets us excited. It’s something that we, we, we can live with and, and find it running the numbers find that this, this deal still works. Even with a $30 minimum bill.

John Farrell

We’re going to take a short break. When we come back, I ask why the utility will earn a profit on some components of the settlement, how this policy will work for solar owners, how the settlement will help low-income folks and communities of color, and whether it’s a good template for solving these solar debates in other States. You’re listening to a Local Energy Rules interview with Thad Culley, Regional Director for Vote Solar about the landmark settlement between Duke Energy and solar advocates in the Carolinas.

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John Farrell

It’s such an interesting thing that kind of conversations about this, you know, number one is this notion of paying a fair share. You know, I keep thinking about this conversation in Minnesota six years ago, where, uh, around our value of solar tariff, similar kind of conversation. And, and I think to me, it sort of ignores the whole premise of economics 101 and trading things, right? Like if I happened to have a hundred dollars of value to give you, and that just happens to be more than the $90 you want to charge me well, in most, most economists will tell you that’s still a fair trade, right? Like it’s okay, because you’re getting as a utility more value than, than you were charging for. But it’s been a very contentious, obviously this notion about everybody having to put something in no matter what kind of value they’re producing. Let’s talk another bit, another piece of the value in the settlement was that it allows the utility to earn a profit on some of its investments in distributed solar. Why does that make sense, when a utility customer is the one that takes the financial risk in doing a solar investment?

Thad Culley

Yeah. And this element of the deal, which hasn’t really been put into action yet, and this will probably be later, or maybe early, early to middle of 2021 when we’ll see these filings. And this is really going to deal with the demand side and the energy efficiency, demand response side of things, where they look at the smart thermostat program and the incentive associated with that smart thermostat plus solar, you know, and they’ll, they’ll be looking to recover that as, as they do other energy efficiency investments. And that does include, uh, I think some return and some, some calculation of lost revenues associated with the energy efficiency investment, you know, and that’s very important because in South Carolina, they are not allowed to recover loss revenues associated with customer generation and net metering specifically. So this, this is a policy that I think creates a motive. I think, I think utility would want to see customers take this option, the solar plus smart thermostat option versus just putting solar on the roof and, you know, still more advantageous to the utility because they’re on a time of use rate with critical peak pricing and minimum bill. So that’s still advantageous to them. But as far as there being a little something that it for the utility, I think the pursuing it as an energy efficiency investment is, is the way that, the way that that works. Yeah.

John Farrell

One of the things I wanted to ask you about was, you know, we’ve noticed as we’ve talked about net-metering successors around the country, so New York for example, had their value of distributed energy resources and was sort of famously very accurate and very complicated. And what we’ve seen is that one of the drawbacks of getting really accurate and complex is that can actually make it harder to finance solar projects because folks don’t know how to measure their expected return. Like what’s the payback period based on critical peak pricing? We don’t know when that’s going to be, you know, what’s the payback pricing with some of these like regional grid cost things that fluctuate on the New York policy. Do you feel like the new pricing scheme provides some certainty for solar customers that they, you know, will be able to say, hey, in nine to 10 years, I can pay this off.

Thad Culley

Yeah, absolutely. And the market in South Carolina is heavily driven by residential leases. So having some long-term certainty is I think, core for the market, at least dominant form of what’s been driving the markets continue to work. We think that there’s a lot of stability baked into this type of rate design. That’s, you know, it’s not, not going to change a lot over the life of the system. And if you’re participating in the smart thermostat program, there’s a 25 year guarantee essentially of the rate structure, you know, staying as it is, uh, that does mean that the volume metric rates are going to change as a system costs change so that you’re not guaranteed a static number, but you are given a very stable assumption about what rate design looks like. And, you know, if you go back and look historically at how rates, you know, they, they are stable generally, unless you have wholesale changes to how they’re designed. And, uh, I think this gives customers what they need and the industry, what it, what it needs. And one thing that’s important to note about the South Carolina law, that’s part of the net metering 2.0, or, you know, next, next wave here is it, it said that one of the criteria is this has to keep the industry going. This recognizes, this has been a benefit to the state. And so any policy needs to balance these things while the legislature wanted to address and minimize a cost shift and any subsidization, to the extent practicable it also recognized that we don’t throw everything out, that we try and find them, we narrow the difference to as, as precisely as we can to find something that works for everybody. And I feel like we’ve gotten there with this, and I think we have a lot of work left to do, to get it over the finish line and get it approved. But I think it’s, for at least for the Carolinas, we found kind of a secret sauce.

John Farrell

That’s great. One of the things that we’re hearing a lot about now is trying to figure out more access to solar, you know, for low income folks, for people of color, does the settlement’s new approach to solar compensation help to address some of those barriers to solar access for low income households, for example, that have been disproportionately not able to go solar, or were there even participants in the settlement talks that were focused on these issues of equity and access?

Thad Culley

Yeah, no, that’s a, that’s a really good question. And the best answer I have at this point is that the agreement is to continue to work on within I think, a hundred and there’ll be a filing happening. And the ideas that we would be working with a broad stakeholder group to develop a low income version of this deal. Now this deal might work in South Carolina, the leasing model, I think has expanded access somewhat. Of course it needs to go further than that. There’s not a lot of community solar, and I’m not saying that the solution is necessarily going to be community solar. I think there’s a lot of room for rooftop policy to still find a way to serve these communities. But yeah, absolutely. This is important to us. You know, this is a core, a core thing that Vote Solar, you know, is working on and why we had to make any part of this deal, a commitment to get there, you know, wish we had something already in hand, but it just, it’s going to take a lot of time. And to your point, we didn’t have the right people at the table to really do this with competence. It needs to be inclusive. It needs to respect the partner’s desires and meet people where they live with what they need. And we can’t be presumptuous and think we can develop that in a, in a boardroom somewhere. So yes, to be, to be continued, but absolutely affirm that is super important. Uh, and I think for South Carolina in particular, energy burden is a huge deal, and we would like to see this become a solution. Part of that, part of leading that.

John Farrell

What’s the process for the settlement to be approved going forward, are there any potential roadblocks along the way?

Thad Culley

Yeah, so the settlement will be filed November 2nd. There will be a tariff application that Duke Energy Carolinas and Duke Energy Progress puts forward. Uh, we will, of course intervene and support that full throatedly, if that’s a word. And, um, we would hope to have a commission order approving it by March. And at that point, there will be an interim tariff that happens through the end of the year, which basically extends monthly net metering without time of use. And then their billing systems get updated and we get the full policy in effect by 2022 January. So we should know by March, if we’re approved on the South Carolina commission and then the incentive, the smart thermostat piece of this will go for approval in South Carolina first, and then North Carolina, it needs to get approval in both States for that incentive to be offered, uh, because of the way they do their energy efficiency programs across state lines.

John Farrell

Do you think, maybe this is wandering a little bit far in terms of, you know, knowing that you have committed to this settlement already, but I guess broadly, do you think that this is a good template for net metering successors in other states like, you know, should Minnesota or Illinois or other states where, you know, we’re starting to see more solar growth, think about this, you know, is there anything advocates elsewhere should consider doing differently?

Thad Culley

I think the one piece of this, and I always joke that you could, you could kind of put this through like a randomizer and we could come out with, with different things that worked. So it wasn’t like this, these exact numbers, the only way this ever works. I think it’s the process that before the utility filed something, they committed to work with us. I think that was really important because you get a chance to be frank and open and honest and try to find a mutual solution before the battle lines have been drawn before a commission. So I think what’s important is being proactive and getting ahead of the narratives before a commission. I think pairing demand response, kind of expanding the conversation beyond just what is the value of the output of solar to the grid and more looking at the customer holistically and saying, well, can we create a channel that now we’re going to have a customer doing more things and we can maybe justify giving them this fuller compensation because, because they’re performing more services, especially as we’re getting into more like battery storage options. And that is something we’re committing to develop too, is to evolve the smart thermostat incentive into a battery storage plus solar program. That’s the template we’re going to be working with is how many new things are customers enabled to do and what kind of new values are they creating? And I like shifting the paradigm there. And I think that’s where, you know, if advocates want to take anything away from the South Carolina deal, it’s that we’re broadening the conversation beyond just the typical battle lines between solar and utilities. Hopefully there are going to be more utilities out there that are willing to think about it that way.

John Farrell

Well, thank you for your work on this settlement and for helping to at least give a template or a model for a process that I think would be great to see in other States where there’s more conversation about solving the problem, as opposed to just butting heads over a particular filing. So that thanks for joining Local Energy Rules to talk about the settlement and good luck as it moves forward.

Thad Culley

I appreciate that, you know, you have, have a great weekend and enjoy this, uh, very stressful time of our lives.

John Farrell

Thank you so much for listening to this episode of Local Energy Rules with the regional director for Vote Solar, Thad Culley, discussing the landmark settlement on distributed solar between advocates and Duke Energy in the Carolinas recorded in October, 2020. On the show page, look for links to the settlement story on Utility Dive, Peter Kind’s utility death spiral essay, and the recently resolved FERC case over distributed solar jurisdiction. On our website, you can also find our Community Power Map that ranks states by their distributed solar policies and an interactive Community Power Toolkit for examples of how cities have accelerated local solar deployment. Local Energy Rules is produced by myself and Maria McCoy with editing provided by Maria McCoy. Tune back into Local Energy Rules every two weeks to hear more powerful stories of communities taking on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.