Duke Energy’s solar plan questioned by North Carolina attorney general

For the last two years, Duke Energy has worked with key solar industry and environmental groups to reach a compromise on a plan to revamp net-metering policy in the utility’s core Carolinas territories.

Now that compromise — the result of a settlement reached for South Carolina in 2020 and for North Carolina late last year — is under attack from a different set of North Carolina rooftop solar installers and environmental allies who say it unfairly undermines the value of rooftop solar for customers.

The compromise plan is also being questioned by the state’s Attorney General’s Office, which last week asked the North Carolina Utilities Commission to postpone approving the plan until the state can answer this question: What is the value of rooftop solar to Duke and its customers, both in financial terms and in terms of meeting North Carolina’s newly passed targets for reducing carbon emissions?

These challenges have threatened to derail what had appeared to be a rare instance of agreement between utilities and solar advocates on net-metering policy — a major contrast to the fights that have raged in California and Florida over the past year, and in many other states over the past decade.

Supporters of the compromise fear that reopening the net-metering issue to an adversarial process between Duke and solar groups could lead to an even worse outcome for rooftop solar in North Carolina.

“The settlement represents a breakthrough that aligns interests between solar customers and the utility as a whole,” said David Neal, a senior attorney at the Southern Environmental Law Center, which represented nonprofit groups Vote Solar and the Southern Alliance for Clean Energy in the negotiations.

Supporters also warn that a breakdown in the agreement between Duke and settlement parties might weaken rooftop solar’s prospects in other states, where utilities have been lobbying lawmakers to reduce how much customers earn for solar power fed back to the grid and charge them more money for interconnecting their solar systems.

“The Carolinas are being held up as a model for what can be done going forward,” said Bryan Jacob, solar program director for the Southeast Alliance for Clean Energy, which worked to develop the compromise. ​“Those other utilities love to see the controversy.”

But Jim Warren, executive director of NC Warn, the nonprofit that’s leading the push to reject the settlement agreement, believes that the compromise plan could be far more harmful to rooftop solar economics and clean energy growth than supporters have acknowledged.

“I want to be careful and not overtly criticize the groups that settled with Duke Energy,” which include the North Carolina Sustainable Energy Association, the Solar Energy Industries Association and leading U.S. residential solar installer Sunrun, he said. ​“I think they made a mistake, and I think they have a couple of offramps to [rectify] it, because I think our side is going to win.”

“Their primary rationale…is that if they hadn’t gone for this, Duke would have forced something worse on them,” he added. ​“To me, that’s as much proof as you need that Duke Energy is trying to kill growth of rooftop solar.”

That’s a common accusation against utilities that have strived to restrict the value of customer-owned solar. But in North Carolina, where Duke Energy has traditionally held significant sway over energy policy in the state legislature, it’s not clear that solar backers can expect a better outcome than what the settlement agreement has yielded, the deal’s supporters warn.

“We definitely want to hear more about the concerns of the solar installers and find something that works for everybody,” Neal said. But, he added, ​“I hope that people understand the way this settlement is getting past some of the fights we’ve had with utilities around the country and seeing how we can create a win-win solution.”

North Carolina’s net-metering compromise evokes strong opinions on both sides

Supporters and opponents alike agree that the ​“Solar Choice Net Metering” plans being pursued by Duke in the Carolinas would reduce the economic value of rooftop solar for new solar customers. What they disagree on is by how much.

The plan includes monthly minimum bills of $22 for customers of Duke Energy Carolinas and $28 for customers of Duke Energy Progress, Duke’s two North Carolina utilities. This would prevent customers with net-metered solar from reducing their monthly bills below those levels, no matter how much solar they generate in excess of their monthly net demand.

The plan would also shift new solar customers onto time-of-use rates. This means that the typical flat residential rate that customers pay for electricity — 11 cents per kilowatt-hour — would be replaced by a rate that’s 5.6 to 7.7 cents per kilowatt-hour during the periods of highest solar generation, but as high as 17 to 19 cents per kilowatt-hour during mornings and evenings, when Duke’s grid is facing the highest demand for electricity.

Customers who do little or nothing to reduce their energy use during those peak demand periods would earn less money when their panels are producing the most power and pay more for consumption during hours when electricity use for winter heating or summer cooling tends to spike.

To help offset those reduced savings, the plans would add incentives for customers with electric heating — roughly half of Duke’s residential customer base in North Carolina — who agree to install smart thermostats that Duke can control to reduce their energy consumption during high-demand periods.

New rooftop solar systems on homes with electric heat and smart thermostats would be eligible for incentives of 36 cents per watt of installed solar capacity, which would amount to roughly $2,500 off the full installation cost of a typical 7-kilowatt solar system. They would also get an initial $75 bill credit and an additional $25 credit per year.

Together these incentives would help offset the monthly minimum bills and the reductions in earnings that customers may face. And customers who can reduce electricity use during those peak-price periods could earn a premium price for the solar they feed back to the grid at those times.

Neal of the Southern Environmental Law Center said that customers could expect to earn a reasonable return on their solar investment under the new plan once the incentives receive final approval from state regulators and as long as customers take full advantage of the time-of-use and off-peak periods.

Jacob of the Southeast Alliance for Clean Energy pointed out that an analysis of the plan in South Carolina found that a typical customer who took steps like those Neal outlined could expect their solar system to earn a payback on the cost of installing it that would be 5 to 10 percent less than the payback they could expect under the current net-metering structure.

“That was deemed acceptable to us and the other settling parties,” Jacob said. What’s more, by getting customers to shift their energy use to meet grid needs, ​“it can help eliminate peak demand and reduce the need for new fossil generation,” he said. ​“We think that’s the direction we need to move in to address the climate crisis.”

Duke Energy spokesperson Randy Wheeless wrote in an email last week that the changes proposed in the settlement ​“do not hurt rooftop solar customers. We will compensate solar owners for their power back to the grid at rates that match the value of power to the company at that given time.”

The plan will also allow current net-metered customers, who now account for less than 1 percent of Duke’s residential customer base, to remain on the existing net-metering regime through 2027. After that point, those customers would be subject to the new minimum monthly bills, but they would be eligible to retain flat residential rates if they chose to forgo the incentives they would earn by switching to time-of-use rates.

“Duke Energy is committed to finding collaborative paths forward to help with the clean energy transition and carbon-reduction goals in the Carolinas,” he added. ​“Our settlement with many leading solar groups ensures fair and reasonable treatment for all customers whether they choose to install solar or not.”

But a group of North Carolina–based solar installers contend that the plan could lead to a 25 to 35 percent reduction in the value of the solar systems they sell. Those include customers with fossil gas home heating, which makes them ineligible for the smart thermostat incentives, and customers who can’t easily shift consumption away from periods of peak electricity demand.

These aspects of the proposed program are ​“so complicated that next to nobody could even figure out what solar would really do for their house,” Bob Kingery, co-founder of solar installation firm Southern Energy Management, told WFAE radio. The group of 15 solar companies has sent a letter to North Carolina Governor Roy Cooper, a Democrat who’s been pushing the state’s Republican-controlled legislature to pass stronger clean energy policy, asking him to intervene in the proceeding.

A dispute over cost shifts and rooftop-solar studies 

Underpinning this confusion over the economic impact of the proposed plan is confusion over whether a new plan should even be implemented right now, Warren said. 

In 2017, North Carolina passed a law that sets a 2027 deadline for the state to create a new net-metering regime. The law included a mandate that the new policy to be developed must charge net-metered customers for their ​“full fixed cost of service” — in other words, it must ensure that solar-equipped customers don’t shift costs onto customers who don’t have solar. Last year’s law setting Duke on a path toward cutting its carbon emissions 70 percent by 2030 also called for any new net-metering regime to avoid ​“cross-subsidization” from non-solar to solar-equipped customers.

Utilities have long argued that net-metering rules unfairly shift costs of maintaining the grid from solar to non-solar customers by allowing owners of solar systems to reduce their bills so much that they aren’t contributing their fair share to the costs of keeping the grid up and running.

That claim has been rejected by many solar and environmental groups, however. Multiple studies indicate that rooftop solar can in many cases reduce overall costs for utilities and customers at large by reducing how much energy needs to be generated.

That’s why NC Warn and other opponents of the net-metering settlement agreement have zeroed in on a section of North Carolina’s 2017 law that requires ​“an investigation of the costs and benefits of customer-sited generation” before changes to solar compensation regimes are made. According to these groups, Duke has failed to carry out that investigation, and it shouldn’t be allowed to press ahead with the new net-metering plan until the study is complete.

Duke has claimed that a rate-design study it completed in 2021 meets the terms of this legal requirement. But NC Warn and nonprofit group Appalachian Voices said in a filing that year that Duke’s study failed to examine the full range of benefits of rooftop solar and ​“was always biased in favor of convincing participants to coalesce around the net energy metering model” that became the basis of its settlement agreement.

Last week, the North Carolina Attorney General’s Office weighed in on the side of NC Warn and solar groups on this issue. In a filing with the North Carolina Utilities Commission, it states that Duke’s study ​“did not investigate potential benefits of customer-sited generation,” which range from ​“reducing carbon emissions by offsetting fossil fuel generation to improving grid resilience.”

The filing also states that this work should be combined with Duke’s work on complying with last year’s law on carbon reduction since it ​“may not be possible to fully quantify those benefits until there is more clarity on the role customer-sited generation will play in meeting the carbon-reduction goals” set out in that law.

This intervention by the state’s attorney general ​“shook up…the whole debate,” said Ken Cook, president of the Environmental Working Group, a national nonprofit that has joined NC Warn in opposing the settlement plan. ​“We don’t have this analysis. That’s not a small thing.”

Peter Ledford, general counsel for the North Carolina Sustainable Energy Association industry trade group, noted that the attorney general’s filing could set up the state’s top legal authority to ​“play a mediator role” between the groups that support the Duke settlement plan and those that oppose it.

“We wanted to avoid a litigated proceeding” by signing on to the settlement, he said. ​“If the delay the attorney general seeks would lead to better understanding [and] a less contentious proceeding, I don’t see why we would have a problem with it.”

Unclear path forward for incentives

But there’s a complication to working out these issues, Ledford said. The settlement agreement between Duke and parties including NC Sustainable Energy Association relies on state regulators approving the incentives for solar adopters along with the changes in how net metering is compensated. And in recent months, developments in both North Carolina and South Carolina have cast doubt on whether those incentives can be put into effect as designed.

South Carolina’s Public Service Commission approved the Duke net-metering settlement in May 2020. But in January, the commission declined to adopt the incentive portion of the plan, Ledford said. The commission did not state why it chose to reject that portion of the plan, but it is set to release a full order explaining its reasoning in the coming weeks, he said.

A similar wrinkle emerged in a filing last week from the North Carolina Utilities Commission Public Staff, an independent agency that represents the interests of the state’s utility customers. In that filing, the agency states that Duke’s settlement agreement made an error by classifying its proposed net-metering incentives as energy efficiency rather than solar incentives. As a result, it recommended that the commission should opt not to enact the settlement agreement.

Ledford said that the NC Sustainable Energy Association and other parties to the Duke settlement agreement have argued in favor of allowing the incentives to be approved as designed. The Public Staff’s opposition ​“is troubling because this is a package deal,” he explained, with the incentives making the net-metering reforms more palatable to solar and environmental groups, and the Public Staff agency seems ​“to be opposing the package.”

“It’s a bit of a mess,” Ledford said of the current status of the net-metering effort. ​“But I don’t know of a net-metering decision that’s been easy anywhere in the country.” 

Ultimately, the North Carolina Utilities Commission and South Carolina Public Service Commission are responsible for weighing the pros and cons of the respective net-metering compromise plans before them and deciding how to proceed.

“I do not envy the commissioners,” Ledford said. ​“They have a lot on their plate.”