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Groups say they will drop their opposition to half the plan if the utility agrees to consider climate change in future grid planning.
Correction: This story has been updated to include all and to correct some of the groups involved in the second proposed settlement agreement with Duke.
Update: A hearing on Duke Energy’s proposed rate increase and grid plan was rescheduled late Friday and was set to begin later this week instead.
With a quasi-judicial hearing planned for this week on Duke Energy’s bid to raise North Carolina rates, clean energy advocates have reached a truce with the company over its much-debated plan to upgrade the electric grid.
Unveiled three years ago as “grid modernization,” Duke’s original 10-year strategy was widely panned as gold-plated routine maintenance designed to pad the company’s balance sheet, not meaningfully modernize a transmission and distribution network built in the last century.
After regulators rejected it in 2018, Duke scaled back some components and beefed up others, redubbed the scheme “grid improvement,” and broke it into phases. In the current rate case, the company seeks pre-approval to spend $2.3 billion to execute the first stage.
In two proposed settlement agreements, several clean energy nonprofits are dropping their opposition to half the plan and supporting the rest — including the deployment of sensors that can quickly detect and repair problems, computer software to help dispatch renewable power, and other measures to make the grid more efficient, resilient, and receptive to distributed clean energy.
In exchange, Duke will factor impacts of the climate crisis into its future grid planning, help low-income customers invest in clean energy and energy efficiency, and take other steps to encourage small renewable energy projects throughout its territory.
The agreements — one forged earlier this month with Vote Solar and another made Thursday with the North Carolina Sustainable Energy Association, the North Carolina Justice Center, and other groups — must be accepted by the state’s Utilities Commission to take effect.
Modernization v. routine maintenance
In North Carolina and around the country, the decades-old grid mostly moves electricity in one direction — from large, remote power plants to homes, businesses, and other customers.
A modernized grid allows information and electricity to flow in multiple directions — integrating distributed renewable energy sources, providing more transparency and control to customers, and preventing outages and costly spikes in power demand.
Such improvements may be costly, but they can align with the financial interests of regulated utilities, which are guaranteed profits on prudent investments. While these companies may struggle to justify new power plants in the face of flat electricity demand, they can better defend outlays to make existing grids more resilient and friendly to clean energy.
But after its high-profile debut at a 2017 energy conference in Raleigh, Duke’s $13-billion grid plan drew fire for its decidedly low-tech focus. The bulk of it was devoted to burying power lines and trimming trees — potentially valid projects, said critics, but not ones that would fundamentally reshape the grid.
Compounding skeptics’ concerns, Duke sought to pay for the investment through a bill rider that would have escaped the regulatory scrutiny that other large capital investments face. The Utilities Commission denied that request and ordered the company to hold a series of workshops about its plans.
The following year, Duke proposed controversial legislation that would have allowed it to apply for prospective rate increases in five-year increments — in part to help pay for the grid strategy. The measure drew widespread, bipartisan opposition and ultimately failed.
Weeks later, the company applied to hike rates at both its North Carolina utilities and get a preliminary green light for the grid overhaul.
‘A lot of improvements’
In written testimony, clean energy advocates conveyed longstanding concerns about the plan.
Witnesses for the North Carolina Sustainable Energy Association, the North Carolina Justice Center and other groups argued that its costs were understated and its benefits exaggerated.
Vote Solar criticized Duke for proposing the investments without explicitly considering how they would be affected by drought, sea level rise, flooding and other impacts of the climate crisis.
“We built our whole case around this idea that Duke should be considering climate risk when it’s planning its grid,” said Thad Culley, Southeast director and regulatory counsel for the group. Failure to do so, he said, was imprudent, failing a key test imposed by state law.
Appalachian Voices noted that despite its lofty goals, the grid strategy wasn’t pegged to a specific amount of new renewable energy. “Grid improvement is necessary – but they need to have those investments tied to a plan that makes the grid more distributed and clean,” said Rory McIlmoil, senior energy analyst with the group. “That’s the big connector that’s missing.”
Everyone complained about the workshops the utility conducted to help revise the original plan, called “Power/Forward,” which participants said offered little opportunity for collaboration or feedback.
But many acknowledged the new plan was better. Burying power lines, once the largest line item, was now one of the smallest. The strategy was explicitly linked to separate Duke efforts to install electric vehicle charging stations and connect battery storage to the grid. It included new features omitted in the first version, such as an automated voltage conservation system. “If you look back to the Power/Forward plan from three years ago,” said Peter Ledford, general counsel for the North Carolina Sustainable Energy Association, “Duke did make a lot of improvements.”
The company didn’t propose a rider as it had two years earlier, instead requesting permission to put the grid projects on its books as assets that would begin depreciating. Such deferral accounting would allow the company to earn a profit on the investment in a future rate case — but it would also allow regulators to scrutinize and adjust the expense.
“An investment has to be reasonable and prudent to put into the rate base,” Ledford said. “In deferral accounting, we’re saying, yes, there’s a need — but we still get to fight over the dollars and cents spent to meet that need.”
‘It’s a long book’
Still, in and of itself, the plan wasn’t enough to win advocates’ support. But as the global pandemic delayed the formal rate case proceedings, advocates and Duke continued to negotiate. “As this case dragged on and Covid interrupted,” Culley said, “that really led to an opportunity for more discussion.”
For Culley, a commitment from Duke to explicitly link its grid planning to the climate crisis was a significant step. “They didn’t want to address climate in the grid improvement process,” he said. “They’re changing their position from avoiding it to leaning in and taking it on. It’s a big symbolic step.”
Indeed, said Duke spokesperson Meredith Archie over email, “we recognize that climate risk and resilience is an important issue and the settlement agreement with Vote Solar is a positive step, with more work to follow.”
Despite working group fatigue, advocates are hopeful that, if the Vote Solar settlement is accepted, the resulting workshops will be more collaborative and constructive than in the past. They’ll be informed by a state assessment of climate impacts that scientists believe are inevitable, and a separate collaboration funded by the Department of Energy to examine the entire electric system’s climate vulnerabilities.
And because shareholders and Wall Street are increasingly demanding utilities take climate risk into account, Culley believes Duke has a self-interest to take the analysis seriously. “There’s a strong business case to be made,” he said.
Likewise, concessions the Sustainable Energy Association won to help solve interconnection delays should help both the company and its customers, Ledford said. “We know that distributed solar is a suppressing factor on ratepayer bills.”
In last week’s agreement, Ledford’s group joined four nonprofits represented by the Southern Environmental Law Center: The North Carolina Justice Center, the North Carolina Housing Coalition, the Natural Resources Defense Council, and the Southern Alliance for Clean Energy. That deal also includes several provisions to help low-income customers invest in clean energy and energy efficiency, including a $6 million donation to a program offering free weatherization services and other assistance to Duke customers at 200% of federal poverty guidelines.
Even if regulators accept the settlement agreements, the question of how Duke should overhaul its transmission and distribution infrastructure for the 21st century is far from resolved. “This chapter may be coming to a close,” Ledford said, “but it’s a long book.”