Could utilities become the 'FedEx of electricity’?

In early 2023, things were moving along as planned for a rate restructuring plan at Holy Cross Energy, a rural electric co-op in Colorado. The board of directors had approved the plan, which would separate the cost of energy from the cost of delivering that energy to the customer.

The change meant rooftop solar customers could continue to sell their excess electricity back to Holy Cross, just at a much lower rate that would slow their return on investment.  

The pushback from solar customers and the solar industry was swift. In an op-ed in The Aspen Times, Mike Kruger, head of the Colorado Solar and Storage Association, called the plan a wet blanket that would stifle the growth of rooftop solar.

And the solar industry told the state’s energy office and Colorado Gov. Jared Polis that the restructuring would also violate Colorado’s net metering law. Not long after, Holy Cross CEO Bryan Hannegan got a call from the governor, asking for a meeting with Holy Cross and solar industry representatives.

Speaking on the With Great Power podcast, Hannegan joked that it felt a bit like “being called to the principal’s office” for fighting in the hallway. But the result — an ongoing series of meetings with energy industry stakeholders from across the state — brought positive change. 

“It’s going to be a wonderfully open and transparent process, resulting in hopefully some approach on how to take the future of net metering forward,” he said.

In May, the Holy Cross board voted to pause the plan, and later rescinded it altogether. But Hannegan said this is just the beginning of a long-term reckoning for utilities that have a growing share of generation coming from customers. For Holy Cross, rooftop solar makes up almost 10% of the utility’s total capacity needs, and several hundred systems are being added annually, he said.

“At some point, we're going to hit a breaking point where all that solar during the day is creating costs that really ought to be borne by those that are providing it as well as by us in a more collaborative sort of way,” he said. In addition, he said investment in solar with storage will help the utility address the imbalance of supply that happens when Holy Cross customers generate excess power mid-day when it’s not generally needed.

One of the demand response programs Holy Cross has deployed provides zero-interest financing for customers who install Tesla Powerwalls or similar home battery systems. The customer pays for the storage over time, as a separate line item on their Holy Cross bill. “You're basically leasing to own batteries for your home,” Hannegan explained.

These and other programs — including a pilot program in a Basalt, Colorado housing development that uses meter-level orchestration software to manage DERs — are helping Holy Cross gain the type of control over local resources that “grid orchestration systems provide at the transmission level with the ISO and the RTOs or the balancing authorities as a whole,” he said. 

Utilities across the country are working through similar growing pains with solar. Virtual power plants could help. Even a utility like Duke Energy is testing a program that incentivizes customers in North Carolina to install rooftop solar plus batteries as part of a virtual power plant pilot. Technology vendors are also hoping to provide new models that can address changes to net metering for residential users, including power purchase agreements.

In Colorado, the rift that formed over the Holy Cross rate restructuring plan will take time and community engagement to repair. But ultimately, the utility business model needs to change, Hannegan says. Rather than selling electricity, he envisions utilities becoming infrastructure operators, essentially becoming “the FedEx of electricity in the sense that wherever it comes from, wherever it needs to go, we'll get it there on time and at an affordable price and in a reliable manner,” he said. 

In the first episode of season 3 of With Great Power, host Brad Langley talked with Bryan Hannegan about Holy Cross Energy’s rate restructuring plan and his vision for a new utility business model.

With Great Power is a show about the people building the future grid, today. It's a co-production of GridX and Latitude Studios. Subscribe on Apple, Spotify, or anywhere you get your shows.

Transcript

Brad Langley: Last year, the board of Holy Cross Energy, an electric co-op in the Rocky Mountains of Colorado approved a rate restructuring that didn't go over so well with the solar industry.

Bryan Hannegan: Our public scuffle with the solar industry caught the attention of Governor Polis and his staff here in Colorado. And I joke, it was like being called to the principal's office like, "Okay, you two quit fighting in the hallway. Let's get in here and let's sort this out."

Brad Langley: The rate restructuring centered around cuts to net metering payments, which meant Holy Cross customers with rooftop solar would see longer payback periods on their investment. Solar advocates worried that the change would crater the rooftop market and Governor Jared Polis was getting an earful from customers and industry insiders wanting answers. Holy Cross CEO, Bryan Hannegan, says he wasn't all that surprised.

Bryan Hannegan: So we had a feeling that this would catch some attention and when the outreach came like, "Hey, what's going on?" I said, "Well, it sounds like we just need to all get in a room and try and figure out what's a win-win solution because it's not just a Holy Cross problem, it's an industry problem."

Brad Langley: Bryan spent years working on energy policy in DC before advancing renewable energy research at the Electric Power Research Institute. He knows about making tough calls. When everyone finally sat down in that room together, he had one goal, find a way to support solar in a way that helps the grid and distributes the cost more equitably.

Bryan Hannegan: We've got almost 3,000 systems out of 60,000 delivery points already online, and we're adding several hundred per year. At some point we're going to hit a breaking point where all that solar during the day is creating costs that really ought to be borne by those that are providing it as well as by us in a more collaborative way. And that we're getting investments not just in solar, but we're getting investments with solar and storage so that that solar that's generated can be exported to the grid at a time when we need it and frankly at a time where we'll pay more for it and the economics will work even better.

Brad Langley: For over a decade, utilities and the solar industry have been sparring and collaborating over how best to compensate electricity from rooftop solar. Bryan sees the model shifting from a static net metering model that makes utility pay for rooftop solar no matter what to something that takes into account when solar is generated and how it interacts with the grid.

Bryan Hannegan: We shouldn't stand in the way of people wanting to put solar on their rooftop just because we're the only ones that think we should be selling electricity. I think the business model for utilities is going to move quickly from one where we're selling all the electrons and being the only game in town to maybe one where we're operating the infrastructure and we're the FedEx of electricity in the sense that wherever it comes from, wherever it needs to go, we'll get it there on time and at an affordable price and in a reliable manner.

Brad Langley: This is With Great Power, a show about the people building the future grid. Today I am Brad Langley. Some people say utilities are slow to change, they don't innovate fast enough, and while it might not always seem like the most cutting-edge industry, there are lots of really smart people working really hard to make the grid cleaner, more reliable and customer-centric. This week I'm speaking with Bryan Hannegan, CEO of Holy Cross Energy, a co-op in Colorado about creating a durable long-term framework for clean distributed energy. Holy Cross has 45,000 members in Colorado's Roaring Fork and Eagle River Valleys, including a number of ski resorts and ranching communities. Its grid has a mix of distributed resources and it recently hit a milestone of more than 65% renewables, but given its location in the Rocky Mountain West, wildfires and extreme weather are top concerns. Both of those forces are pushing Holy Cross to get proactive in the adoption of new technology.

Bryan Hannegan: And that's created a innovative culture and frankly, a company culture at Holy Cross that without that, there's no way we could be doing the things that we're doing, even with our operations crews out there in the field now using satellite data to understand where's the vegetation risk to our power lines, now using drone flights to understand what is the condition of our system and mapping that back into our GIS. So we've now geolocated all of our assets and we know exactly what they are and when they need to be maintained and repaired, and all of that translates into more reliable service, which is what our members see and which is, frankly, all our members want.

Brad Langley: Before we dug into the technology efforts at Holy Cross and how the utility responded to pushback on this restructuring plan, I wanted to hear how Bryan ended up in the utility business in the first place.

Bryan Hannegan: Yeah, great question. So as a little kid growing up in Southern California, I was always fascinated with the weather whenever it would show up. I was think 11 years old when we had the really big El Nino winter of '81, '82 and it was raining and mudslides and whatever, and I was glued to the TV. I just wanted to know more, I was on that road.

Brad Langley: Bryan's interests led him to study meteorology at the University of Oklahoma before heading back west to UC Irvine where he earned a master's degree in engineering and in PhD in earth system science.

Bryan Hannegan: I got more and more engaged in the science, but then it more and more pointed at, hey, if we really want to do something about the risk of climate change, we actually have to do something about how we produce and use energy.

Brad Langley: This led to a congressional science fellowship after which she stayed in DC.

Bryan Hannegan: And I was lucky enough to land on the staff of the Senate committee overseeing energy and natural resources, but I never really was conscious like, hey, I want to go be a utility executive. It was just this accumulation of bits that all pointed then to working at the Electric Power Research Institute working at NREL on grid things, and then now leading a cooperative utility.

Brad Langley: Bryan joined Holy Cross as a CEO in 2017. It wasn't long before he had to navigate some tough choices, so I asked him how we managed the response to the solar restructuring plan last year.

Bryan Hannegan: One of the things I'm most fortunate for is because we live in a member owned cooperative, we did hear from our members, we had 300 of them attending a public meeting and speaking directly with our board of directors about their concerns with what we were proposing. And so what we're likely to continue to stay the course but perhaps implement it more gradually over a longer period of time as the technologies adjust, as our behaviors adjust, as people become more and more aware of what we need, and frankly as we move from when I started 30-ish percent of our power supply coming from clean energy to in January, the number was 68%. And we're projecting that that number will be close to 90% by year-end 2025 on the way to a goal of being 100% clean and renewable by the end of the decade.

And as people see that and as we get an opportunity to go out into the community and say, "This is what it actually means for running the power system, no, we're not getting..." We get that engagement and that conversation that maybe doesn't happen when you just say, "Bang, here's your new rate designed", and people are forced to react to that. It is our intent to have the cost of our electric service match the payments that people make for it. So if you use more, you pay more. If you contribute to the higher demand needs on the system, you pay for that. If you don't use the grid and you generate your own, you shouldn't have to pay anything for the use of that grid. You might have to pay a little something for the option to stay connected in case you do need it, like we pay insurance policies. But we shouldn't stand in the way of people wanting to put solar on their rooftop just because we're the only ones that think we should be selling electricity.

Brad Langley: I know hindsight's always 2020, but would you do anything differently if you were starting this process now?

Bryan Hannegan: Actually, I think that the one thing that we might have done is had more lead time in our communications and more, I hate the word, but socialization in the sense that more conversation about why the rates need to change and not so much what it is. If you look at those who have implemented rate changes successfully, it's been gradual, it's been consultative. It's usually been with a lot of community engagement upfront, and that's certainly something we're seeing the benefits of now as we go through the second. It's also great when your members, your customers come to you and they say, "It would really help us do what we want to do if you change this to that", we're like, "Yeah, okay, that works." And so that's hopefully where we'll be as we go forward.

Brad Langley: And as it pertains to rate changes, obviously to your point, customer engagement education is just so key. So can you maybe talk through some steps you're taking now to repair your members for this restructuring?

Bryan Hannegan: We've proposed to raise our monthly membership charge for all of our customers, that was one part of what we proposed in January of 2023. We are taking public comment on that in advance of finalizing the rate change. We're out talking to town councils and Rotaries and other groups that are interested in finding out more about it. We're communicating on conventional as well as social media. It's featured prominently on our website and we're trying to drive people there. We're also talking more about how our system is changing and why electricity isn't the same price in all places and at all times anymore because of the variability of both the supply and the demand and the strains on the infrastructure.

This is our first rate change in five years, and the reason for that is because through the transition from conventional to clean energy resources, we've actually been able to bring on those new clean energy resources at a lower price than what we were paying for our former portfolio. And so we've been able to avoid for 60,000 people, $30 million over the last five years in avoided energy costs. And that's allowed us to invest in wildfire mitigation, cyber security, grid modernization, upgrades in capacity without having to raise the rates until now. And the current increase in the fixed monthly charge is at most 3 to 4% on a residential bill compared to 30% for electricity rates nationwide since 2020.

Brad Langley: Net metering tends to be a pretty polarizing topic. I'm sure you're keeping up with some of the changes in other western states and larger conversations about the future of net metering. I'd love to hear your take on where net metering is headed.

Bryan Hannegan: Yeah. So we included a delivery charge in our proposed rate changes in 2023, and that delivery charge would be assessed on the delivery of electricity to a home or a business. So anytime you extracted a kilowatt-hour off the grid in order to fuel your energy needs, there would be the cost of the energy, which would be a pass through, you pay what we paid for it, but there would be a delivery charge associated with the cost needed to recover the investments in the grid and the poles and the wires and the infrastructure. And it really was brought at a formula rate very similar to what we already do for transmission. We just proposed to apply that for transmission or for distribution at the local level. And so of the 10 and a half cents that folks were paying at that time, 7 of it was roughly the energy cost, about 3 and a half of it was for the delivery.

And we said, "Hey, we're going to segment those out on the bill. You're going to see those, and anytime you take energy off the grid, you pay both those charges." Net energy metering was then going to be when you deliver energy to the grid, you're going to get revenue at the same amount as it costs you to pull it off. So that 7 cents, not that 10 and a half, well, that changes economics for the rooftop. And you can imagine that that got some folks exercised and we heard a lot about it. But what we were able to do was actually shine a spotlight on the fact that full retail net metering, if taken to its silly nth degree, if every home is a net-zero energy home, if every vehicle has vehicle to grid capability, if all the things that are taking power can also supply it, then in a theory world of 100% penetration, no one pays for the grid. And then what? So we really have to grok through this thought process together.

Brad Langley: Were you surprised to get that call into the governor's office and how'd you prepare for that meeting?

Bryan Hannegan: No, I wasn't surprised. I knew that in addition to letters to our board of directors, the solar industry was encouraging conversation with the public utilities commission, which were not regulated by except if there's a rate complaint. So this was in that vein, but they were also sending letters to the governor's office, the Colorado Energy office. And when the outreach came like, "Hey, what's going on? Tell us more about this. We're getting these letters" and said, "Well, it sounds like we just need to all get in a room and try and figure out what's a win-win solution." If we can figure out what a durable framework is that still gets you the investment in rooftop solar, but also gets you the investment in the grid, we're going to be heroes. Let's sort this out. And so any stakeholder driven process, you've got a few bites at the apple. We met quite a few times last fall. We're going to continue to meet to work through things and we'll see where we go.

Brad Langley: We're seeing a lot obviously in terms of how peak demand is changing with extreme weather, with electrification. I'm curious, what does peak demand look like on your system and how do you see that changing in the years to come?

Bryan Hannegan:

Yeah, thanks. We serve an area of the mountains that is prone to winter recreation. We have a few large ski resorts here. If you've skied at Vale or Beaver Creek or any of the Aspen Snowmass Mountains, you've skied on Holy Cross energy because our electricity powers the snowmaking that lays down the base when Mother Nature doesn't cooperate. We also power the hotels and the resort communities and all of the service economy and the workers that go along with that. So we're very much winter peaking. We have a system peak of about 275 megawatts that falls pretty consistently between Christmas and New Year's when everybody's up here and the lifts are cranking and the restaurants are full. But we also have a growing summer peak of about 150 megawatts. And interestingly enough, that summer peak is growing faster than our winter because as the climate warms, we're starting to hear more interest in air conditioning, not just heating. We're also seeing a lot more electricity consumption for the off-season pursuits, the hiking, biking, fishing, rafting, all the good things.

And so seasonally we've got that winter peak, but a growing summer interest with a couple of shoulder months that are more down in the 100 range. But then during the day, we're seeing a daily peak that most utilities is between the hours of 4:00 and 9:00 PM, that's getting to be a little bit of a challenge given that as people electrify, you get home 5:00 or 6:00, the first thing you do, you put in that electric vehicle, you crank up that heater, you heat up the stove, you do your things. And so our challenge is going to be how do we actually manage the peak production from our wind and our solar resources? Which solar in particular, it's not from 4:00 to 9:00 PM, right? How do we match the peak in the production of those resources with the peak in the demand for electricity, which not only is 4:00 to 9:00 PM but increasingly also in the morning when people wake up and they're like, "It's cold in here. I got to crank up the heater."

And so matching those shapes is going to be what every self-respecting utility is going to have to do. And so how can we make every thing that plugs in flexible and responsive if we need it to be? How can we make the supplies of electricity flexible and storable for hours, days, weeks, even longer? Flexibility is what we need more than anything. People say, "Well, I'm going to give you more solar and that'll help move you guys up towards your 100% clean energy goal." And I'm like, "Can you please give it to me at 4:00 or 5:00 o'clock and not at noon because at noon I've already got too much." And we see this with the duck curve in California and other places. It's actually happening here in wintry Colorado as well.

Brad Langley: So on the demand side, you've got a program called Peak Time Payback for your residential and commercial members, you get credits during times of peak demand. Maybe tell us a little bit about that program you guys are running.

Bryan Hannegan: Yeah, so the Peak Time Payback program is your classic demand response. It is something that basically members can sign up for a mailing list where they'll get a text message or they'll get an email or the communication of their choice, letting them know that, hey, tomorrow afternoon between 4:00 to 9:00 PM we're expecting to hit our system peak. Which is a determinant of our capacity needs and our costs that we have to pay to our wholesale providers, Guzman Energy and Public Service Company Colorado XL and so it'd be really great if you didn't use as much energy during that time, so we all didn't have to pay as much. And so to help you out, we're going to pay you a buck and we've proposed to increase this to a $1.50 in our current proposed rate changes, but we'll pay you $1.50 for every kilowatt-hour you don't use during that period.

And so it's 10 or 15 times the regular energy rate. You get that back by conserving during that peak window. And so if you're able to turn your thermostat down or shut off some lights or go out to eat somewhere rather than cook at home or put your car charging on standby for a while, you can do a lot to help shape the grid and make that peak and valley that we have in our current load profile become more of a plateau where the system gets used more efficiently. We don't have to build any more than we need. We don't have to pay for any more capacity that we need. And so that's one of the demand response programs. Another one that we are working on is called Power Plus. It's zero money down, 0% financing on the utility bill for battery storage. We started with Tesla Power Walls, we've now expanded it to a variety of bring your own devices.

But basically we'll finance and take all the upfront costs and then we'll spread that out over your utility bill payments as a second line so that you're basically leasing to own batteries for your home or your business. And we'll pay you on top of that a bill credit to lower your loan payment if you allow us to use the battery at certain times of day as a grid resource to store extra renewables or make up for the gusts of wind that aren't there, et cetera and so forth. And then the other thing that I really like is we're giving away free level two electric vehicle chargers, two to every homeowner, four to every business owner. The only thing that we ask is that you enroll in programs which allow us to manage the rate of the charging during those peak events. And so you can get that bill credit by joining the same program as Power Plus. It makes it really profitable for our members to help in the management of the grid. It's a great way for them to reduce their overall energy costs.

Brad Langley: As somebody in the market for an EV right now. That sounds like a very nice incentive to get a free level two charger, so kudos on that. Camus, I'm intrigued to talk about some of the work you're doing with them. I believe you deployed their grid orchestration software. Can you explain how the software works and how Holy Cross leverages it across its DERs?

Bryan Hannegan: The electricity system was built one way, and so we only metered and measured it one way, and I think working with Camus, we learned a lot about how to meter it and manage it and monitor it two-way. We also learned how to dispatch different kinds of resources. We've lately moved beyond the capabilities of their platform as we've stretched out into other areas with other partners to bring on more distributed resources. But the whole notion of grid orchestration is that balancing available supply to available demand, not just at a system level, but locally as well. And so allowing all of the distributed resources, the batteries, the vehicles, the smart homes, the thermostats, the this, the that, and the other thing to understand what's going on on the grid that they're connected to and to be able to take the right actions, right? If the voltage is too high or too low, we want the battery or the vehicle connected to the grid to take actions to help us bring that voltage back in by injecting or taking power out of the grid.

And so Camus, Virtual Peaker, EnergyHub, there's an ecosystem of what we call DERMS, DER management system providers that are out there that are offering different degrees of capability. And as we've pushed forward pretty aggressively on the front end, we've almost engineered our way out of being a good customer in the sense that we're starting to ask for things now at a speed and a pace that frankly, we need some special partners that are willing to roll up their sleeves with us. And Camus, it was a huge help to us in getting going in that regard and we'll look for opportunities to work again with them in the future.

Brad Langley: And some of those companies you mentioned built themselves as VPP providers. We talked about DER. I'm curious, as a guy who's very in tune with emerging technology, what is your take on virtual power plants? Is there a difference between DERMS and VPP?

Bryan Hannegan: Well, the notion of a virtual power plan is a bundle of distributed resources that can act like a power plant in providing grid services to the grid, energy services to the grid. That's not fundamentally different. It's an aggregation of demand response if you want to think of it as another way. And I think what the VPP brings is a level of coordination locally that a DERMS tries to create at a system-wide level. Whereas a virtual power plant operates on an operating system that is more at the neighborhood or even at the meter level. And so you could imagine anybody not just a utility being able to step in and orchestrate and manage either as a service or directly for a set of consumers, a set of devices, DERs, acting as virtual power plants. We had some very early experience. We were VPPs before they were cool.

We worked with our local Habitat for Humanity chapter in the Roaring Fork Valley. They were building affordable housing and were challenged by the need to make it all electric. And so we used some learnings from the work that we did with NREL on modeling a high DER future for our system. We actually deployed at four of the 27 homes at the Basalt Vista development near the town of the same name, Basalt. Each of those four homes had solar, batteries and electric vehicle charger, a heat pump, water heater, and an air source heat pump. So DERs that could be managed individually, collectively at the home level or collectively at the neighborhood level consisting of those four homes. And so those four homes actually behave as a virtual power plant.

If we have too much sun, we tell the batteries and the other consuming devices, "Now would be an awesome time to consume that sun because we could use your help in putting it to good use", right? We need a demand response event? "Hey guys, you all could work together and operate as a power plant would to turn down your supply to help us manage that supply and demand balance." And so we're going to need orchestration at the meter, we're going to need orchestration at the community or neighborhood level or the HOA, and we're going to need orchestration at the level of the distribution grid that matches the orchestration we already see going on at the transmission level with the ISOs and the RTOs or the balancing authorities as a whole.

Brad Langley: My last question for you. We call this show With Great Power, which is nod to the energy industry, but it's also a famous Spider-Man quote, "With great power comes great responsibility." What superpower do you bring to the energy transition?

Bryan Hannegan: I think it's all going to revolve around communication. We are in the midst of a massive transition in our energy system and in our electric grid in particular. Every consumer will have, whether they choose to exercise it or not, they will have the opportunity to partake in either helping the grid stay up or taking the grid down quite literally. And my hope is that we use that great responsibility, all of us as consumers, to do all the things that we do to light, heat, fuel, but do it in a way which actually builds more stability, more resilience, lower costs, more sustainability.

We need to rely on our consumers to help us run the electric grid more than ever before. And that's something that's going to require communication over and over again. Because right now most of us spend a few minutes a year contemplating electricity, and it's when we don't have it, and we're going to have to get more people more involved. But I'll tell you, the ones who are getting involved and who are learning about this, they're getting excited about the power that they have and the responsibility that they have, and the ways in which they can actually use more electricity for more things while still doing so at an affordable cost. And to me, that's we're the lifeblood of society, if we can pull that off, then we will have done the world a pretty great service.

Brad Langley: Agreed. Bryan, thank you so much. I really enjoyed our conversation.

Bryan Hannegan:

Thank you, Brad. Me too.

Brad Langley: Bryan Hannegan is the CEO of Holy Cross Energy. With Great Power is produced by GridX in partnership with Latitude Studios. Delivering on our clean energy future is complex, GridX exists to simplify the journey. GridX is the enterprise rate platform that modern utilities rely on to usher in our clean energy future. We design and implement emerging rate structures, and we increase consumer investment in clean energy all while managing the complex building needs of a distributed grid. Our production team includes Aaron Hardick and Mary Catherine O'Connor, and Bailey is our senior editor, Steven Lacey is our executive editor. The original theme song is from Sean Marquand. Roy Campanella mixed the show. The GridX production team includes Jenny Barber, Samantha McCabe, and me, Brad Langley. If this show is providing value for you and we really hope it is, please help us spread the word. You can rate and review us on Apple and Spotify, or you can share a link with a friend, a colleague, or the energy nerd in your life. As always, thanks for listening. I'm Brad Langley.