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Q&A: Karl Rábago, grandfather of the value-of-solar tariff

Karl Rábago

Karl Rábago

As a municipal utility executive in Austin, Texas, Karl Rábago led a team that came up with the very first value-of-solar tariff, an alternative to net-metering that aims to pay utility customers a rate for solar power that reflects its actual value to the grid and society.

Today, as an independent consultant, Rábago is the concept’s chief evangelist. He’s been hired by the Minnesota Department of Commerce to participate in a series of stakeholder workshops that will help the state set the rules for how value-of-solar tariffs should be calculated in Minnesota.

Here is a transcript of a conversation we had with Rábago last week, edited some for clarity and conciseness.

Midwest Energy News: Of all the discussions you’ve been involved in regarding the value of solar, how does this one stand out?

Rábago: It reminds me of the way we did it first at Austin Energy, but even better. When I first launched the value of solar concept, I did it from inside a utility. Utilities generally stay pretty close to the vest on things they’re working on. There’s a certain amount of nervousness or paranoia inside the utility culture. It’s the nature of the industry. But Austin Energy was a municipal utility so we built in from the start conversations with stakeholders and engagement with our policymakers.

In Minnesota, it’s been a public process from the very start. It’s been wonderful. My first visit up there as a consultant was just informational; sharing the experience and talking to groups; MnSIEA and utility people in very open discussions. The Department of Commerce has just set up this wonderful [process]. Everybody is being very forthcoming and honest and direct.

Sometimes you see public comments where people will just kind of say this high-level stuff to preserve their position, but won’t really dig into the details. If you look at these comments, people are offering numbers and specific methodologies and taking a position on stuff in order to advance this discussion. It feels great to be even a little part of the way they’re running the show.

Public process guys like me, who have grown up in the public sector, know that this is what makes more durable results. I’m not a pollyanna. I know these are tough issues and there’s real money associated with them and real business opportunities associated with them and all of that stuff, but this one is how it should be done.

Can you tell me a bit more about why this openness so important?

The Commerce Department only has the duty of developing the methodology. This ultimately is going to be tested in tariffs that have to be reviewed by the Public Utilities Commission. That’s really where the action is going to be.

So we have to do a couple things. First of all, the utilities have to feel sufficiently confident that they file a voluntary tariff. They don’t have to. It’s optional. Just going through this effort … gets you increased probability that they will feel comfortable filing that tariff. It’s not a bring-me-a-rock exercise, and that’s helpful. They should have a high degree of confidence that the work they do in advance will be worthwhile. It’s not just sitting in a dark corner somewhere, trying to come up with your best idea and hoping they like it.

The methodology will be laid out in advance and it will have been discussed. They’ll know what the parties are likely to do and they can anticipate the objections or the proposed modifications or the concerns of the parties. So that’s a big help.

Also, the Public Utilities Commission will have a record of these comments and an ability to understand the issue well in advance of the actual tariff application, so that will give them a higher degree of confidence when they have to make their decision about whether or not the tariff complies with the law.

And then finally, remember what we’re doing with distributed solar. We’re inviting a whole new class of people, who have only previously been relatively passive consumers of electric service, to be much more actively engaged, to become generators, in a sense. Look around this country. You don’t get the public to engage in stuff where they don’t know what the consequences are, especially when electric service comes reliable, affordably, and the only thing they ever have to do is sign up for service, maybe pay a deposit, and then pay their bills on time.

If this is going to work, customers and the small businesses that serve them are going to engage in an exciting and fundamental transformation in the way utilities service them, and that has to start from a position of high information. The economists will tell you that the most successful markets are those that have high information.

That, I think, ultimately will be the dividend that this process will pay, that people will speak with more informed and educated solar installers, that they will be able to engage with advocates who are providing information on benefits from this process, and that even the utilities will offer clear rules of the road for how the customer now engages with them once they get a solar system on their roof. All that lubricates the opportunity for this transformation to a more distributed, cleaner energy future.

Does this process have any potential to affect solar policy or solar development beyond Minnesota?

I sure hope so. I think there is a really great opportunity to sort of set the gold standard for how these conversations should occur.

As I said before, there’s a natural inclination for utilities to do things inside, to exhaustively look at them internally and to only go public after a long, extreme process. Often times that’s the first time the public has a chance to comment and criticize, or to request modifications or to seek better understanding, and that often leads to contentiousness… There are cultural habits that need to be overcome.

I think if Minnesota succeeds — and success will be utilities applying for this tariff and then sailing through the PUC, being implemented and growing the solar market in Minnesota — if the rest of the country sees this succeeding, I hope they’ll say, “wow.”

We can either have these highly contentious debates with protestors in front of company headquarters like Arizona or the CPS situation in San Antonio, where the utility surprised the stakeholder group with this proposal that just lit a firestorm in the community and resulted in a one-year delayed process, just to do the kind of engagement many would argue they should have done in advance. Maybe what we should do is find another pathway.

What are the best and worst case scenarios for what comes out of this process?

The best obviously is that utilities find this is a helpful and desired new option for supporting the deployment of solar, and for, even better, engaging with their customers in a new way, for recasting their relationships with their customers. The big pieces of the value of solar concept that are embodied in this law is that if you fairly compensate customers for the value of the solar energy, you can have a fair conversation about charging customers for the distribution, for the utility services they still use.

That’s really the heart of it. We just want to have fair conversations on both sides. Utilities are entitled to a fair conversation about the services they provide. Solar customers are entitled to a fair conversation about the compensation they deserve for bringing this valuable resource to the system, to society.

The worst case is that for reasons that I don’t really know, I can’t predict, but that one or more of the parties decides not to take advantage of it. Either the utilities decide not to file these voluntary tariffs or the solar industry finds that it’s not a better alternative or it doesn’t offer some benefit. The worst case scenario is that it sits on the shelf and goes unused.

The good new about the worst case is that we still are going to learn a hell of a lot about this distributed resource. I’m one of these full-of-sunshine kind of guys.

It just happens to be that solar is the most charismatic and most rapidly declining in technology cost. It’s the one that sees the headlines, but behind the value of solar are the value of storage, the value of savings (energy efficiency and demand response), the value of security, and the value of smartness.

Even if nobody picks up on this value of solar, I think the utility sector and customers in Minnesota will be much better off, and because it’s a public process I think the nation will be better off for having a deeper understanding of this distributed resource.

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