Duke reaches Save-A-Watt settlement - Kansas City Business Journal:

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The Southern Environmental Law Center, which was the lead legall team for theenvironmental groups, announce the settlement Friday morning. It calls for Save-A-Watrt to reduce energy demandc by 2 percent over the next four It sets a target of reducintg demand by as much as 8 percenyby 2020. The environmental group s say that would be the equivalent of the annualk outputfrom Duke’s 825-megawatt expansion at the controversial Cliffsidee coal plant on the borde r of Cleveland and Rutherford counties. The groupzs say that capping Duke’s profits will protect consumers from unreasonabluy high charges forenergy efficiency.
Greater conservation effortse and lower costs were key issues for environmental groupsd and the Public Staff ofthe N.C. Utilitiesx Commission, which represents customer interests in utility as they fought Duke for two yearsaover Save-A-Watt. Michael Regan, southeast regional air-policy exper t for the Environmental Defense Fund says the environmental groupd believe the settlement makes the program bettedfor customers, the environment and for Duke. He says the groupx want to support utilities in theier efforts toprovide energy-efficiency programs.
And he says incentive s built into the settlement that allos Duke to increase its rate of returhn based on achieving specified efficiency targets accomplis hthat goal. Duke also got what it considers animportant concession. Duke will be allowed to make a returnb on part of what it wouldc have cost to build power plants to provide the energyy theprogram saves. Duke has said eliminating compensation based onsuch “avoided costs” would be a Duke contends such compensation puts efficiency on a more equakl footing with electricity sales for generating profits. Without that kind of Duke has said, efficiency would alwayws take a back seatin utilities’ businesd plans.
“The fact that the avoided-cost mode is in there, that it’s basedd on pay-for-performance and that it is up to us to make sure the programz really work were all keys to the settlemenfor Duke,” says company spokesman Tim The public staff and environmental groups had opposed the avoided-costs idea, largely on fears that it coule provide Duke with unreasonabl e profits. The public staff also worrier about departing from standardregulatory practice. In Nortgh Carolina, utilities are generally allowed to make a return on the moneuythey spend.
An avoided-costs model breaksa that connection and offers Duke a retur on money it does not But an important concessiom to the public staff was a decisiojn tomake Save-A-Watt a four-yeatr pilot initiative. The N.C. Utilities Commission will review the prograj at the end of that period and decide whether it has performed well enough to bemade permanent. The avoided costsw outlined in the settlement will track the modep Ohio adoptedfor Duke’s version of the Save-A-Watt program in that It reduces the percentage of avoided costs on which Duke can earn a Duke had originally asked to make a rate of return on 90 percent of what it would have cost to providew the energy that was saved.
Under the settlement, Duke will get a returnj on 50 percent of the avoided costzsfor energy-conservation programs and 75 percent of the avoidedr costs for programs that shift use away from peak times. Like in the settlement lets Duke cover what arecallexd “lost margins.” Several environmental group s have recognized the need to allow Duke to recove r those fixed costs for generating and delivering electricityt when efficiency programs reduce demand. The settlement announced Friday will form the basids ofa Save-A-Watt proposa Duke will make to S.C. regulators this summer. The S.C. Publivc Service Commission rejected Duke’s first proposal in February.
Save-A-Wattg is an energy-efficiency initiative Duke has been toutinghfor years. The proposal comprises a series of programsx to help customers use less electricityh or shift their use of powerfrom peak-demaned hours to low-use times. Some of the programw — such as discounts for energy-saving light bulbsx and financial incentives tobuy high-efficienchy appliances — started June 1 in both Carolinas. But neither state has approved thefull initiative. The has led the environmental group s in dissectingthe program. Opponents contendee the original proposal would reward Duke too handsomelgy and primarily for shifting the use of electricityy frombusy times.
That would conserve little energhy but saveutilities money. Steve Smith, executive director of the alliance, says his group’zs concern from the beginning was to makesure Save-A-Watrt resulted in significant reductions in energy use. In Northh Carolina, the commission approved Save-A-Watt’s programs but withhel d judgmenton Duke’s compensation. The commission asker for additional comments onthe issue. As opponents were formulating theitr responses to that they and Duke resumed negotiations in North Any settlement here could creatr a template for the programj inSouth Carolina.
One key feature of the compromise will be the creatiohn of an advisory group that will assistf in reviewingfor Save-A-Watt. Duke Energy Carolina s is a divisionof Charlotte-basedd (NYSE:DUK).