PrintPrintThe settlement agreement, which compensates the utility for not building an electric plant in North Carolina, could later have implications for Duke Energy’s 700,000 customers in the Upstate. Environmental groups are heralding it as a cooperative effort to bring transparency and savings to electricity customers.
By Andy Owens
aowens@scbiznews.com
Published June 17, 2009
A settlement agreement between one of the state’s electrical providers and environmental groups in North Carolina could affect the utility’s 700,000 customers in South Carolina if a similar plan is adopted in this state.
Duke Energy Carolinas, North Carolina regulators and several environmental groups submitted an agreement late last week to the North Carolina Utilities Commission over the company’s “Save-A-Watt” energy savings program, which was designed to encourage and reward energy conservation and demand-side management.
The program was proposed by the utility to fill a requirement by the utilities commission that Duke must put 1% of its annual electricity revenues toward energy conservation before the commission would give it permission to build a coal-fired plant in the state.
Duke had proposed the plan in North and South Carolina in 2007, but environmentalists and state regulators in both states took issue with the cost recovery component of the program and the amount of energy the company sought to conserve. The plan was partially approved by the North Carolina Utilities Commission and rejected outright by the S.C. Public Service Commission.
The program came under scrutiny for its plan to pay Duke Energy for avoiding the costs of building a power plant. The company would be compensated for a percentage of the estimated avoided cost of $754 million over the next four years.
“In other words, if we simply continued to do business as we have in the past and customers continued to consume energy as they have in the past, we believe the cost of the energy we would have to have supplied them would have come to $754 million over this four-year period,” said Duke spokesman Tim Pettit. But Pettit said the actual savings from conservation could greatly exceed that figure.
Duke wants to treat conservation as an investment and sought to be paid for it using a formula based on several areas of revenue recovery, including demand management programs, energy efficiency savings and a cost of about $1.20 per month extra for the average customer.
“It’s what we call the avoided-costs model,” Pettit said. “That puts the energy efficiency on equal footing with investment you would make building power plants.”
The provision, considered an important incentive to encourage aggressive conservation efforts, has been left in the settlement, along with new provisions requested by environmental groups and more limits suggested by state regulatory staff.
A critical provision for environmental groups was that Duke Energy increase the amount of energy efficiency savings it targets for customers. The company agreed to that and has agreed to an earnings cap at varying percentages based on its performance.
North Carolina regulators inserted provisions in the agreement, including a four-year term for the program which regulators say is to avoid unintended consequences that sometimes come with new regulation and other limits and caps on incentives.
The proposal must pass muster with the North Carolina utility oversight board, and Duke Energy is working with environmental groups on a similar proposal to present to the S.C. Public Service Commission, Pettit said.
“We would expect the programs to be rolling out this year” in South Carolina, said Ben Moore, program director for the Charleston-based Coastal Conservation League. “Duke will have the most aggressive and energy-efficient of any program in the state. Duke’s probably the first utility in South Carolina to stick its neck out and try to figure out a way to be a profitable business and help their customers save energy.”
The league hopes other utilities will follow suit by working with environmentalists.
The North Carolina agreement reduces energy consumption by 2% within four years, with the potential for more savings, Moore said.
“You have environmentalists and a utility getting together to move forward on an energy efficiency program that will save something like 8% of Duke’s sales over 10 years,” he said.
If Duke Energy achieves that target, the cumulative energy savings could reach almost 6,800 gigawatt-hours by 2020, the league said.
“It’s very important to Duke Energy,” Pettit said. “Our CEO refers to energy efficiency as ‘the fifth fuel.’ The best kilowatt is the one that you don’t have to produce.”
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