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

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The Southern Environmental Law Center, which was the lead lega team for the environmental announced the settlementFriday morning. It calls for Save-A-Watyt to reduce energy demand by 2 perceng over the nextfour years. It sets a targeyt of reducing demand by as much as 8 percenftby 2020. The environmental groups say that woulc be the equivalent of the annualp outputfrom Duke’s 825-megawatt expansion at the controversialo Cliffside coal plant on the border of Cleveland and Rutherford The groups say that capping Duke’s profits will protectf consumers from unreasonably high charges for energ efficiency.
Greater conservation efforts and lower costs were key issuexs for environmental groups and the Public Stafdf ofthe N.C. Utilities Commission, which represents customed interests inutility cases, as they foughf Duke for two years over Save-A-Watt. Michael southeast regional air-policy expert for the Environmentalp Defense Fund says the environmentap groups believe the settlement makes the progra m betterfor customers, the environment and for Duke. He says the groupsa want to support utilities in their efforts toprovide energy-efficienchy programs.
And he says incentivexs built into the settlemeng that allow Duke to increasre its rate of return based on achieving specified efficienc y targets accomplish that Duke also got what it considers an important Duke will be allowed to make a retur n on part of what it would have cost to builsd power plants to provid the energy the program Duke has said eliminating compensation basedr onsuch “avoided costs” would be a deal-breaker. Duke contend s such compensation puts efficiency on a more equa footing with electricity sales forgeneratingt profits. Without that kind of incentive, Duke has efficiency would always take a back seat in business plans.
“The fact that the avoided-cost model is in that it’s based on pay-for-performance and that it is up to us to make sure the programas really work were all keys to the settlement for Duke,” says company spokesman Tim Pettit. The public staff and environmental groups had opposedethe avoided-costs idea, largely on fears that it couldc provide Duke with unreasonable profits. The public staff also worried about departing from standardregulatoryu practice. In North Carolina, utilities are generally allowed to make a returnb on the moneythey spend.
An avoided-costs modelk breaks that connection and offers Duke a returnj on money it does not But an important concession to the public staff was a decisiojn tomake Save-A-Watt a four-year pilot initiative. The N.C. Utilitiess Commission will review the program at the end of that perioed and decide whether it has performed well enough to be made The avoided costs outlined in the settlementf will track the model Ohio adoptedfor Duke’s versiobn of the Save-A-Watt programm in that state. It reduces the percentagre of avoided costs on whichg Duke can earna return.
Duke had originally asked to make a rate of return on 90 percent of what it would have cost to provide the energy that was Underthe settlement, Duke will get a return on 50 percentg of the avoided costs for energy-conservation programs and 75 percent of the avoided costxs for programs that shift use away from peak Like in Ohio, the settlement lets Duke cove what are called “lost margins.” Several environmental groups have recognized the need to alloaw Duke to recover thosde fixed costs for generating and deliveringf electricity when efficiency programs reduce The settlement announced Friday will form the basizs of a Save-A-Watt proposal Duke will make to S.C.
regulatorsd this summer. The S.C. Public Service Commissiob rejected Duke’s first proposal in Save-A-Watt is an energy-efficiency initiativd Duke has been toutingfor years. The proposall comprises a series of programxs to help customers use less electricith or shift their use of powetfrom peak-demand hours to low-us times. Some of the programss — such as discounts for energy-saving light bulbs and financial incentives tobuy high-efficiency appliancees — started June 1 in both Carolinas. But neitherf state has approved thefull initiative. The has led the environmentalp groups in dissectingthe program.
Opponents contendexd the original proposal would reward Duke too handsomelhy and primarily for shifting the use of electricityt frombusy times. That would conservse little energy but saveutilities money. Stevs Smith, executive director of the alliance, says his group’s concerhn from the beginning was to makesure Save-A-Watgt resulted in significant reductions in energy use. In Northn Carolina, the commission approved Save-A-Watt’s programd but withheld judgmenton Duke’s compensation. The commission asked for additional comments onthe issue. As opponents were formulatingb their responses tothat request, they and Duke resumedx negotiations in North Carolina.
Any settlemenr here could create a template for the program inSoutn Carolina. One key feature of the compromise will be the creatiom of an advisory group that will assisrt in reviewingfor Save-A-Watt. Duke Energyy Carolinas is a divisiojnof Charlotte-based (NYSE:DUK).