Consumer and environmental advocates have reached a settlement with Duke Energy Carolinas on its Save-A-Watt program. The agreement, which must still be approved by state regulators, increases targets for energy conservation and caps Duke’s potential earnings from the initiative.
The Charlottesville-Va.-based Southern Environmental Law Center, which was the lead legal team for the environmental groups, announced the settlement Friday morning. It calls for Save-A-Watt to reduce energy demand by 2 percent over the next four years. It sets a target of reducing demand by as much as 8 percent by 2020. The environmental groups say that would be the equivalent of the annual output from Duke’s 825-megawatt expansion at the controversial Cliffside coal plant on the border of Cleveland and Rutherford counties.
The groups say that capping Duke’s profits will protect consumers from unreasonably high charges for energy efficiency.
Greater conservation efforts and lower costs were key issues for environmental groups and the Public Staff of the North Carolina Utilities Commission, which represents customer interests in utility cases, as they fought Duke for two years over Save-A-Watt.
Michael Regan, Southeast regional air-policy expert for the Environmental Defense Fund says the environmental groups believe the settlement makes the program better for customers, the environment and for Duke. He says the groups want to support utilities in their efforts to provide energy-efficiency programs. And he says incentives built into the settlement that allow Duke to increase its rate of return based on achieving specified efficiency targets accomplish that goal.
Duke also got what it considers an important concession. Duke will be allowed to make a return on part of what it would have cost to build power plants to provide the energy the program saves.
Duke has said eliminating compensation based on such “avoided costs” would be a deal-breaker. Duke contends such compensation puts efficiency on a more equal footing with electricity sales for generating profits. Without that kind of incentive, Duke has said, efficiency would always take a back seat in utilities’ business plans.
“The fact that the avoided-cost model is in there, that it’s based on pay-for-performance and that it is up to us to make sure the programs really work were all keys to the settlement for Duke,” says company spokesman Tim Pettit.
The public staff and environmental groups had opposed the avoided-costs idea, largely on fears that it could provide Duke with unreasonable profits.
The public staff also worried about departing from standard regulatory practice. In North Carolina, utilities are generally allowed to make a return on the money they spend. An avoided-costs model breaks that connection and offers Duke a return on money it does not spend.
But an important concession to the public staff was a decision to make Save-A-Watt a four-year pilot initiative. The N.C. Utilities Commission will review the program at the end of that period and decide whether it has performed well enough to be made permanent.
The avoided costs outlined in the settlement will track the model Ohio adopted for Duke’s version of the Save-A-Watt program in that state. It reduces the percentage of avoided costs on which Duke can earn a 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 saved. Under the settlement, Duke will get a return on 50 percent of the avoided costs for energy-conservation programs and 75 percent of the avoided costs for programs that shift use away from peak times.
Like in Ohio, the settlement lets Duke cover what are called “lost margins.” Several environmental groups have recognized the need to allow Duke to recover those fixed costs for generating and delivering electricity when efficiency programs reduce demand.
The settlement announced Friday will form the basis of a Save-A-Watt proposal Duke will make to S.C. regulators this summer. The S.C. Public Service Commission rejected Duke’s first proposal in February.
Save-A-Watt is an energy-efficiency initiative Duke has been touting for years. The proposal comprises a series of programs to help customers use less electricity or shift their use of power from peak-demand hours to low-use times.
Some of the programs — such as discounts for energy-saving light bulbs and financial incentives to buy high-efficiency appliances — started June 1 in both Carolinas. But neither state has approved the full initiative.
The Southern Alliance for Clean Energy has led the environmental groups in dissecting the program. Opponents contended the original proposal would reward Duke too handsomely and primarily for shifting the use of electricity from busy times. That would conserve little energy but save utilities money. Steve Smith, executive director of the alliance, says his group’s concern from the beginning was to make sure Save-A-Watt resulted in significant reductions in energy use.
In North Carolina, the commission approved Save-A-Watt’s programs but withheld judgment on Duke’s compensation. The commission asked for additional comments on the issue. As opponents were formulating their responses to that request, they and Duke resumed negotiations in North Carolina.
Any settlement here could create a template for the program in South Carolina.
One key feature of the compromise will be the creation of an advisory group that will assist in reviewing for Save-A-Watt.
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