Yesterday, the North Carolina Utilities Commission approved Duke Energy’s new energy efficiency financial incentive. With the order, Duke Energy will shift away from the Modified Save-A-Watt pilot that was approved in 2009, to a more common shared savings model. By adopting the shared savings incentive, the North Carolina Utilities Commission and their support confirmed their support for energy efficiency as this was the first opportunity for North Carolina regulators and staff to express their support for utility administered energy efficiency.
What is the Financial Incentive Mechanism that Was Approved?
Yesterday, the Commission approved a shared savings model for Duke Energy. This means that the benefits of energy efficiency, in dollar terms, are split between the Company, and you, the customer. The majority of the benefits go to the customer, and 11.5% of the benefits go to Duke Energy. This is actually a pretty high return for a shared savings incentive, but we were supportive of it because it still results in the least cost electric system. Simply put, everyone saves more money. So, if Duke Energy saves 100 kWh with its energy efficiency programs, which is valued at, say $0.10/kWh, the total benefit is $100. Program costs – the cost of implementing energy efficiency, are about $0.02/kWh, and lost revenues – money Duke Energy recovers for reducing its electricity sales- are about $0.01/kWh. So, of this $100, Duke Energy gets to keep about $12 for its financial incentive. Customers get to keep $85.
If you clicked on the link above, you know that the order is 34 pages long. There is obviously a lot more detail in there than the shared savings explanation I offered above. Other pieces of the Settlement Agreement that I think are interesting are Duke Energy’s Additional Incentive, and the energy efficiency programs that Duke Energy must evaluate.
The NCUC Renewed Support for Efficiency.
As we mentioned, this was the first opportunity for a utility commission in the Southeast to determine that energy efficiency should continue to be pursued by electric utilities. We are pleased to report that the Commission reaffirmed their support for energy efficiency, and also affirmed their support for 1% energy efficiency – also known as the additional incentive.
What is the Additional Incentive?
We have been long advocating for our utilities in the Southeast to achieve energy efficiency impacts that are at least the equivalent of 1% of retail sales. This means that if Duke Energy sells 1 billion kWh in 2010, in 2011, it should save 10 million kWh to achieve 1% savings. There are 14 states that are achieving this level of energy efficiency or higher, and we believe that it is within the reach of Duke Energy to have comparable impact.
Today, the North Carolina Utility Commission agreed that 1% is a valuable milestone. If Duke Energy achieves 1% – double its planned level of energy efficiency – it will receive an additional energy efficiency incentive of $400,000 per year. It will be good for customers if Duke Energy receives the incentive payment, and gives the nation’s largest utility another reason to lead on energy efficiency in the Southeast. If Duke Energy saves 1% of its retail sales each year from 2014-2017, it will generate an additional $200 million in savings for customers.
Energy Efficiency Programs Duke Energy Will Evaluate.
Finally, Duke Energy agreed to take a closer look at three programs that we think are really important: Combined Heat and Power (or CHP), low-income efficiency programs, and on-bill repayment. Duke Energy has looked at each of these programs before, but not advanced any of them to a pilot phase. As part of the Settlement, Duke Energy has to consider these programs and discuss them with the Collaborative (their efficiency stakeholder group) and report back to the North Carolina Utility Commission on the programs. We look forward to engaging with Duke Energy on these programs, and hopefully more.
While the results of this proceeding fell short of what our research suggested was a best practice approach to financing energy efficiency, we are pleased that the North Carolina Commission supported energy efficiency again, and that Duke Energy continues to recognize that energy efficiency is the least cost resource. Moving forward, we are eager to discuss the on-bill repayment, CHP and low-income programs and also to share TVA’s Integrated Resource Plan methodology with Duke. We anticipate that this methodology, which is new to the Southeast, will create an opportunity for energy efficiency to actually be evaluated as a resource.
For more information please see the press release we released yesterday with our partners Sierra Club, National Resource Defense Council, South Carolina Coastal Conservation League, and Southern Environmental Law Center.