The South Carolina Public Service Commission affirmed its support for energy efficiency twice during the holiday season! First by approving South Carolina Electric & Gas (SCE&G)’s financial incentive and energy efficiency programs, and then by approving Duke Energy’s financial incentive and programs. Both SCE&G and Duke Energy will be saving South Carolinians energy for years to come thanks to the support of the South Carolina Commissioners.
We are very pleased that both utility’s energy efficiency applications received approval from the Commission, but they were not treated identically. Before I get into the differences in the orders, let’s talk about what is the same. Both SCE&G and Duke Energy are allowed to: recover the costs of implementing their energy efficiency programs; receive lost revenues for three years (meaning that they recover the money they lose by not selling a kWh for three years); and receive a financial incentive to make the playing field for energy efficiency and supply side resources even. These three principles – program cost recovery, a lost revenue adjustment mechanism, and a financial incentive – are the foundation of solid regulatory support for energy efficiency.
South Carolina Electric & Gas
For readers outside the Palmetto State, South Carolina Electric & Gas is an investor-owned utility that provides electricity to about 670,000 customers in South Carolina. In mid- September, the utility applied for approval of its financial incentive and its energy efficiency programs for the next several years.
In October, I testified as an expert witness in the docket considering SCE&G’s application on its financial incentive and energy efficiency programs it proposed to offer over the next three years. I was pleased with the questions that South Carolina Public Service Commissioners Randall, Fleming, Hall and Whitfield asked me during the hearing. We discussed why energy efficiency reduces electric system costs, and therefore rates; industrial energy efficiency opt-out and reporting requirements; energy efficiency programs, including upstream incentives for manufactured homes; and at what point the cost-effectiveness tests should be applied – at the measure, program or portfolio level.
The Commission ruled on SCE&G’s application on November 26. SACE, Southern Environmental Law Center and South Carolina Coastal Conservation League made several program suggestions that SCE&G are required to report back to the Commission on next year, and we are excited to continue to engage with the utility on the program ideas in their energy efficiency meetings in 2014. One of the ideas we discussed was the opportunity for an on-bill financing program – as Central Electric Power Cooperative and The Electric Cooperatives of South Carolina have successfully implemented an on-bill financing pilot.
The downside of the Commission approving the programs for six years is that they also approved a relatively rich financial incentive mechanism for six years. We advocated for a financial incentive that would provide the utility with a fair return on its low risk energy efficiency investment. However, the Commission was swayed by the utility’s argument that it should be able to both earn a performance incentive on energy efficiency as well as amortize their energy efficiency program costs over five years, with “carrying costs” which are set at the Company’s weighted average cost of capital.
The Commission approved a revised Settlement Agreement on December 20th in South Carolina that is quite similar to the agreement that was struck between Duke Energy and several advocacy groups, including SACE, and approved in North Carolina. In South Carolina, the primary difference between the SCE&G incentive and Duke Energy’s incentive is the recovery of program costs. As I mentioned above, SCE&G amortizes their costs. Duke Energy will recover a percentage of their costs each year – in 2014, 75% of their program costs; in 2015, 80% of costs; 90% in 2016 and in 2017, 100%. Although the Commission and the PSC staff did not say why they proposed this tiered collection, it seems that it is the staff’s effort to keep costs lower to customers in the short term.
The other major difference between SCE&G and Duke Energy’s incentive mechanism is the amount that the utility can earn on saving energy. SCE&G receives 6%, plus the amortized program costs; and Duke Energy receives 11.5%, and a bonus incentive if they save 1% of sales with energy efficiency. SACE prefers Duke Energy’s mechanism to SCE&G’s because, as noted in our press release, SCE&G’s cost recovery allows the utility to earn a profit on simply spending money – not on saving energy. Other differences of note include that Duke Energy’s energy efficiency programs were approved for four years -a bit shorter than SCE&G – and that prior to June 2014, Duke Energy will convene a stakeholder group to investigate improving their non-residential energy efficiency programs.
The Public Service Commission Staff and Duke Energy also worked with us on a few requests that we had. In the past, we have mentioned the Duke Energy – Progress Energy merger settlement. As part of a settlement agreement with SACE and other parties, Duke agreed to an annual energy efficiency (EE) savings target of 1% of retail sales starting in 2015, and a 7% cumulative target over the 2014-2018 time period (5 years) for each utility. Compliance with the targets is subject to good-faith efforts by the utilities to develop and obtain approval for the programs necessary to achieve these targets. In the settlement agreement in this docket, Duke agreed to conduct a study designed to assess the feasibility and estimated cost associated with the merger settlement energy efficiency goals. In addition, as in North Carolina, the parties will discuss on-bill repayment and combined heat and power as energy efficiency opportunities.
SACE looks forward to continuing to work with the South Carolina Public Service Commission, the Office of Regulatory Staff and the South Carolina utilities to identify cost-effective energy efficiency opportunities in 2014. The Commission’s support for energy efficiency is the best gift for South Carolina residents this holiday season because it keeps on giving savings year after year! Here at SACE, we are pleased that both of these utilities received a financial incentive and their program portfolios were approved.