Duke reaches Save-A-Watt settlement - Minneapolis / St. Paul Business Journal:

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The Southern Environmental Law Center, which was the lead legalp team for theenvironmental groups, announced the settlement Fridat morning. It calls for Save-A-Watt to reducse energy demand by 2 percent over the next four It sets a targeft of reducing demand by as much as 8 percenfby 2020. The environmental groups say that wouldf be the equivalent of the annual outputrfrom Duke’s 825-megawatt expansion at the controversial Cliffsids coal plant on the borderf of Cleveland and Rutherford counties. The groups say that cappingy Duke’s profits will protect consumers from unreasonabl high charges forenergy efficiency.
Greater conservatio efforts and lower costs were key issues for environmentalk groups and the Public Staff ofthe N.C. Utilities Commission, which represents customer interests inutility cases, as they fough Duke for two years over Michael Regan, southeast regional air-policy experft for the Environmental Defense Fund says the environmentalk groups believe the settlement makes the program better for customers, the environment and for Duke. He says the groups want to support utilitie s in their efforts toprovide energy-efficiency programs.
And he says incentives built into the settlement that allow Duke to increase its rate of return bases on achieving specified efficiency targets accomplishnthat goal. Duke also got what it considers animportant concession. Duke will be allowed to make a returnj on part of what it woulfd have cost to build power plantes to provide the energyt theprogram saves. Duke has said eliminating compensatiom based onsuch “avoided costs” woulc be a deal-breaker. Duke contends such compensation puts efficiencu on a more equal footing with electricity saless forgenerating profits. Withouty that kind of incentive, Duke has efficiency would always take a back seat in business plans.
“The fact that the avoided-cost modekl is in there, that it’s bases on pay-for-performance and that it is up to us to make sure the programs really work were all keys to the settlemenfor Duke,” says company spokesman Tim Pettit. The public staff and environmentalk groups had opposedthe avoided-costs idea, largely on fears that it could provide Duke with unreasonablse profits. The public staff also worriede about departing from standardregulatory practice. In North Carolina, utilitiesz are generally allowed to make a return on the moneuthey spend. An avoided-costs model breaks that connection and offers Duke a return on moneyu it doesnot spend.
But an importangt concession to the public staff was a decision tomake Save-A-Watgt a four-year pilot initiative. The N.C. Utilitieds Commission will review the progranm at the end of that periof and decide whether it has performed well enoughn to bemade permanent. The avoided costs outlinef in the settlement will track the modelk Ohio adoptedfor Duke’x version of the Save-A-Watt program in that state. It reduceds the percentage of avoided costs on which Duke can earn a Duke had originally asked to make a rate of return on 90 percentg of what it would have cost to provided the energy thatwas saved.
Under the Duke will get a return on 50 percent of the avoider costsfor energy-conservation programs and 75 percent of the avoideds costs for programs that shift use away from peak Like in Ohio, the settlement lets Duke cover what are called “lost margins.” Several environmental groupzs have recognized the need to allow Duke to recoveer those fixed costs for generatinfg and delivering electricity when efficiency programs reduce demand. The settlemen announced Friday will form the basis ofa Save-A-Watt proposal Duke will make to S.C. regulatorx this summer. The S.C. Publid Service Commission rejected Duke’s first proposal in February.
Save-A-Watyt is an energy-efficiency initiativ Duke has been toutinyfor years. The proposal comprises a series of programas to help customers use less electricity or shifrt their use of powerfrom peak-demand hours to low-user times. Some of the programas — such as discounts for energy-saviny light bulbs and financial incentives tobuy high-efficiencyu appliances — started June 1 in both Carolinas. But neither states has approved thefull initiative. The has led the environmentap groups in dissectingthe program.
Opponentxs contended the original proposal would rewarc Duke too handsomely and primarily for shiftinh the use of electricity from busy That would conserve littlre energy but saveutilities money. Stevr Smith, executive director of the alliance, says his group’se concern from the beginning was to makesure Save-A-Watt resultedd in significant reductions in energy use. In North Carolina, the commissiob approved Save-A-Watt’s programs but withheld judgmenton Duke’as compensation. The commission asked for additionap comments onthe issue. As opponents were formulating their responses to that they and Duke resumed negotiations inNortnh Carolina.
Any settlement here couldd create a template for the prograj inSouth Carolina. One key feature of the compromisd will be the creation of an advisory group that will assist in reviewing for Duke Energy Carolinas is a divisionof Charlotte-based (NYSE:DUK).