March 15, 2008

Conservation and the law of the jungle

Dr. Robert Peltier, PE

Money for nothing

Here's a good example of twisted thinking, utility style. Duke Energy has asked regulators in North Carolina, South Carolina, and Indiana to compensate the company for the effects of its “Save-A-Watt” energy conservation program. Similar rate requests are expected in Ohio and Kentucky later this year. The program itself is laudable; it's the funding approach that needs rethinking.

The Duke Energy Carolinas filing describes Save-A-Watt as a “new regulatory approach to energy efficiency programs…that fundamentally changes…the way energy efficiency is perceived.” The company suggests that energy efficiency is a “fifth fuel” that should be considered part of its portfolio of resources for sale at a price “for the benefit of…customers.” The application argues that Duke should be “compensated similarly for meeting customer demand, whether through saving a watt or producing a watt. The company [should] be compensated for the results it produces.”

There's another axiom in the business world: The pigs get fat while the hogs get slaughtered. Duke would like rate-increase compensation of truly porcine proportion: 90% of the predicted profits from building generation capacity equivalent to the predicted reduction in demand that conservation would cause. Bear in mind that both predictions are Duke's. Utilities have been poor predictors of demand, and there's no reason to believe Duke is better at predicting demand reduction.

I say it's time for Duke to widen its narrow perspective and use universally accepted business practices to fund its conservation program. The rate cases ask for payment for not pouring concrete. Although the requested surcharges are only tenths of a cent per kilowatt-hour, they'll be on enough volume to generate for Duke Energy Carolinas an estimated $300 million over the first four years of the conservation program. No customer will avoid the bump; even ratepayers with a five-star, totally green home won't be able to opt out of Save-A-Watt.