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Energy savings program may not be bright idea: Duke ratepayer groups question complex payment plan

April 14, 2008

Duke Energy ratepayers have asked regulators for more time to study what they describe as an "unprecedented" way of paying for an energy-efficiency program the utility is proposing.

They are concerned it might be a better deal for shareholders than customers.

North Carolina-based Duke proposed its "save-a-watt" program last fall, arguing it will boost by more than 10 times the energy savings over existing efficiency options for its 777,000 Indiana customers.

The program would offer such things as compact fluorescent light bulbs, remote shutdown of customers' air-conditioning during peak periods, and cash incentives for efficient HVAC systems and business equipment.

But Duke wouldn't pass on to customers the direct costs of the efficiency program, as it would under traditional utility rate-making.

Rather, it proposes to collect from them 90 percent of what it would cost to build a plant capable of generating electricity equal to the power customers save through the program.

"Duke's proposed cost-recovery mechanism is not only unprecedented, it is also very complicated," Jennifer Terry, a Lewis & Kappes attorney for industrial customers, told the IURC in an April 1 filing, asking for six more weeks to respond.

"Certainly we want to be fair to give some incentives to Duke Energy to recover costs ... but I would say [90 percent] is way too high," said Dave Menzer, utility policy head at Citizens Action Coalition of Indiana.

"This would be giving Duke shareholders an incredible rate of return."

An independent audit would be conducted annually to determine the actual amount of energy saved, Duke said.

"Customers only pay [based on] energy savings that are produced as a result of the program. ... The aim is to reduce the amount of new generation the company would have to build and that customers would have to pay for," said Angeline Protogere, spokeswoman for Duke Indiana.

"It changes the paradigm," she added. "Right now, utilities make their money by building new power plants."

Attorney Terry, representing industrial ratepayers Kroger, Nucor Steel and Steel Dynamics Inc., said ratepayer groups are scratching their heads over new data Duke recently filed with the IURC. The new data increased by $20 million the amount of money the utility said it will avoid spending thanks to reductions in power usage caused by the energy-efficiency program.

As that number rises, the amount that can be passed on to consumers rises along with it, which concerns consumer groups.

"The $20 million is a drop in the bucket. It isn't even the tip of the iceberg. It's the snow on the tip of the iceberg," said Jerome Polk, an attorney for Citizens Action Coalition, which is included in the industrial customers' petition.

Duke could not only pass on most of the costs of a plant it wouldn't need to build as the result of energy savings-but also the cost of the fuel that phantom plant would theoretically use.

It amounts to, "We'll give you a $15,000 energy-efficient automobile. All we want you to do is pay 90 percent of a decked-out Lexus or Hummer," Polk said.

But Protogere said that while avoided energy costs would rise $20 million over Duke's initial projections, the utility also filed a projection that avoided capacity cost-to build a theoretical plant-would decrease by $81 million. That's a net decrease of about $60 million in avoided costs, she added.

Citizens Action notes the plan wouldn't delay construction of at least one new plant-pointing to Duke's $2 billion coal-gasification-generating plant slated for Edwardsport.

But Duke argues that save-a-watt offers significant benefits to customers who would only pay on the basis of energy savings actually achieved.

Duke estimates that average residential ratepayer would pay an additional $1.70 a month if the plan were enacted, based on current estimates of energy savings system-wide.

Duke, however, estimates savings through even basic applications of the program would offset that amount. The most basic is an "energy saving kit" that would include six compact fluorescent light bulbs, window shrink-wrap and an ultra-efficient shower head to reduce electricity used by a water heater.

That customer could see annual energy savings of $70, even after the $1.70 a month costs, the company said.
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