Energy efficiency is widely recognized as the cheapest, easiest way to gain energy. Better than solar, wind, nuclear and coal, “The cheapest power plant,” Duke Energy's Jim Rogers has said, ”is the one you don't build.” Despite the benefits of efficiency, it is rarely pursued as the first goal of utilities for a simple reason: Less energy use means less profit. Utilities make money by selling power and building new power plants; any program that pushes efficiency reduces those profit centers.
In many communities the way around this is straightforward. Utilities encourage efficiency with programs that, for example, hand out free compact fluorescent light bulbs or provide rebates on Energy Star-rated appliances. They are reimbursed for the cost of developing and implementing those programs, sales lost due to efficiency, and given incentives for proven efficiency gains. The ratepayers pay for these programs.
Duke Energy has proposed a new version of such an “energy-efficiency” program. The proposal, called Save-A-Watt, would be wildly expensive but provide little energy savings. Not only would Duke be paid for the cost of the program, but also for 90 percent of the cost of power plants it doesn't have to build.
The consequences to ratepayers would be staggering. Say I decide to replace my light bulbs with compact fluorescents. The costs are entirely mine. The energy savings are not. I would have to pay 90 percent of “avoided electricity” to Duke.
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Take the calculation made by Public Staff, North Carolina's consumer advocacy agency. Under normal circumstances, a compact fluorescent light bulb would cost $1.65 at Wal-Mart. Because that bulb will save $3.60/year in electricity, you recoup your investment in just under six months. Under Save-A-Watt, that same compact fluorescent light bulb would cost $18.23. Because you pay for the program, efficiency savings, and 90 percent of the power plant that didn't get built, paying off the cost of the bulb would now take five years. To upgrade the 69 light sockets in my house, a reasonable investment of $113.85 would balloon to $1,257.87 under Save-A-Watt.
‘Clearly a very bad deal'
Duke's usual profit margin is 7.5 percent, but it stands to rake in 60 percent profits, even after paying operation costs of Save-A-Watt – margins one expert rightly called “exorbitant.” The Carolina Industrial Group for Fair Utilities noted, “By year four, Duke would get $135.3 million in revenue on programs that cost it $5.6 million to administer.”
With such astonishing revenues, one would think Duke will provide North Carolina with stellar efficiency rates, perhaps the best in the nation. Sadly, this is where Save-A-Watt fails to live up to its name. An August 2007 study by Forefront Economics, commissioned by Duke, showed potential energy savings of 19 percent available for less than 6 cents per kilowatt hour. The top 20 energy efficiency programs save 1 percent of total kilowatt hours every year, according to testimony by Richard F. Spellman, president of GDS Associates. Under Save-A-Watt, Duke projects a pitiful 0.15 percent rate of efficiency for its North Carolina service area. Spellman says Save-A-Watt is “clearly a very bad deal for ratepayers and the State of North Carolina.”
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“Save-a-Watt is a radical departure from past programs, and may not be embraced by all parties,” says Duke spokesman Andy Thompson. Parties “not embracing” Save-A-Watt include AARP, Wal-Mart, North Carolina Council of Churches, Legal Aid of N.C., N.C. Justice Center, N.C. PIRG, National Resources Defense Council, Southern Environmental Law Center and Southern Alliance for Clean Energy, among others.
It's not surprising a power company would concoct an “energy-efficiency” plan that so lavishly pads its bottom line. Remember Duke's twin motives of power- and profit-generation. Jim Rogers, Duke's CEO, is paid solely based on stock awards. In a recent New York Times Magazine article, Rogers lambasted protesting environmentalists as “an ‘eco elite' who don't understand the need working-class people have for affordable energy.”
The devastating effect Save-A-Watt would have on low-income families is partly the reason social justice groups oppose the plan. The groups contend the rate increase caused by Save-A-Watt would function as a subsidy by those who could not afford efficiency improvements to those who could.
We wouldn't go to Krispy Kreme for a healthy diet plan or Exxon for fuel-savings tips. Why should we expect energy efficiency from Duke? Many states have independent energy-efficiency agencies whose sole purpose is to design and implement efficiency programs. Instead of profit, they must prove energy savings. At the very least, Save-A-Watt should be brought in line with proven lower cost/higher efficiency models. Let Duke focus on power and leave efficiency to the appropriate experts.
On Monday, July 28, the North Carolina Utilities Commission holds a public hearing regarding Save-A-Watt. Part of its mission is to “provide fair regulation of public utilities in the interest of the public.” Be sure to let Chairman Ed Finley know what you think of those $18 light bulbs. You can contact him at firstname.lastname@example.org or 919-733-6067.