Duke Energy Agrees To New Model For Energy Efficiency

Environmental Defense Fund and the North Carolina Sustainable Energy Association recently joined the North Carolina Utilities Commission Public Staff and environmental colleagues in reaching an agreement with Duke Energy on its new incentive mechanism for energy efficiency investments.

The NC Utilities Commission is expected to issue a ruling on the agreement by the end of November 2013.  If approved, the agreement will motivate Duke to implement energy efficiency measures as broadly and cost-effectively as possible.  Duke’s efforts, in turn, can help ensure a robust market for providers of energy efficiency goods and services.

The agreement would replace Duke’s avoided cost energy efficiency program, “Save-a-Watt,” with a business model known as “shared savings.”  Save-a-Watt, which expires at the end of 2013, was successful in motivating Duke to make investments in energy efficiency.  In fact, the company exceeded its energy savings targets, but the program was overly complex for energy regulators and stakeholders.

In contrast, the shared savings approach will split the anticipated dollar savings between Duke and its customers and set a single, flat rate of return.  By sharing the savings, the model properly balances the interests of the utility and customers, and it will motivate Duke to make energy efficiency investments that save customers money.  The shared savings model is the most commonly used energy efficiency utility incentive mechanism in the United States.

The recent agreement provides an additional financial incentive for Duke to achieve the voluntary energy savings it offered when the company merged with Progress Energy in 2012.  The merger agreement included a minimum 1% per year energy savings starting in 2014 and 7% cumulative energy savings over five years (from 2014-2018).  If the company achieves certain energy efficiency performance targets, it will receive this additional “milestone incentive.”

By the end of 2013, Duke Energy has also agreed to convene a stakeholder discussion on the feasibility of commercial/industrial on-bill repayment (OBR) and combined heat and power (CHP) programs, which will be necessary to achieve high levels of energy efficiency performance by the commercial sector.

If approved, Duke’s new business model could help clean up our air, save people money and grow the marketplace for energy efficiency technologies.