Critics say Duke plan is all about profit

Duke Energy sees energy program as a national model

RALEIGH -- After months of arguments on paper, Duke Energy this week will publicly defend its controversial energy efficiency proposal, called Save-a-Watt, as critics urge state regulators to reject it.

The Charlotte-based utility says that Save-a-Watt would be unlike any other efficiency program in the nation, by generously rewarding the utility for cutting energy demand in the state. Duke, the state's biggest electric utility with 1.8 million customers, touts Save-a-Watt as a national model that could be adopted by power companies throughout the country.

"The beauty of the Save-a-Watt program is that we have every incentive to drive as much energy efficiency as we can," said Keith Trent, Duke Energy's chief strategy officer. "We take on all risk here. If we don't produce energy savings, we don't recover our investment."

Trent says in 2009, the program's first year, Save-a-Watt would cost the typical residential customer just $1 a month. All residential customers will be charged for the program. Customers who elect to participate in Save-a-Watt could save about $5 a month in electricity costs, Trent said. Participation will be voluntary, typically by accepting financial incentives from Duke to upgrade appliances and get home energy audits.

Church groups, consumer advocates and environmental organizations contend that the primary beneficiary of Save-a-Watt will be Duke Energy. They say the program would overcharge the public and deliver minimal energy savings.

The electric utility will make its case for Save-a-Watt before the N.C. Utilities Commission, the state regulatory body that will decide if Duke can offer the program in this state and charge customers extra to operate it. The hearings, expected to conclude by Friday, will involve testimony from about two dozen experts.

Duke's star witness will be chief executive James Rogers, an outspoken advocate of conservation, renewable resources and alternative energy. Before Rogers gets his turn, Duke has lined up at least 11 experts and executives to defend Save-a-Watt. Rogers' day in the spotlight is not scheduled until Aug. 18, because of scheduling conflicts.

Duke officials hope for a ruling from the utilities commission this year so the company can start offering the program to its customers. The commission could approve or reject Save-a-Watt in its entirety or modify the proposal.

Opponents of Save-a-Watt -- including the AARP, N.C. Council of Churches and the city of Durham -- say the proposal is a boon to Duke's shareholders and a bane to Duke's customers. Wal-Mart Stores, another opponent, argues it should be allowed to opt out of Save-a-Watt and create its own conservation programs, instead of being forced to pay a utility monopoly an inflated cost to administer its own program.

Many of the critics will present their own energy experts to challenge Save-a-Watt.

Leading the charge against Save-a-Watt is the Public Staff, the state's consumer advocacy agency in utility rate cases.

Here are the Public Staff's chief concerns, with Duke Energy's responses, as made in public filings to the utilities commission:

Costly bulbs

Public Staff: Under Save-a-Watt, Duke Energy customers would end up paying $18.23 for a compact fluorescent light bulb that can be purchased at Wal-Mart for $1.65.

Duke Energy: Critics wrongly assume that customers will buy the CFL bulb on their own, without a financial incentive. Duke Energy will have to spend $2 per bulb to market the $1 incentive that will be offered to encourage customers to buy CFL bulbs.

Company profit

Public Staff: The Save-a-Watt financial model would yield a huge operating margin of 61 percent over the value of the Save-a-Watt program's costs. A reasonable margin of 6.8 percent would be more in line with the company's 7.5 percent return from operating its utility business.

Duke Energy: Critics exaggerate the company's profit from Save-a-Watt. When income taxes and lost revenue are factored in, Save-a-Watt could generate a relatively modest return of 18.2 percent if Save-a-Watt results in energy savings. "The bonus incentive proposed by the Public Staff is woefully inadequate to promote the development of energy efficiency," Duke says in a filing.

Cutting power use

Public Staff: For its exorbitant costs, Save-a-Watt proposes to reduce customers' electricity use by only 0.15 percent annually from 2009 through 2012. That's a puny savings compared to other utility energy-efficiency programs that cut customer electricity use by 1 percent a year.

Duke Energy: Some power companies cut energy use by 1 percent in a sample year, but other years show lesser reductions, so saving 1 percent annually is not a reasonable target. Critics also fail to note that customers of those utilities pay on average nearly 12 cents a kilowatt hour for electricity, which is about 50 percent more than Duke Energy's customers pay in North Carolina. It's misleading to compare Duke Energy's efficiency potential to utilities that charge more for power, because higher electricity rates are known to create the greatest incentive to conserve.