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Regulation Focus

Anuja Ratnayke
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Catherine Heigel
Associate General Counsel,
Duke Energy Carolinas
Charlotte, N.C.

Raiford Smith
Marketing Operations,
Marketing and Energy Efficiency
Charlotte, N.C.

Dick Stevie
Managing Director,
Customer Market Analytics
Corporate Strategy and Planning
Cincinnati, Ohio

Imagine a regulated utility where customers are charged for the value they receive instead of the costs incurred. In such a world, utilities would focus on lowering their costs and delivering valuable services to customers. If the services don’t produce value, the customer doesn’t pay.

This is the basic premise behind Duke Energy’s innovative save-a-watt approach to energy efficiency. It is a fundamental shift away from the traditional cost-of-service model, focusing instead on a value-of-service regulatory model. Under save-a-watt, Duke Energy must ensure that its energy efficiency programs produce value in the form of verifiable energy reductions in order for the company to recover its costs.

This simple concept changes the utility’s focus from spending money to creating value for customers. Such a transformation is not simple. In traditional cost-of-service regulatory models, customers pay a charge for every kilowatt-hour they consume. Utilities recover their costs and earn a return for investments in physical assets (such as power plants, poles and meters). But energy efficiency undermines the utility’s profitability through reduced sales.

On the other hand, the save-a-watt model provides compensation based on the value created — a portion of the cost avoided from not building new plants. It also provides a comparable return on investments in physical assets.

Unlike other regulatory approaches to energy efficiency, save-a-watt ensures customers only pay for actual reductions in energy use because all programs undergo a rigorous third-party process to verify their energy savings.

Under more traditional regulatory models, customers pay for energy efficiency programs, regardless of whether they achieve the intended results. If power has to be sourced to compensate for a shortfall in energy efficiency, customers end up paying twice — once for the energy efficiency programs and again for the cost of the power. But under the save-a-watt model, the utility takes the risk: If the intended energy efficiency results aren’t achieved, the customer doesn’t pay.

Because returns are based on customer value and not on how much was spent on the programs, the save-a-watt model ensures that the utility stays focused on lowering costs and increasing energy reductions for customers. This also encourages the utility to develop innovative energy-saving services that will achieve more energy reductions and lower costs for customers.

For example, to increase customer adoption and awareness, we are partnering with major retailers on new energy efficiency products. Furthermore, we’re working with local companies to hire additional staff to implement our programs. Customers who participate in the save-a-watt program will save money by reducing their usage. Additionally, all customers will save money because over the long term, the utility will be able to defer building new power plants. Better yet, combining energy efficiency with a smart grid — another Duke Energy initiative — will generate even more savings.

The save-a-watt approach to energy efficiency will help customers save money, create jobs for our economy and reduce environmental impacts. At the same time, it provides utilities with a way to grow their business. It truly is a win for customers, the local community, investors and the environment. Our save-a-watt program was approved by Ohio regulators late last year. We continue to seek its regulatory approval in the other states where we have regulated utility operations.