Duke Power has discovered a "fifth fuel." And they want to pass one tenth of the savings on to you!
This happened about a year ago. But with Cliffside in the news, I think this deserves some attention. Last May, around the time that the Progress Energy plant was a hot topic in Asheville, Duke Energy floated a fascinating proposal to the NC Utilities Commission. In it, they suggested that they would promote energy efficiency as a "fifth fuel" by sponsoring education programs and providing subsidies for the purchase of more energy-efficient appliances and devices.
So far, so good. Where it gets weird is in the reward Duke sought for being virtuous: a new fee (starting at $15 per customer per year) that would compensate the utility for the electricity it didn't sell because of decreased demand. That fee was based not only on program costs or unsold wattage, but also on the cost of the power plants the utility would have had to build if customers didn't conserve.
That's not how they phrased it, of course: Duke Energy's spin was that they would be generously allowing consumers to save 10% of the cost of producing and supplying the energy they didn't use. But turn that around, and you see what's really going on: Duke essentially wanted to sell this "fifth fuel" - ghost power produced by ghost plants - for almost as much (90%) as they sold real power produced by real plants that they themselves built. That's a neat trick!
I'd imagine that Duke Energy was trying to head off any attempt by the Utility Commission or the General Assembly to "decouple" electricity rates - that is, to set in place a system whereby utilities receive a set revenue even if demand decreases. This is usually done by promising to increase the profit the utility receives for each unit sold - provided that the utility actively promotes conservation and efficiency. Such increases almost never include the costs of building new plants, however, so you've got to hand it to Duke Energy for trying to widen the range of the debate.
[First posted at Between Elections]
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I remember that fee proposal
Isn't that just the cutest thing you've ever heard? < /sarcasm >
I don't think I get it. So
I don't think I get it. So Duke created an idea that this 5th fuel is really not fuel at all but a gimmicky conservation tactic? The idea being that if we conserve, obviously there's more resources. Actually I think that makes a bit of sense. So Duke basically launched this 5th fuel campaign offering education and subsidizing energy-efficient appliances. That's a good thing.
(I am literally trying to figure this out sentence by sentence because its not making a lot of sense to me)
They initiated this project to teach consumers how to conserve, but instituted a $15 fee to make up for any monies lost because of the conservation, or to build power plants if the education and subsidizing didn't work?
This is a bit unsettling really.
Marketing brilliance I guess, but really really unsettling.
It is confusing.
And you're right - in theory it is a good thing for utilities to encourage folks to conserve.
But here's what makes this Duke Power proposal screwy:
1) They were going to compensate for lost revenues by charging an additional fee. A number of states compensate utilities for revenue lost when conscious steps are taken to reduce demand. (Without this compensation, utilities have no incentive to promote conservation.) Most of the time, some form of "decoupling" is used - the local utilities commission approves gradual increases in the revenue utilities make for each unit they sell (e.g., kilowatt-hours for electricity, cubic feet for water and gas). But these increases don't happen automatically. They're calibrated to make sure that they're done in response to actual conservation, and utilities are usually given conservation goals to meet - goals that also gradually increase.
A flat fee makes no sense in this context. It can't be calibrated, it doesn't change according to the amount of power used, and Duke's proposal didn't set enforceable conservation goals. Moreover, since decoupling is usually accomplished by increasing the per-unit revenue, the costs get passed along progressively - i.e., folks who consume more power pay more. A flat fee doesn't allow for that.
2) When it calculated the $15 fee, Duke Energy included program costs, the usual per-unit cost of delivering and generating power, and the construction costs of the plants that would have been needed to generate the power had it been used. So they took the total cost of all the power that they figured they would have sold if they hadn't run a conservation program, and proposed to recoup 90% of those costs even though consumers would have done most of the work of producing this "fifth fuel."
To put it another way, basically it's as if you go to a restaurant and decide to skip dessert, but then the waiter presents you with a bill which includes a charge of 90% of the cost of the dessert he expected you to buy. That's obviously ridiculous, and most decoupling mechanisms do not include plant construction costs. They really don't include "costs" at all. They just provide a baseline revenue for the utilities - regardless of how much gas, electricity or water they sell - so they have an incentive to generate and sell less power.
Again, Duke Energy was probably just trying to float a more advantageous version of decoupling before lawmakers and regulators took a crack at it. But it's such a bizarrely twisted form of decoupling that it's funny. And you're right - it's also unsettling.