Economic Analysis of Duke Energy’s Proposed Save-A-Watt

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2008-04-25

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Abstract

As North Carolina regulators begins to recognize the untapped economic, social, and environmental benefits of meeting increased electricity demand through energy efficiency, it has become clear that traditional electricity rate-making creates a disincentive to invest in energy efficiency. To encourage the use of energy efficiency, the North Carolina Utilities Commission (NCUC) is investigating Duke Energyâs proposed energy efficiency financing mechanism called Save-a-Watt (SaW). Through SaW, Duke Energy can subsidize energy efficiency measures for individual ratepayers. These energy efficiency measures reduce the amount of electricity sold to the individual ratepayers. To recover subsidy costs and opportunity costs from reduced electricity sales, Duke Energy spreads 90% of the cost that it would have taken for the utility to generate the saved electricity to all ratepayers. This paper provides an analysis of the quantitative effect of Duke Energyâs proposed Save-a-Watt (SaW) mechanism. Although Duke Energy has proposed SaW in many states, this analysis will focus on Duke Energyâs North Carolina service territory. To evaluate SaW, a cost benefit analysis of SaW was generated from a financial model of Duke Energyâs operations. The financial model of Duke Energy was built from information gathered from reports, financial and accounting statements, and North Carolina Public Utilities documents. For the cost benefit analysis, two cases were simulated over a 25 year period: the base case includes the construction of two 800 Megawatt coal power plants and the SaW case includes one 800 Megawatt coal power plant and the rest of electricity demand is met with energy efficiency investments. The outcomes from the cost benefit analysis indicate that ratepayers, utilities, and society would realize a positive net present value by implementing the SaW case rather than the base case. In addition, minimal impacts to electricity rates were observed. Due to the confidential nature of information related to the cost of electricity production, some assumptions were made in order to complete the analysis. Future research by individuals with access to Duke Energyâs confidential information should be done to verify the findings in this report.

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Milligan, John (2008). Economic Analysis of Duke Energy’s Proposed Save-A-Watt. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/570.


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