A Tale of Two Utilities: Post-Merger Duke Sees Growth in Carolina Energy Efficiency

Guest Blog | March 4, 2016 | Energy Efficiency, Energy Policy, Utilities

This is the second entry in a new blog series entitled Energy Savings in the Southeast. We will dive into the recent performance of Southeastern utilities’ energy efficiency programs, and highlight how the region can achieve more money-saving and carbon-reducing energy savings. Past and future posts in this series can be found here.

Photo Credit: Jason Elliott
Duke Energy's Home Energy Efficiency Kit helps customers reduce energy use and save money by installing simple energy efficiency measures in homes.

The cities of Charlotte and Raleigh are very different. One is the largest North Carolina city, the other the capital city.  One is heavily dependent on the banking industry, the other on research. Like siblings, the two cities have grown up contending for business investment and jobs, but rather than compete with each other, the two cities complement each other and both have experienced economic growth as a result.

Much like the cities in which they are headquartered, the two largest utilities in the Carolinas are different, yet moving closer to becoming the same. After Duke Energy completed its merger with Progress Energy in July 2012, the two “sibling” subsidiaries – Duke Energy Carolinas, headquartered in Charlotte, and Duke Energy Progress, headquartered in Raleigh – have operated their respective energy efficiency programs separately, but have started to replicate some programs system-wide. As a result, both companies have seen energy savings as a percentage of prior-year sales improve since the merger – to 0.77 percent and 0.72 percent respectively.

As the two utilities continue to merge operations and complement each other, there is a huge opportunity for the combined entity to surpass the recent 1.14 percent achievement of Entergy Arkansas and take a leadership role in the growth of cost-effective energy efficiency programs in the Southeast.

Catching Up, But Still Work To Do

Duke Energy Progress, once in the middle of the pack from an energy savings perspective, caught up to Duke Energy Carolinas in 2014, but both companies fell short of the 1 percent energy savings target agreed to in the Duke/Progress merger settlement agreement signed by SACE and approved by the South Carolina Public Service Commission. Furthermore, much of the growth in energy savings for both companies was from behavioral and lighting residential programs, a trend that continued into 2015. The most recent program updates for energy efficiency in 2015 revealed that over half of the energy savings at both companies came from two programs: the residential My Home Energy Report and the Energy Efficient Lighting programs. These programs are fairly straightforward for the utilities to implement, and they are a relatively easy way to achieve extremely inexpensive energy savings.

While Duke’s subsidiaries have gotten the hang of a few of the easiest program designs, there is still a tremendous amount of valuable efficiency going untapped. One obstacle the utilities face is that certain large non-residential customers in the Carolinas are permitted to “opt-out” of the energy efficiency rate riders – the charges on utility bills that are used to recover program costs – if they are not participating in the available programs. This can be particularly detrimental to a utility’s overall savings performance because, typically, large commercial and industrial customers have the highest participation rates in energy efficiency programs and are able to generate the lowest-cost energy savings of any customer class due to economies of scale, greater access to capital and a profit-focused drive to cut operating costs, among other reasons.

Opt-out rates in the Carolinas are high and growing, but these rates are not uniform across utility service territories. In North Carolina, Duke Energy Progress’s opted-out customers accounted for 50 percent of non-residential sales in 2014, while Duke Energy Carolina’s opted-out customers made up a less-detrimental 33 percent. In South Carolina, a recent policy change expanded opt-out eligibility, and has been partly responsible for driving a recent spike in opt-outs in that state. Duke Energy Progress reported that its opted-out customers in South Carolina made up 58 percent of the company’s non-residential sales in 2014, and that rate grew even further to 62 percent by mid-2015.

One Plus One is Greater than Two

Duke Energy Carolinas and Duke Energy Progress have the opportunity to take a leadership role in how energy efficiency programs are implemented in the Southeast. The companies can and should design and implement programs that reach a broad customer market and place additional emphasis on increasing customer participation in its EE/DSM programs to deepen the energy savings results. Among other solutions, SACE recommends that Duke:

  • Expand participation in non-residential energy efficiency programs by implementing a self-direct program or modifying the existing program to reduce the high number of opt-outs;
  • Consider new programs for hard-to-reach markets like multifamily and low-income renters; and
  • Help customers invest in deeper, “whole house” retrofit measures by offering on-bill financing programs to assist with the upfront capital cost.

By combining program management and evaluation responsibilities between the two companies and implementing new programs designed to target more customers, Duke Energy has the opportunity to set aggressive goals in cost-effective energy efficient investment and go far beyond the 1 percent glass ceiling.

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