Update: On September 20, 2013, DP&L provided interested parties with a final version of a settlement stipulation. This week, Counsel participated in a brief hearing at the PUCO in which DP&L informed the attorney examiners that the majority of parties have agreed to sign on to the stipulation; however, DP&L awaits confirmation from three or four parties that intend to sign on but need authorization to do so.
Generally, many of the changes from the last version of the Stipulation do not impact industrial customers. Rather, they are primarily focused on impact to residential customers. For example, the stipulation provides that People Working Cooperatively will receive funds from DP&L for low-income residential weatherization programs. Similarly, the Ohio Environmental Council pushed for a LED lighting incentive program for residential customers.
However, there are parts of the Stipulation with potential impacts to industrial customers. In particular, the Ohio Manufacturers’ Association (“OMA”) indicated interest in the Ohio Energy Group’s (“OEG”) provision regarding DP&L’s Energy Efficiency Rider (“EER”) rate design and the stipulation’s provisions related to shared savings.
1. DP&L’s EER Rate Design
The Stipulation provides that the EER rate design will be a combination of distribution revenue and kilo-watt-hours (kWh). Specifically:
30% of the non-residential EER costs will be allocated to non-residential tariff classes based on the most recent 12 months of distribution revenue. The other 70% of the non-residential EER costs will be allocated to non-residential tariff classes based on the most recent 12 months of billed sales (kWh).
In DP&L’s initial application for its Energy Efficiency and Peak Reduction Portfolio Plan to the Public Utilities Commission (“PUCO”), DP&L stated that the proposal “is substantially unchanged from that which has been implemented since 2009.” This is a reference to DP&L’s first ESP Case, Case No. 08-1094-EL-SSO, where the PUCO approved DP&L’s EER. The EER, as filed in the ESP case, states that the rider shall be assessed on kilo-watt-hours (kWh) of electricity per tariff class.1 Thus, DP&L’s initial application proposed a continuation of an EER that was assessed only on a kWh basis, whereas the currently purposed stipulation allocates costs on a kHw and distribution basis. The shift from allocating costs only on a kWh basis should provide relief for high load customers, such as manufacturers.
2. Shared Savings for Over-Compliance
The proposed Stipulation states that “[t]he share savings incentive for over compliance will be included in the forecasted EER rate. Shared savings incentives allow utilities to share some portion of the net benefits of a successful energy efficiency program with the ratepayers, instead of allowing all benefits to flow to the latter. The major advantage of incentives is that they put energy efficiency and supply-side investments on relatively equal financial footing, enabling shareholders to earn a comparable return on either investment. Arguments against incentives include the cost and difficulty of implementing a robust evaluation mechanism to verify savings for performance-based incentives, as well as the view that ratepayers should not have to pay utilities for simply complying with regulatory mandates for energy efficiency.2 Ohio Administrative Code 4901:1-39-07 allows utilities to submit a request for shared savings mechanisms for energy efficiency programs.
The proposed Stipulation provides for a shared savings mechanism that provides an after-tax benefit of 13% to DP&L when it exceeds its energy efficiency requirements by 15%. Any shared savings benefit recovered by DP&L would be capped at $13.5 million, on an after tax basis.3 In Ohio, proposals for shared savings mechanisms are approved on a case-by-case basis, rather than a particular statutory or regulatory framework. Based on research of other shared savings agreements, the shared savings agreement proposed by DP&L appears to be reasonable.4
Finally, pursuant to the Stipulation, DP&L will provide the OMA, from shareholder funds, with an annual $30,000 payment and an additional one-time payment of $30,000 to be used toward research.
Based upon Counsel’s review, it is recommended that the OMAEG grant authorization to sign on to the stipulation. The attorney examiner intends to schedule a hearing next week to adopt the stipulation, thus, parties must agree or decline to sign on by next Tuesday, October 1, 2013.
1 See PUCO Case No . 08-1094_EL-SSO, at http://dis.puc.state.oh.us/TiffToPDf/A1001001A09F29B61036H09033.pdf.
2 See American Council for an Energy Efficient Economy, Incentivizing Utility-Led Efficiency Programs: Performance Incentives, http://aceee.org/sector/state-policy/toolkit/utility-programs/performance-incentives.
3 The after-tax basis is calculated based on the Utility Cost Text (UCT). The UTC is a valuation of the net benefits from the perspective of the utility. It is measured by comparing the value of the supply-side benefits to the incentive and administrative costs associated with the energy efficiency programs. In contrast, the Ohio Administrative Code requires utilities to evaluate program effectiveness using the Total Resource Cost Test (TRC). The TRC measures the benefits of avoided supply costs over the lifecycle incremental costs of energy efficiency measures and program administrative costs. Unlike the UTC, the TRC considers the full cost of the measure, not just the utility incentive cost.
4 See In the Matter of the Application of The Cleveland Electric Illuminating Company, Ohio Edison Company, and The Toledo Edison Company for Approval of Their Energy Efficiency and Peak Demand Reduction Program Plans for 2013 through 2015, Case No. 12-2190-EL-providing for incentive tiers beginning with an incentive percentage of 5 percent for exceeding the benchmarks by up to 105 percent (meeting 100 percent of the benchmarks and exceeding them by up to an additional 5 percent), and gradually increase to a top tier of 13 percent for exceeding the benchmarks by greater than 115 percent, subject to a cap of $10 million).
