At least one investor-owned utility, Duke Energy, has offered demand-side management (DSM) programs in Kentucky since 1996, although overall funding for and activity in energy efficiency programs have been relatively modest. Rural electric cooperatives also offer energy efficiency programs. Kentucky's regulated utilities administer and implement DSM programs with oversight from the Kentucky Public Service Commission (PSC). According to the Energy Information Administration, Kentucky electric utilities saved 54,241 MWh through efficiency programs in 2009. Utilities recover their costs by assessing surcharges.
Natural gas programs are available for all non-industrial utility customers. These programs are administered by utilities and implemented by third-party contractors. They are not required by law. Utilities are allowed to recover some of the costs of implementing natural gas programs. In 2007, these programs — including low-income weatherization — saved 286,000 MCF of natural gas.
Significant changes that are likely to increase support for utility energy efficiency programs on a large scale have taken place since the passage of Kentucky's 2007 Energy Act. Section 50 of this act recommended that utilities examine specific issues regarding energy efficiency and related programs. Both investor-owned and publicly-owned utilities are now considering expanding their energy efficiency programs. For years, these programs were optional, but legislation in 2010 – HB 240, which reenacts a bill that passed in 2008 – allows the KPSC to create requirements for demand-side management programs.
In 2008, Kentucky released its first statewide energy plan, proposing to use efficiency measures to offset at least 18% of the state’s projected energy demand in 2025.
Kentucky's utilities prepare and file annual integrated resource plans with the commission. These plans include demand-side resources.
Reported budgets for energy efficiency programs for 2011, and electricity savings for 2010, are in the State Spending and Savings Tables.
Kentucky's regulated utilities administer and implement DSM programs with oversight from the Kentucky Public Service Commission. At least one investor-owned utility, Duke Energy, has offered DSM programs in Kentucky since 1996, although overall funding for and activity in energy efficiency programs have been relatively modest. Customers support these programs through utility surcharges.
For years, these programs were optional, but legislation in 2010 – HB 240, which reenacts a bill that passed in 2008 – allows the KPSC to create requirements for demand-side management programs. The commission's authority is only to review and approve or deny DSM programs and associated cost recovery through surcharges on customer bills. According to the Energy Information Administration, Kentucky electric utilities saved 64,652 MWh in 2009. Reported budgets for energy efficiency programs for 2011, and electricity savings for 2010, are in the State Spending and Savings Tables.
Kentucky's 2007 Energy Act recommended that utilities examine specific issues regarding energy efficiency and related programs. The state has since established new rules to allow the commission to require utilities to implement specific DSM programs. The commission is also likely to clarify and standardize the rules affecting industrial customers to avoid lost opportunities for energy efficiency improvements in this sector.
The new regulations will also establish standards for evaluating proposed and ongoing DSM programs. The Kentucky Public Service Commission examined these and a number of other related issues. The commission's findings and recommendations were published in Electric Utility Regulation and Energy Policy in Kentucky, a report to the Kentucky General Assembly, on July 1st, 2008.
In 2008, Duke Energy proposed an expanded energy efficiency program, known as the “Save-A-Watt” program. The Alliance to Save Energy, ACEEE, and the Energy Future Coalition endorsed this initiative. The program proposes making energy efficiency a high-priority fuel choice in Duke’s operations in Kentucky to reduce costs for customers. Duke also proposed creating an incentive system for energy efficiency. The Public Service Commission responded in 2009 with detailed questions about the specifics of the program. The “Save-A-Watt” program would set a target of reducing retail electricity sales by 1% by 2015 throughout the five-state region served by Duke Energy. This would involve ramping up the program gradually to meet the target in 2015. After 2015, the savings goal would increase by 1% each year. The plan includes a commitment to “all cost-effective energy efficiency” and sets no upper limit on spending.
Several publicly-owned utilities are also discussing energy efficiency programs with the PSC. Owen Electric Cooperative is developing plans to expand its DSM programs and will submit the plans to the PSC in December 2009. In 2009, the commission encouraged Farmers Rural Electric Cooperative to “step up” its energy efficiency efforts. Rural energy cooperatives throughout the state offer loans for energy-efficient equipment. The state also offers education, tax credits, and sales tax exemptions.
Natural gas programs are not required by legislation, but are available for all sectors other than industrial customers. These programs are administered by utilities and implemented by third-party contractors. In 2007, natural gas programs — including low-income weatherization — cost utilities $1.5 million and saved 286,000 MCF.
Duke Energy offers a self-direct program only to customers that take transmission service on rate TT and are thus described as having “energy intensive processes” and are therefore eligible under statute for such a program. Customers in a self-direct program do not pay any of the cost of the Duke energy efficiency programs and are not eligible to join them. Duke does not measure or verify the savings of a self-direct program. More information on large customer self-direct programs can be found in the ACEEE report, Follow the Leaders: Improving Large Customer Self-Direct Programs.
Under new legislation (passed in 2008 and reenacted in 2010), HB 240, Kentucky required that utility programs allocate their costs and resources according to the sectors that the programs will benefit (residential, industrial, etc.). The legislation also requires that the KPSC consider equity between different classes of customers.
Kentucky utilities fund electric and natural gas programs through a tariff rider that adds a surcharge to customer bills. The Consortium for Energy Efficiency reports 2010 electric program budgets totaling $27.1 million and natural gas budgets of $3.8 million.
Reported budgets for energy efficiency programs for 2011 are in the State Spending and Savings Tables.
Kentucky is generally supportive of lost revenue recovery. The state reiterated this in 2010 in House Bill 240, which reenacted preexisting legislation from 2008. Lost revenue recovery is determined on a case-by-case basis, but the largest investor-owned electric utilities in Kentucky have DSM proposals in place that include similar lost revenue recovery methods. For these utilities, lost revenues are calculated using the marginal rate, minus variable costs and multiplied by the estimated kWh savings from a DSM measure (KY Statute Ch. 278, Title 285; Dockets 2007-00477; 2008-00473).
Natural gas utilities use a similar system to the one described above.
Statute 278.285 allows utilities to recover the full costs of DSM programs via rates and allows incentives designed to provide financial rewards for utilities and encourage implementation of cost-effective DSM programs. Duke Energy, Kentucky Power (AEP), and Louisville Gas & Electric (LG&E) each have a shared savings mechanism in place. Duke and AEP can earn an incentive of up to 10%of net savings after program costs while LG&E can earn up to 15% of net resource savings.
Regulated utilities are required to prepare and file annual integrated resource plans that consider how to use demand-side resources to meet forecasted requirements reliably and at the lowest possible cost.
The evaluation of ratepayer-funded energy efficiency programs in Kentucky relies on regulatory orders (807 KAR 5:058). Evaluations are administered by the utilities, but there are no specific legal requirements for these evaluations in Kentucky. Kentucky uses four of the five classic benefit-cost tests identified in the California Standard Practice Manual. These are the Total Resource Cost (TRC), Utility/Programs Administrator (UCT), Participant (PCT), and Ratepayer Impact Measure (RIM). The rules for benefit-cost tests are stated in Case No. 1997-00083. Kentucky specifies the TRC to be its primary cost-effectiveness test. These benefit-cost tests are required for total program level screening, with exceptions for low-income programs, pilots, and new technologies