Posted on Fri, Dec. 23, 2011
The Kansas City Star

KCP&L plan shifts to efficiency,

seeks payback for saving energy

Kansas City Power & Light, in a historic shift for the utility, filed plans Thursday with Missouri regulators to sell less electricity.

The company, like other utilities in the region, has depended on selling electricity to recover its costs and earn a profit. Building more power plants was the gauge for its success. Its conservation efforts, such as rebates to customers for buying energy-efficient air-conditioners, were pilot programs and not part of KCP&L's long-term plans.

But the company says it's time for a change, for energy efficiency to take on a more serious role. So its latest plan takes advantage of new Missouri regulations that make it possible for utilities to curb consumption and not be penalized financially.

And customers, though they might pay higher rates initially to help cover the upfront costs of conservation efforts, are expected to eventually see lower rates after the efficiencies start paying off.

The combination, say the utility's officials, convinced them that for the first time energy efficiency should have an official place in its business plans.

"This is different from what we've done for 100 years," said Chuck Caisley, a spokesman for the utility. "This will fundamentally change how electricity is regulated and how we utilize it if regulators accept it."

The plan, as conceived, would ensure a sustained program that includes rebates for commercial and residential customers who buy energy-efficient equipment and lighting. There would also be rebates for disposing of inefficient air-conditioners and refrigerators. Other programs include telling residential customers how their electric usage compares with others in similarly sized homes, and what can be specifically done to reduce consumption.

KCP&L would give the program $25 million a year, which would be expected to eventually save the utility much more than that. The rule of thumb is that it costs one-fifth as much, or less, to eliminate the need for a kilowatt of electricity as it does to produce that much electricity. So the savings could amount to hundreds of millions of dollars over a few years.

A problem in the past has been figuring out how to encourage utililty convervation efforts, because they reduce electricity sales and thus cut into revenue. In addition, utilities haven't always been able to build the costs of conservation efforts into their electricity rates.

But in 2009, state legislators passed the Missouri Energy Efficiency Investment Act, which called for treating investments in curbing consumption in the same way as investments to deliver electricity. It took a couple of years to work out the regulations to put the law into effect, including how to measure energy savings.

Conservation can save utilities money in many ways, including using less fuel, not having to build new plants, and not firing up booster plants as often. In its filing, KCP&L says 60 percent of its eventual costs savings will be passed on to consumers. The rest of the savings will stay with KCP&L, to cover costs for the conservation and efficiency efforts, and offset its lost revenue from selling less electricity.

The plan also envisions cutting overall electricity use 0.5 percent at first and eventually 0.9 percent. And if it meets those goals, KCP&L would get a performance bonus.

In addition, there be a bonus or performance incentive by reaching the promised reductions in consumption which initially would be Β½ percent and gradually rise to 9/10 of a percent. The utility’s sales in the last three years have been flat or down largely because of the economy. But usage has traditionally risen by 1 to 1.5 percent annually and one hope is that energy efficiency could someday offset that.

The Natural Resources Defense Counsel, an environmental group, said it would have preferred more money going into the proposed program, but it was a good start and a milestone for a region of the country that has been slow to embrace energy efficiency. KCP&L, as the first utility in Missouri to take advantage of the regulations, is taking a big step to crack that reputation.

Ashok Gupta, director of energy policy for the environmental group, said Missouri had the opportunity to be one of about a dozen states across the country that are "doing it right" when it comes to energy efficiency.

"It's important for Missouri to move on this because we're looking for leadership in the region," he said.

The group has been pushing for years to get utilities to boost energy efficiency, by offering financial incentives to treat energy savings as a renewable resource that could save consumers money and reduce use of fossil fuels, he said.

But it has been a tough sell, putting Missouri and Kansas in the bottom tier of state rankings for energy efficiency.

"People just don't trust utilities," Gupta said, a problem when you're asking regulators to try something new.

So far, the Kansas Corporation Commission has been reluctant to take an approach similar to Missouri's, and KCP&L has ended its Kansas pilot programs offering rebates for energy-efficient heat pumps and air-conditioners.

In Missouri, now that KCP&L's proposal has been filed, regulators are limited in what they can say until they make a decision on the proposal.

But Kevin Gunn, the commission's chairman, in an interview in October said the new law and regulations upended the traditional business model for utilities, and should be a big boost to energy efficiency in the state.

"We certainly have a lot of potential in Missouri to do it," he said.

Lewis Mills Jr., the head of the Missouri Office of the Public Counsel, which represents consumers on utility issues, said Thursday his office was a big supporter of energy efficiency, since the cheapest megawatt is the one that isn't produced.

His main concern is that KCP&L will ask for too much compensation, or financial recovery, for its conservation costs.

Mills said he won't know whether the terms are fair until he thoroughly reviews the huge filing, but said, "I hope I'm pleasantly surprised."

The savings for utility customers are easiest to envision for those who take advantage of the energy efficiency programs, use less electricity and see their monthly bills go down. But there's also a promised benefit for all customers as the company saves on costs.

Caisley, the KCP&L spokesman, said because of front-end costs for the energy efficiency programs those rates could initially actually increase by 2 to 3 percent. But as the savings build they will keeps rates lower than if there had been no energy conservation.

Lower rates would be a switch for KCP&L customers, who have seen rates surge by more than a third over the last five years to cover such costs as the $2 billion Iatan 2 coal-fired plant near Weston, which is majority owned by KCP&L.

The utility has had several pilot programs over the last six years, including some to reduce peak demand on hot summer days. The Optimizer program, for example, has enrolled 50,000 customers who in return for a free programmable thermostats agreed to allow their air conditioners to be briefly cycled off when demand peaks.

Such programs, say KCP&L officials, have allowed the utility to avoided spending about $150 million on natural-gas generating units, which typically are fired up to meet heavy air-conditioning demand.

That program will continue, if KCP&L's plans are approved, along with others that have become popular with customers.

One of the biggest obstacles for energy efficiency in the Midwest is that cheap electricity rates in the region have made it tougher to justify spending on energy efficiency.

"It was cheaper for us not to be energy efficiency," said Brian Morrison, property manager for American Century, the mutual fund company based in Kansas City.

But KCP&L rebates for energy-efficient lighting and a cooling unit allowed American Century to "close the gap" and get a five-year payback, which was deemed financially satisfactory.

Something similar has happened with rebates for residential customers, said Tom Roberts, president of CFM Distributors of Kansas City, a wholesaler of heating and cooling equipment in four states. He said the rebates often had been the difference, especially in this economy, between buying a basic unit and upgrading to a more efficient heat pump or air-conditioner.

Allen Dennis, director of KCP&L's products and services for energy solutions, said the company had enough experience to learn what it will take to curb more consumption.

One of the lessons: Remove the hassle. For example, the utility wants to offer rebates on efficient lighting and make arrangements with home-improvement stores to provide the rebates at the time of purchase.

"One of the ideas is to make it easy," he said.

To reach Steve Everly, call 816-234-4455 or send email to severly@kcstar.com    

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