November 14, 2008
KCC Completes Framework for Energy Efficiency Programs
The Kansas Corporation Commission today issued an order that provides a comprehensive energy efficiency framework. This is a collaboration bringing together the efforts of the Kansas Corporation Commission and the utility companies. In general, costs will be recovered through a bill rider mechanism. Throughout its order, the Commission emphasized its belief that Kansans will best be served by its ongoing work with individual utilities on a case-by-case basis.
Today's action is the culmination of two earlier proceedings. In October 2007, the KCC determined it has the broad general authority and discretion to approve energy efficiency and conservation programs and program costs recovery or incentives. Recognizing that for energy efficiency programs to be a success, they must be cost effective and efficient. Subsequently, in June 2008, the KCC established the means it will use to assess the costs and benefits of a program before it is implemented and the effectiveness of a program as it progresses.
The Commission is mindful that Kansas now enjoys relatively low energy costs and an absence of capacity restraints. These conditions make a strong focus on energy efficiency by utilities and Kansans more difficult, but these conditions will not last and it is important to build the framework now for successful energy efficiency programs in the future. The Commission is also aware that economic conditions are deteriorating and balances its review of energy efficiency program cost recovery with the knowledge that raising short term energy costs would be a hardship for many Kansans at this time.
In this light, the Commission believes a cost recovery rider provides the best approach to program cost recovery, at least initially. This straight-forward method reduces regulatory risk for utilities because it provides rapid and assured recovery of program costs. A rider also reduces the need for carrying costs and regulatory assets, lowering costs for customers. This approach is used by other states, and the Commission may benefit from their experience.
The Commission recognizes that successful energy efficiency programs may result in reduced sales for utilities thereby reducing utilities' willingness to implement beneficial energy efficiency programs. To address this concern, the Commission will consider proposals by utilities to separate (or decouple) a utility's margin recovery from its sales volume. These proposals are to be made in connection with new or existing energy efficiency programs. The Commission believes decoupling also reduces risk for a utility and this change in risk will be addressed in setting rates.
The Commission is reluctant to give utilities performance incentives for energy efficiency programs, but is willing to consider shared savings, the sharing of some percentage of the net benefits of an energy efficiency program with the utility, as an incentive mechanism because this approach is most consistent with the collaborative approach favored by the Commission. Shared savings incentives would provide a return on the utility's investment that would benefit both the utility and the customer.
Tom Wright, Chairman of the KCC said, "I am pleased by the fact this important project was a collaborative effort of the electric and gas utilities, the Citizens' Utility Ratepayer Board (CURB), consultants, representatives of industry and commercial interests, several citizen groups, and the KCC Staff. This policy framework represents the best thinking of all stakeholders and provides an excellent foundation to make energy efficiency a key tool in meeting our future energy needs."
Docket No. 08-GIMX-441-GIV