By DUANE SCHRAG

Salina Journal

"Turn the lights out when you leave the room," your parents told you. "Don't waste electricity."

What they might not have told you is that if you cut back too far on how much electricity you use, your power company will start to complain that you're spoiling its business plan.

"We are totally committed to energy efficiency," said Chris Giles of Kansas City Power and Light, "as long as we can have the same level of return we would earn and prohibit the loss of profit margins."

Giles offered the observation at a workshop in Topeka on Tuesday organized by the Kansas Corporation Commission as part of its exploration of energy efficiency programs. The KCC is expected to issue a ruling in the energy efficiency case before the end of the year.

The issue has growing importance for several reasons. Nobody brought up the bitterly debated plan to build two new coal plants in Holcomb in southwest Kansas, but energy efficiency figures into the question of just how much generating capacity Kansas really needs.

Westar Electric, the state's largest utility, announced earlier this year that it plans to use efficiency and increased reliance on renewable energy to delay, for as long as possible, building new power plants. The cost of new power plants has climbed sharply in the last five years, and there is a growing expectation that a national carbon tax will make electricity from coal-fired plants significantly more expensive.

Thus, avoided power generation -- through efficiency measures, for example -- is becoming increasingly attractive.

Whom does it benefit?

Just how energy efficiencies would be achieved, who should benefit and how much are some of the questions the KCC will have to address.

Most of the presenters at the workshop argued that not only should utilities' profits be protected, they also should be given incentives to push efficiency programs.

Chuck Goldman of the Lawrence Berkley National Laboratory said that energy efficiency programs typically seek reductions that range from 0.5 percent to 2 percent annually. The lab developed a model that explored the financial implications of variously aggressive efficiency programs. The analysis showed that with energy efficiency programs usually both utilities and consumers come out ahead.

Specifically, the analysis showed that savings to consumers were the same whether the utilities were offered incentives or if "decoupling" is employed. Decoupling refers to a rate structure that breaks the connection between volume and profit margins -- utilities would earn the same profit regardless of whether customers used more or less electricity.

Goldman argued that utilities should be insulated not only from fluctuations in customer use, but from weather-related changes, and even market changes such as plant closures or expansions. Furthermore, he suggested that it isn't useful to distinguish between reductions that are the result of efficiency program initiatives and those consumers achieve on their own. Utilities should be rewarded for both.

Profit with little risk

That didn't sit well with David Springe, director of the Citizens' Utility Ratepayer Board, a watchdog group. He noted that utilities already have succeeded in moving much of their risk -- fuel costs, transmission costs, environmental costs -- onto consumers. Now utilities are asking that even more risk be assumed by the consumer.

"We've moved just about everything that is volatile to the customer," Springe said. "We have removed all of the risk. All that's left is, how do we give them more money?"

He said that the justification for guaranteeing profits is that utilities assume risk when they make their investments, and thus deserve to be rewarded.

"Return on equity compensates them for risk," he said. "We have to have a substantial return on equity reduction."

John Perkins, a consumer advocate from Iowa, said the idea that utilities' profits ought to be protected at all costs is wrong.

"It doesn't matter why our revenues are down," he said, offering a paraphrase of utilities' position. "Just give them back to us."

He pointed out that utilities have the luxury of being monopolies.

"The state of Kansas has given you a protected territory," he said. "As part of that, the state has said they will set your rates. You have made that regulatory bargain. I don't see any reason why it ought to be tinkered with."

Kilowatts for sale

He disputed the idea that utilities should be put in charge of energy efficiency programs at all.

"Your fiduciary responsibility to shareholders is to sell as many kilowatt hours as you can," he said.

Indeed, in some states, such as Vermont, energy efficiency programs are put in the hands of third-party groups. Vermont, which has been a national leader in efficiency savings, hasn't compensated utilities at all for reductions in consumption.

So far. It now has a case asking for just that, said Rich Sedano, director of the Regulatory Assistance Project, a federally funded think tank based in Vermont that addresses utility issues.

n Reporter Duane Schrag can be reached at 822-1422 or by e-mail at dschrag@salina.com.

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