Mr. Chairman, members of the committee, good afternoon, and thank you for the opportunity to address you regarding SB 284.
Energy efficiency is our most important, least expensive, most available source to meet new demand. At an average 3 cents/kwh with no new pollution, efficiency should be the centerpiece of any comprehensive energy policy.
Today, Midwest Energy operates the most successful and acclaimed energy efficiency program in Kansas. Midwest’s How$mart program audits buildings’ energy use, identifies cost-effective efficiency improvements (often including insulation, weather-stripping, duct sealing, and furnace, heat pump, or high efficiency air conditioning), and finances those improvements on the utility bill – all while ensuring bill savings from day one.
Both KCPL and Westar have worked over the last several years to build energy efficiency divisions and develop and deploy programs. KCPL’s programs include online interactive home energy use analysis (as well as a special calculator for thermostat settings and potential savings), free programmable thermostats, rebates on high efficiency air conditioners and heat pumps, and assistance with home energy audits and improvements. (A number of these programs are available only in Missouri, awaiting KCC approval here in Kansas.) Westar has filed several similar programs with the Commission and is considering a Midwest-style approach as well.
Kansas Power Pool recently approved rebates for efficient heating and air conditioning units (including window units) as well as replacement refrigerators, and like many other utilities is distributing CFLs.
Utilities possess several key advantages for delivering energy efficiency.
• Customer relationships: Utilities have “brand recognition” and an existing relationship with their customers.
• Data availability: Utilities have immediately available, proprietary customer data that can focus energy efficiency investments.
• Access to capital: Utilities are among the most credit-worthy institutions in today’s economy and can attract capital for expensive up-front investments that individual consumers frequently cannot afford.
At the same time, utilities face real hurdles in delivering energy efficiency.
• For investor-owned utilities, incentives are currently misaligned, providing substantially greater returns to shareholders for building new generation and transmission than for making their systems more energy-efficient (i.e., regulated utilities today make more money for shareholders as they sell more).
• For smaller rural electric cooperatives and municipal utilities, less capital for up-front investment as well as smaller staffs with less specialized time to devote may make energy efficiency either unachievable or an inescapably low priority.
A third-party, non-profit provider of energy efficiency for the entire state of Kansas could offer real advantages.
• Consistency: All Kansans would have access to the same programs.
• One-stop shopping: Kansans would know where to look for information on rebates, incentives, and technical assistance to make their homes, businesses, and churches more efficient.
• Supply chain impact: A single provider could work effectively with wholesalers and retailers to ensure adequate, cost-effective supply of energy efficient appliances and with subcontractors to provide a dependable workforce of qualified installers who will emphasize energy efficiency.
• Geographic targeting: A single provider could focus on areas with constrained supply to help defer or avoid significant investments in energy distribution.
• Single purpose: An energy efficiency provider’s sole purpose is to save energy, so competing incentives do not exist.
Third-party providers, however, face challenges as well:
• Must build name recognition and customer trust,
• Must create data-sharing agreements and practices with participating utilities,
• Like utilities, must receive program approval from KCC (and would be starting from scratch to design).
In other words, ramp-up for a third party provider may take considerably longer than encouraging and extending existing utility programs.
Should Kansas decide to pursue a third-party provider for energy efficiency, CEP would encourage amending SB 284 to require an ongoing competitive bid process to award contracts to provide energy efficiency services. We would also encourage statutory performance standards that determine compensation (for example, 0.5% reduction earns 70% of possible return while 1% reduction earns 100%, with potential “bonuses” for geographic focus and/or peak reduction).
In addition, and critically, the advantages of a state-wide third-party provider are dramatically diminished by opt-in participation. To succeed in equitably delivering energy efficiency services to all Kansans through a third party nonprofit deliverer, all Kansas utilities should be required to participate. CEP would support an opt-out for utilities that demonstrate their programs meet the performance and cost-effectiveness standards set for the third party.
In sum: CEP supports the ambitious pursuit of energy efficiency across the state, with an emphasis on the improvement of existing structures and strong building standards for new structures as well as the replacement of highly inefficient major appliances. We endorse rewarding those who deliver energy efficiency – whether utilities or a third party provider – with performance-based incentives.
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