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State Energy Efficiency Policy Database

Kentucky

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Summary

Kentucky has taken an increased interest in utility-sector energy efficiency over the past several years, however statewide investments in and savings from utility energy efficiency programs are still below the national average.  Kentucky's 2007 Energy Act recommended that utilities examine specific issues regarding energy efficiency and related programs, and 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.  Since then, both investor-owned and publicly-owned utilities have expanded 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.

At least one investor-owned utility, Duke Energy, has offered demand-side management (DSM) programs in Kentucky since 1996. Kentucky's regulated utilities administer and implement DSM programs with oversight from the Kentucky Public Service Commission (PSC), and rural electric cooperatives also offer some energy efficiency programs. 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.

The most recent budgets for energy efficiency programs and electricity and natural gas savings can be found in the State Spending and Savings Tables on the left.

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November 8, 2013


Customer Energy Efficiency Programs

Kentucky's regulated utilities administer and implement DSM programs with oversight from the Kentucky Public Service Commission. Several utilities administer some programs, although overall funding for and activity in energy efficiency programs have been relatively modest. Program costs are recovered through tariff riders on utility customer bills.

For years, these programs were optional, but a new interest in efficiency began in 2007 with Kentucky's 2007 Energy Act, which 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. State legislation HB 240 was reenacted in 2010 to allow 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. Utilities are not required to report annually on energy efficiency programs to the Commission.

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.

Under legislation, HB 240 (passed in 1994, amended in 2008 and reenacted in 2010), Kentucky requires 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. Most Kentucky utilities fund electric and natural gas programs through a tariff rider on customer bills. Some Kentucky utilities fund DSM programs through base rates.

The most recent budgets for energy efficiency programs and electricity and natural gas savings can be found in the State Spending and Savings Tables on the left.

Duke Energy offers a self-direct program option 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.

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November 8, 2013


Alternative Business Models

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.


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August 12, 2013


Reward Structures for Successful Energy Efficiency Programs

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.


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August 12, 2013


Energy Efficiency as a Resource

Regulated utilities are required to prepare and file annual integrated resource plans (IRPs) that consider how to use demand-side resources to meet forecasted requirements reliably and at the lowest possible cost.


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August 7, 2013


Evaluation, Measurement & Verification
  • Cost-effectiveness test(s) used: TRC, UCT, PCT, RIM
  • Uses a deemed savings database: no

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.


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August 13, 2013


Energy Efficiency Resource Standards

There is currently no EERS in place.

For more information on Energy Efficiency Resource Standards, click here.


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August 9, 2013