Kentucky State Guide to Utility Energy Efficiency Planning

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Ayanaba, policy manager Lily Smith, program associate About us Founded in the Southeast Energy Efficiency Alliance (SEEA), promotes efficient energy as a cata lyst economic growth, workforce development, and energy security 11 southeastern states. a diverse set of stakeholders energy that all people in the Southeast should be able to live and work in healthy and resilient buildings, utilize clean and affordable transportation, and thrive in a robust and equitable economy.

sector. We believe

for

August 2022 ClaudetteAuthors

2007,

across

KENTUCKY STATE GUIDE TO UTILITY ENERGY EFFICIENCY PLANNING

We provide research, consultation and education, stakeholder facilitation, program management and financial services to

in the

Utilities in Kentucky In Kentucky, three types of electricity providers sell electric power to retail customers - investor-owned utilities (IOUs), electric membership corporations (cooperatives) and municipally owned utilities. Electric Utilities in Kentucky Source: U.S. Energy Information Administration, Form EIA-861, 2020 Annual Electric Power Industry Report Rural electric membership corporations are operated by parent companies or membership cooperatives, East Kentucky Power Cooperative or Big Rivers Electric Corporation. Kentucky has two membership cooperatives, East Kentucky Power Cooperative and Big Rivers Electric Corporation, which help regulate and provide electricity to the region. East Kentucky Power Cooperative oversees 16 member cooperatives and Big Rivers Electric Corporation oversees three. The East Kentucky Power Cooperative is responsible for providing service to over 500,000 customers in the state. Five Largest Utilities in Kentucky by Retail Sales Source: U.S. Energy Information Administration, Form EIA-861, 2020 Annual Electric Power Industry Report Kentucky State Guide to Utility Energy Efficiency Planning | 2 Type of provider Quantity Percentage of customers served Investor-owned Utilities 4 55.04% Electric Membership Corporations 24 37.04% Municipal Utilities 19 7.92% Name Type (ThousandRevenue USD) (MWh)Sales Number Customersof Average Price (cents/ kWh) Kentucky Utility Co. Invester-owned 1,536,018 16,807,541 533,117 9.14 East CooperativePowerKentucky CooperativeMembership 1,055,578 12,002,776 552,152 9.51 Louisville Gas & Electric Co Investor-owned 1,093,999.7 11,008,049 421,842 9.94 Kentucky Power Co Investor-owned 501,279 5,116,478 165,763 9.80 Duke Energy Kentucky Investor-owned 332,239.6 3,850,451 145,957 8.63

The Public Service Commission of Kentucky is the state administrative agency that regulates the intrastate rates and services of approximately 1,100 utilities including electric, natural gas, telephone, water and sewage. The commission regulates the electric rates and services offered by investor-owned utilities and two electric generation cooperatives and their member rural electric cooperatives, not including those serviced by the Tennessee Valley Authority. Municipalities are not within the jurisdiction of the commission. The mission of the Public Service Commission of Kentucky (Kentucky PSC or the commission) is to “foster the provision of safe and reliable service at a reasonable price to the customers of jurisdictional utilities while providing for the financial stability of those utilities by setting fair and just rates and supporting their operational competence by overseeing regulated activities.” The commission consists of three commissioners who are supported by a staff comprised of fiscal and rate analysts, economists, attorneys, policy advisors, utility inspectors, administrative and information technology support staff.

Relationship with State Legislature

General Information

Formed in 1934 by the Acts of the Kentucky General Assembly in Chapter 145, the Kentucky Public Service Commission performs duties specifically outlined as responsibilities in Chapter 278 of the

Service Territories for IOUs and Cooperative Utilities in Kentucky

Source: Public Service Commission of Kentucky, Electric Distribution Service Areas

Kentucky State Guide to Utility Energy Efficiency Planning | 3

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The commission consists of three commissioners who are appointed by the governor with advice and confirmation from the Senate. Commissioners serve four-year terms, with no limit on the number of consecutive terms a commissioner may serve. Each commissioner must be a resident and registered voter of Kentucky, at least twenty-five years old when appointed, have resided in Kentucky for at least three years prior to their appointment and have no relationship, financial or other, to any utility. The commission website lists updated information about the commissioners and any vacancies.

Name and Position Appointed by Term Start Term End Contact Information

. Changes to the the Kentucky PSCs jurisdiction and regulation of IOUs, natural gas, telecommunications, water and sewage utilities, electric cooperatives and other public utilities are mainly a result of the Kentucky General Assembly. The General Assembly determines which utilities are within the jurisdiction of the commission and over the years has granted the commission certain responsibilities or shifted control of a given sector to another office.

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Vacant Source: Kentucky Public Service Commission, Meet the Commissioners

Kent A. Chandler (D) Chairman Gov. Andy Beshear (D) July 6, 2020 June 30, 2020 Kent.Chandler@ky.gov 502-782-2553

Kentucky State Guide to Utility Energy Efficiency Planning

The commission regulates the intrastate services and rates of all IOUs and cooperatives, except those that purchase power from the Tennessee Valley Authority. The commission relies on formal proceedings, informal and formal conferences, hearings and less formal notice-and-comment processes to make its regulatory decisions. Each jurisdictional utility must file an integrated resource plan (IRP) every three years on a six-month staggered basis. After receiving a utility’s IRP, the commission will develop a procedural schedule including allowance of submission of “written interrogatories to the utility by staff and intervenors, written comments by staff and intervenors, and responses to interrogatories and comments by the utility.” Commission Staff

The commission staff is comprised of the three commissioners and the following divisions: commission operations, executive director’s office, inspections, financial analysis, general counsel, and general administration. The executive director oversees day-to-day operations of the commission. KRS Chapter 278 § 1-11

Kentucky Public Service Commissioners

Overview of Commission Proceedings

Kentucky Revised Statutes and in Chapter 801 of the Kentucky Administrative Regulations

Commission Structure

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Mary Pat Regan (D) Gov. Andy Beshear (D) July 11, 2022 July 1, 2023 Mary.Regan@ky.gov 502-782-2553

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Kentucky State Guide to Utility Energy Efficiency Planning | 5 The staff work closely with the commissioners and provide data, information and support. While staff do not provide comments for dockets, they provide facts and data for the commission to use in making decisions. Kentucky Public Service Commission Key Staff Name and Position Contact Information Linda C. Bridwell Executive Director 502-782-2560 Nancy Vinsel General Counsel 502-782-2553 Mary Beth Purvis Division Director, Financial Analysis 502-782-2657 Rosemary Tutt Manager, Consumer Services 502-782-2553 Melissa Holbrook Assistant Director, Inspections 502-782-2603 Source: National Association of Regulatory Utility Commissioners, Members Other Involved Agencies Office of Energy Policy The Kentucky Office of Energy Policy is the state energy office which oversees energy policy issues and energy programs in Kentucky. The office was created from the Energy and Environment Cabinet Reorganization in the 2018 Kentucky General Assembly. Their mission is to “utilize Kentucky’s energy resources for the betterment of the Commonwealth while protecting and improving our environment. We hope to achieve a better understanding; communicating about how rapid changes occurring in the energy sector (such as advancements and cost reductions in certain technologies; federal and other states’ policies; and market forces) place pressure on existing energy systems, but also present new opportunities for energy users and producers.” The office is non-regulatory, although they do work collaboratively with the Kentucky PSC. They assist the commission on regulatory reviews at their request and provide comments on some administrative documents and contribute data analysis from a neutral stance. They convene and work with utilities on education and outreach regarding their programs and services, focusing on energy affordability and energy education. Kentucky Office of Energy Policy Key Staff Name and Position Contact Information Kenya Stump Executive Director Kenya.Stump@ky.gov Ashley Runyon Assistant Director Ashley.Runyon@ky.gov

Kentucky State Guide to Utility Energy Efficiency Planning | 6 Name and Position Contact Information Lona Brewer Staff Assistant Lona.Brewer@ky.gov Eileen Hardy Project Manager Eileen.Hardy@ky.gov Greg Bone Data Analysis and Modeling Greg.Bone@ky.gov

Source: Kentucky Energy and Environment Cabinet, Kentucky Energy Strategy, Office of Energy Policy

Existing State Policies for Energy Efficiency Cost Recovery

Performance Incentives

Amanda.LeMaster@ky.gov

Marie Franklin Executive Advisor Anne.Franklin@ky.gov

Lost Revenue Recovery

The commission may grant approval of utility-designed programs that offer performance incentives to customers. This is based on the notion that the proposed demand-side management programs are cost-effective to the customer who benefits from reduced energy consumption and the utility which is better equipped to manage increased demand for electricity through participation in energy efficiency programming.

Direct Cost Recovery

The commission may also approve lost revenue recovery initiatives for utilities promoting energy efficiency programs to their customers. Reduced energy consumption is expected to lower overall revenue for the utility. When the commission grants lost revenue recovery, the utility may recover lost revenue through an additional charge to the customer’s bill. This additional fee should accurately account for the revenue the utility would have otherwise made through the sale of electricity prior to the implementation of energy efficiency programs.

Carol

Stinger Internal Policy Analyst Carol.Stinger@ky.gov

Anne

LeMaster Energy Assurance and Efficiency Coordinator

The Kentucky PSC may grant full or partial cost recovery on the extenuating conditions or increased demand for energy which led to the utility having to purchase and provide additional electricity. The utility is responsible for submitting an application that demonstrates clear need and expected cost increases to customers. Direct cost recovery of energy efficiency and demand response programs may be approved, and surcharges will be applied to customers’ electric bills. Approval of each program is based on the California cost effective tests.

Amanda

2 The High-Performance Buildings Advisory Committee has been instrumental in the design of regulations requiring that all future state-owned buildings in Kentucky achieve a minimum Leadership in Energy and Environmental Design (LEED) rating. The degree of LEED certification is dependent upon the allotted budget of the project. Some buildings may be granted exemption from these standards based on “extraordinary undue burden.”

Energy Efficiency in Public Buildings In 2008, the Kentucky General Assembly passed, and then Governor Steve Beshear signed House Bill 2. The legislation focused on increasing the efficiency of state-owned public buildings and required that all newly constructed state-owned buildings or those undergoing renovations meet a series of high-performance building standards.

3 2 KRS Chapter 278 § 271 3 KRS Chapter 56 § 777.1-8

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The Green Bank of Kentucky is a cost-saving option to help the state meet high-performance building targets and energy efficiency goals. Operating under the Finance and Administration Cabinet of Kentucky, the Executive Advisory Loan Review Committee reviews applications and may approve loans for energy efficiency projects. Their mission is to “promote energy efficiency in state buildings through competition for low interest loans to reduce operating costs, energy use, protect the environment, save taxpayer dollars, promote economic development and create new “green collar jobs.”

Kentucky’s most recent state energy plan, the Kentucky Energy Strategy or KYE3, does not set goals for energy efficiency in the state. However, the Office of Energy Policy has created the Energy Affordability Workgroup which aims to develop solutions and address issues aimed towards alleviating energy insecurity by promoting energy efficiency. This workgroup is made up of regulators, utilities and nonprofits who are invested in finding policy and program solutions that encourage the efficient use of energy.

State Policies for Energy Efficiency

Utility Energy Efficiency Planning Process

Prior to the approval of a utility energy efficiency program, the commission requires that a series of cost-effectiveness tests must be conducted including the Total Resource Cost Test (TRC), Rate Impact Measure (RIM), Participant Cost Test (PCT), and Utility Cost Test (UTC) or Program Administrator Cost Test (PACT).5 For the commission to approve a program, the proposed energy efficiency program will pass the TRC and/or the UTC to account for all potential impacts and ensure equitable outcomes for both the ratepayers and the utility. While the commission expects these four tests to be included in the analysis of cost-effectiveness testing of a program, no method is specified in the language of the actual statute. Rate Cases Kentucky Revised Statues Chapter 278 allows utilities to request a rate increase under the guiding principle that the proposed changes are “fair, just, and reasonable.” Those considerations include appropriate compensation for investors, rates which will cover the costs of service, and fees which are reasonable and not too burdensome for customers. The process through which a proposed rate change may be either approved, approved with conditions, or denied begins with the utility filing a 4 KRS Chapter 278 § 005 5 Midwest Energy Efficiency Alliance, Kentucky, Cost-Effectiveness Tests

The commission requires that each operating IOU and generation and transmission cooperative file an updated integrated resource plan every three years with a 15-year planning horizon. According to the enabling regulations, the plan should “include historical and projected demand, resource, and financial data, and other operating performance and system information.” The intention of these plans is to develop strategies to meet future demand with an adequate and reliable supply of electricity at the lowest possible cost for all customers.4

The commission collaborates with utilities within their jurisdiction to address and plan for demands for electricity in the future, secure just and equitable rates for customers, and promote energy efficiency programming as an overall benefit to ratepayers and the utilities. In order to promote the commission’s mission to, “foster the provision of safe and reliable service at a reasonable price to the customers of jurisdictional utilities while providing for the financial stability of those utilities by setting fair and just rates and supporting their operational competence by overseeing regulated activities,” established processes for approval are followed to protect the rights to these services.

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Approval of Energy Efficiency Programs

The Kentucky Energy Savings Dashboard tracks energy efficiency and resulting savings of public buildings in Kentucky. The tool can be used to measure progress towards utility savings goals, annual utility cost savings, the number of public buildings being monitored, total square footage of the combined buildings and building occupants.

Formal Proceedings Before the Commission Integrated Resource Planning

Additionally, House Bill 299 (2006) requires that as public buildings install or update existing heating, ventilation, and air conditioning systems, a life-cycle cost comparison must be made between a minimum of two systems. This bill promotes the installation of a cost-effective and energy efficient system.

The submitted application is based upon either a historical or forecasted test year and includes known and measurable changes to expenses and revenue.

The utility uses a cost-of-service study to calculate the total costs to the utility as they supply electricity to their ratepayers. In order to offset those costs, the study will determine the allocation of costs and resulting rate per kWh of electricity that customers will pay. This should also take into account pertinent information such as income which will influence what rates are considered just and reasonable for their customers.

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Kentucky State Guide to Utility Energy Efficiency Planning | 9 notice for a rate change with the commission. At this point, the public is notified. Within thirty days following the original notice of intent, the utility will apply for their proposed rate change.

Formal and Informal Proceedings

The commission may hold a hearing in the case that a complaint or request has been made. When a utility files an application, for instance in the case of a rate change, the commission requires that all parties who may be impacted are publicly notified of the filing. A further notification will include details of “the purpose, time, place, and date of hearing.” During the time between filings and hearings, the commission may meet with staff to discuss the case. Formal hearings are open to the public for designated commenting and both the minutes and video recording of the hearings are published. For a formal complaint, a docket is opened to review and engage in discovery of the complaint. For an informal complaint through consumer services in the commission office, the utility is required to respond within three business days of the filed complaint date. After the utility has resolved the complaint, they must inform consumer services. If a resolution cannot be reached, the informal proceedings may be terminated and a formal complaint may be filed.

Opportunities for Third-Party Engagement

Any third party can comment on formal proceedings, including the utility dockets for review by the commission. Third parties may also sign up to speak at meetings on relevant issues. The commission will also hire consultants for policy and modeling analyses and to better understand the legislative amendments to the statute. A third party may also request to be an intervenor in a particular case. The attorney general is the only entity with a statutory right to intervene in a case before the commission. Intervention by all others is permitted within the sound discretion of the commission.

The utility must be able to provide compelling evidence as to why a rate change is necessary, for instance noting investments which have increased costs.

6 KRS Chapter 278 § 005

Once the proposed rate change is logged into the commission’s docket, a suspension period will normally be imposed prior to any changes taking full effect. This suspension period for historical or forecasted test years is five and six months, respectively. The statutory timeline between the filing of a rate change request and approval or denial occurs within ten months. If the commission does not issue the order by the end of the suspension period, the utility may place into effect its proposed rates, subject to refund. The commission is expected to engage in discovery and to file their response to the proposal whether it be to the full extent of the rate change request, partial, or not at all. Within twenty-three days of the filing, the utility or the intervenor may request a rehearing.

Kentucky State Guide to Utility Energy Efficiency Planning | 10 Other Means of Engagement

Acknowledgements

The commission intentionally publicizes proposed changes or programs. Time is set aside at the beginning of commission hearings for public comment. Depending on the number of public comments, the allocated time may be limited. Participants may either attend hearings online or in person, however provisions may be made requiring meetings to be held completely online. Additionally, the commission offers an option to submit written comments which will be read aloud after a brief introduction of the day’s discussion as well as entered into the docket during the case processing.

We would like to thank Kenya Stump, executive director of the Kentucky Office of Energy Policy and Karen Wilson, former executive advisor and legislative director to the Kentucky Public Service Commission for their insights and expertise which supported the creation of this guide.

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