Duke Energy Rethinks the Future of Power

It's not often that you hear a utility industry executive say he wants to slash the amount of electricity that his company sells to consumers. That's sort of like Ford(F Quote - Cramer on F - Stock Picks) announcing that it wants to sell fewer cars.

But that is just what Jim Rogers, chairman and CEO of Duke Energy(DUK Quote - Cramer on DUK - Stock Picks), said at a recent luncheon with reporters at New York's 21 Club. There's a catch to the proposal, however. If Rogers is able to cut the amount of power that his customers use, he wants to keep a piece of the cost savings for himself.

The program, which Duke has named "Save-A-Watt," is a radical new way of thinking about the power business, but it just might be the kind of thinking that can satisfy the disparate needs of the energy industry and of retail electricity customers.

As the name suggests, Save-A-Watt is aimed at reducing electricity usage, and it seeks to do this by increasing energy efficiency. In industry-speak, Duke calls energy efficiency "the fifth fuel," behind coal, natural gas, nuclear power and renewable fuels. This "fifth fuel" is the cheapest option, and it is 100% emissions-free. After all, Rogers points out, the cheapest kilowatt hour is the one that he doesn't have to produce.

Under Save-A-Watt, Duke will plan to spend roughly $1 billion to optimize its power grid and distribution system. The money will go toward things like modern, interactive electric meters and networked power substations. These tools would allow customers to optimize their energy usage by limiting the use of appliances and restricting overall electricity consumption during peak hours. The goal is to allow customers to be more efficient without sacrificing comfort, convenience or productivity.

Obviously, companies can't invest in new infrastructure while discouraging their customers from buying their products and services. Thus, through the Save-A-Watt program, Duke gets paid for the savings that its customers should get from increased energy efficiency.

The hourly rate for electricity use would tend to go up under the program. However, because the total amount of electricity used would decline, customers' electric bills would be lower than they were before.

Duke delivers electricity to roughly 4 million customers in the Carolinas, Ohio, Kentucky and Indiana. If its new efficient technology can encourage each of its customers to decrease their energy usage even by a small amount, the total decrease could add up to substantial energy savings.

Duke estimates that more than 800 million kilowatt-hours of energy efficiency could be extracted. If fully utilized, Save-A-Watt would mean not only lower electric bills for customers, but also less power generation from Duke's plants, fewer harmful emissions released into the environment, and increased revenue.

Rogers likes to get together with his chief technology officer, David Mohler, to discuss ways to improve Duke's portfolio of power plants, and both men are counting on the introduction of new technologies to solve today's problems. Rogers, though, says the only way these new technologies will be created is if Congress enacts legislation that will encourage their development.

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