Read about AGA’s Vision 2020 Strategic Planning Initiative in the July issue of American Gas.

The good news is that, given its domestic abundance, environmental superiority and greater efficiency, natural gas, especially when used directly in America’s homes and businesses, will be the preferred fuel for years to come—and that should remain the case regardless of whatever climate change legislation Congress eventually passes.  But as Vision 2020 has pointed out, there are plenty of challenges and there will be plenty of changes ahead.

For one, natural gas utilities need to re-think their traditional business model of delivering the commodity—natural gas—to homes and businesses for heating, water heating and cooking applications.  That is because new competitors are already re-thinking that business model, which is another significant change that already is taking place.  Today companies such as Google, Intel, Microsoft and Home Depot are developing a variety of cost-effective energy solutions, including energy efficiency and “green” products and services that reduce energy use and save customers money.  The utility needs do likewise, but that starts with a better understanding of what products and services the customers will want.  To that end, utilities also need to re-think their relationship with customers, evolving from service providers into partners, empowering their customers to manage their own energy use through a variety of energy efficient solutions.

This in turn means continuing to ensure that new generations of highly efficient and “energy smart” natural gas products and services are available to the customer, which requires an industry-wide effort to support technological research and development.

Vision 2020 also points out that utilities will need to re-think their relationship with their regulators.  In the new carbon-constrained world in which energy efficiency and conservation are the goals, our industry will need a new regulatory construct that rewards, not penalizes, utilities for partnering with their customers to reduce natural gas use.

All in all, as the article in American Gas makes clear, a brave new world is coming and AGA’s natural gas utility members need to be prepared for it, which is one reason AGA developed the Vision 2020 Strategic Planning Initiative.   The other reason was to bring our members together to share ideas, strategize, and not only get more involved with AGA, but with one another.  Facilitating that involvement is one of the things AGA always has been, and always will be, very good at.  In an industry facing fundamental change, it’s nice to know some things won’t change.

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In other words, lobbying.  We are a country of 300 million people, which means countless “interest groups”—essentially public and private associations formed by like-minded citizens—are bound to arise, all seeking government support in promoting our views, protecting our interests and, yes, redressing our grievances.   Since all 300 million of us can’t individually petition the government we hire petitioners—lobbyists like Joe—to represent us.

Thus it is Joe’s job, as a lobbyist in the natural gas industry, to educate our public officials at all levels of government about those issues that are a high priority not only to natural gas utilities, but also to their customers.  For example, the more Joe can convince legislators and regulators to pass laws or fashion regulations that result in low natural gas prices, the better it is for natural gas utilities and customers alike.  The better it is for our country as well.

As it happens, Joe’s article could not be more timely because on July 1, a group called “1 for All,” which is a national nonpartisan organization working to increase awareness of our First Amendment freedoms, is launching a nationwide campaign to remind the public that in addition to the First Amendment’s four famous freedoms—of speech, the press, religion and assembly—that fifth freedom, to petition for “redress of grievances,” occupies a central place in our public life.  Indeed, as both Joe and “1 for All” would certainly agree, the more registered lobbyists there are in Washington the better because they allow more different groups—small as well as large, new as well as established, modest as well as wealthy—to have their voices heard and their views known to the government.  That is exactly what our Founding Fathers intended when they put the freedom to petition in the First Amendment.

To learn more about “1 for All,” which is affiliated with both the Newseum and the First Amendment Center in Washington, D.C., visit its website www.1forAll.us.  As our nation celebrates its 234th birthday on the 4th of July we should remember the many freedoms that make this celebration so worthwhile.

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A story in the May issue of American Gas magazine illustrates this point perfectly. One of AGA’s member companies, Memphis Light, Gas and Water (MLGW) in Memphis, TN, saw an opportunity to use its Twitter account, which it had started in 2008 with little fanfare or following, to communicate with its customers in the wake of a terrible storm and tornado that knocked out power to about 140,000 customers—about one-third of MLGW’s customer base—in the Memphis area.  Since Twitter can be accessed from a cell phone, Blackberry and iPhone in addition to a computer, MLGW could “tweet” to its customers, regardless of where they were, updates on the power outages, power restoration efforts, number of workers in the field, safety tips, and even contact information to get more comprehensive reports.

According to Glen Thomas, the communications and public relations supervisor at MLGW and author of the story in American Gas, the number of MLGW’s Twitter followers quickly went from about 220 to 1,500 and at one point MLGW even got a message from Twitter that the company had exceeded its tweet limit for that day.

But MLGW also got lots of messages back from customers wanting more information, including when they could expect power to be restored in their own homes, so MLGW began tweeting back, giving customers more specific updates on when a particular neighborhood might expect service restored.

MLGW’s use of Twitter even attracted local media attention; local television stations and newspapers did stories on MLGW’s use of Twitter, which was both good public relations and free advertising.

Now that the storm has literally and figuratively blown over, MLGW plans to continue to use Twitter for a variety of communications objectives, including tweeting about energy efficiency, conservation tips, community events and the like.  Feedback from customers via Twitter is also being carefully monitored as a way to determine customer satisfaction with the company.

Yes, there are challenges, including staffing and time, but because Twitter is, quite literally, an instant communications tool—messages cannot exceed 140 characters—it is a way for companies to get and receive information quickly and succinctly.  It certainly seems to be working well for Memphis, Light, Gas and Water.   The company’s Twitter followers (and you can be one of them at www.twitter.com/mlgw) now number 2,500—and growing.

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Not a smart decision, but it illustrates a point with respect to energy use.   Using electric appliances in your home, be it an electric water heater, heat pump or stove, is a lot like that ice cream cone.  From the point of origin, whether it’s a coal mine or a natural gas well, to the place where either of them is generated into electricity — usually a central station power plant — to the electric outlet in your home, electricity loses about two-thirds of its useable energy.   Most of that energy loss occurs in the generation process.

By contrast, natural gas’ journey from the wellhead through transmission and distribution pipelines directly to the natural gas furnace, boiler, fireplace or stove in the home loses only about 10 percent of its usable energy.  Thus natural gas is far more efficient than electricity.

What is more, going back to that ice cream cone, what happened to the two-thirds of it that melted?  It melted into your backpack, or through your backpack down your pants leg or skirt, onto the ground, making a mess.   Similarly, during the electricity generation process, not only is a lot of energy lost, so is a lot of pollution released into the atmosphere — especially when coal is generated — making a mess of our air.  Very little pollution results when natural gas, by far the cleanest fossil fuel, is burned in those gas appliances in the home.

The point is that when energy is measured from the point of origin to the point of use — what we call the full-fuel-cycle measurement — it becomes obvious that natural gas used directly to power natural gas appliances in the home is far more efficient and environmentally friendly than using natural gas, or coal, to generate electricity to power electric appliances in the home.   Unfortunately, today when the Department of Energy (DOE) rates the energy efficiency of a natural gas or electric appliance, it bases that energy efficiency solely on a site measurement—that is, how energy efficient an appliance is “on site,” meaning in the home.  That ignores all of that energy lost, and the pollution created, from the point of origin to the end-use appliance.

Recently, the well respected National Academies issued a report to DOE titled “Review of Site (Point-of-Use) and Full-Fuel-Cycle Measurement Approaches to DOE/EERE Building Appliance Energy Efficiency Standards.” The report recommends that DOE consider changing its measurement of appliance energy efficiency from site-based to one based on the full-fuel-cycle.  That would give consumers far more accurate information on the true efficiency and environmental impact of the energy appliances they buy.   The goal is to reduce energy use, reduce greenhouse gas emissions and save consumers enough money to buy the whole family an ice cream cone — two scoops with sprinkles — anytime they want.

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Say what?

Right now, if a consumer walks into a store to buy a hot water heater, be it electric- or natural gas-powered, and wants to know how energy efficient and environmentally friendly that water heater is, he or she can look at an EnergyGuide label on the appliance, which will say that the appliance is XX percent efficient.  Usually that label will show that the electric water heater is more efficient than the natural gas water heater.

But that label only tells the potential customer how efficient that appliance is at the end-use — in other words how efficiently that appliance uses the energy it got from the electric outlet in the case of an electric water heater, or the burner tip in the case of a natural gas water heater.  That completely ignores how efficient, and environmentally friendly, was the process by which that energy, be it electricity or natural gas, traveled from its original source to the electric outlet or natural gas burner tip in the home or business.

So let’s factor in the efficiency of getting natural gas from the wellhead to the burner tip, compared to the efficiency of getting coal from a coal mine, or even natural gas from a wellhead, and then sending either that coal or gas to a generation plant to be turned into electricity, and finally delivering that electricity to the electric outlet.

Doing so, we find that from both an efficiency and environmental standpoint, the natural gas water heater is the clear winner.  Natural gas only loses about 10 percent of its useable energy in the journey from wellhead to burner tip.  By contrast, in the journey from the original source — the coal mine or wellhead — to the generation plant, and then on to the home as electricity, almost 70 percent of the useable energy is lost.  What is more, in the generation process a lot of carbon dioxide is released into the air, especially when coal, the dirtiest fossil fuel, is used to generate that electricity.

This far more accurate way of measuring energy efficiency is called “full-fuel-cycle analysis,” so labeling home appliances based on its determination of their energy efficiency and environmental superiority will allow consumers to make better informed and smarter choices about which home appliances they should purchase, thereby saving money, saving energy and cutting greenhouse gas emissions.

But don’t take it from me.  Take it from the National Academies of Sciences, which recently issued a report confirming the above and recommending that full-fuel-cycle analysis be used to determine the true efficiency of an end-use appliance, be it gas or electric.

Sounds like a good idea to me. What do you think?

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“Politicians, when they do that (claim energy independence is achievable), I think they are misleading their publics,” Prince Turki said.

He is right, and while many people will think Prince Turki is being self serving – the Saudis are, after all, the world’s largest oil producers – the fact is that the American public would not stand for the energy price increases that would result if we somehow managed to quickly wean ourselves off of oil or natural gas imports and relied on renewable energy as our dominant energy supply source.  Currently renewable energies such as wind and solar – which are far more expensive than the three major fossil fuels, coal, oil and natural gas – meet about 2 percent of our domestic energy needs.

But the larger point is that energy independence is the wrong goal.  Energy security is the proper goal and to achieve that we need more, not less, diversity of supply.  That means we need as many kinds of energy supplies as possible, including more liquefied natural gas (LNG), and we need as many suppliers as possible.  In other words, to achieve energy security, we need to establish a global energy industry in which as many buyers interact with as many sellers as possible.

Another problem is that when our politicians talk about achieving “energy independence,” it isn’t just the public they mislead.  It is also the suppliers. In an interview with American Gas magazine, global energy expert and Pulitzer Prize-winning author Daniel Yergin points out that, on the one hand our political leaders continually encourage energy producers such as the Saudis to increase their energy production and exports, while on the other hand these same politicians keep talking about energy independence.  “That is a confusing message for energy-producing nations,” Yergin says.

He is right, too.

A Saudi Prince, a Pulitzer Prize-winning author and me.  Some days (to coin a phrase) this job is a “gas.”

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In normal times, this is a delicate balancing act, but today it is a high-wire act because in addition to our uncertain economy, fighting global climate change has become a national priority and the energy industry is at the forefront of that battle.  Because using energy, even energy as clean as natural gas, results in significant CO2 emissions – a primary greenhouse gas – Americans are looking for ways to conserve energy and use it more efficiently, and they expect their local utility to help them in this effort.

Which natural gas utilities certainly are doing; in 2007 they spent $329 million on energy efficiency and conservation programs across the country.  But from a business standpoint, helping customers use less energy poses challenges because utilities historically make their money based on the volumes of natural gas that flow through their pipes to the customer.   The less gas that flows, the less money utilities make under the traditional regulatory rate structure in which most utilities have operated.   That may be good for the customer, but not utility shareholders, many of which are senior citizens and retirees who depend on the security of a regular, predictable utility dividend check.

One solution to this dilemma is what our industry calls “decoupling”, or non-volumetric rate designs. By working with their public utility commissions to establish rate designs in which their earnings are separated from the volume of gas they deliver, utilities can align the interests of their customers and their shareholders, while at the same time furthering our national goals of reducing energy consumption and greenhouse gas emissions.

Once a utility’s ability to earn a fair return is no longer linked to  the amount of gas it delivers, it can do even more to help customers conserve and use energy more efficiently because the utility will no longer be financially penalized. The customers are happy because their energy bill is smaller, while the shareholders are happy because their dividend check is not.

At present, 28 companies in 16 states have adopted some form of decoupling, while 11 companies in six other states are in the process of approving one.

Of course, there is no one-size-fits-all approach to regulatory innovation, including decoupling.  Each utility must work with its state commissioners to determine which approach works best given its own circumstances.  But it is a trend that should be encouraged because it is good for the customer, good for the shareholder and good for the country.

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They then try to hit me up for a loan.

To set the record straight, by law natural gas utilities don’t make a penny of profit on the commodity price of natural gas.  What they pay for the gas they buy from the supplier is what they charge for the gas they supply to the customer. The problem is that, in today’s high energy price environment, the commodity portion of the monthly natural gas bill is now about 70 percent of the total monthly bill, which explains why my friends and neighbors are complaining.

So how do utilities make their money?  They charge their customers monthly delivery and service fees – fees that reflect their cost to deliver natural gas by pipeline to those customers, their cost to operate their business – including the salaries they pay their employees – plus a reasonable return on investment that they pay their shareholders, without whom they could not stay in business.  Oh, and state government regulatory authorities – better known as public utility commissions – must approve all the rates that utilities can charge.

“Hand over fist?”  The fact is that high prices for natural gas hurt natural gas utilities as well as their customers.  Higher monthly gas bills, driven by the higher commodity cost of the product, means more families are struggling to pay those bills, and in this uncertain economy more and more families are losing the struggle.   And remember, utilities deliver their product to the customer first, and then ask for payment a month later.   When the customer can’t pay, that hurts the utility’s bottom line as well.

For these reasons and many more, today many natural gas utilities are actually working to help their customers use less natural gas by showing customers how to conserve energy and use it more efficiently.   In other words, natural gas utilities are far more likely to “‘lend a helping hand” than to make money “hand over fist.”

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For example, ask most Americans where the electricity they use in their homes comes from and they will respond, “The electric outlets.”  And they are right – sort of, because while it is true that if you plug an electric appliance into an electric outlet, it will receive electric power, that is not where electricity originally comes from.

Electricity originally comes from coal, or natural gas, or from a nuclear power or hydroelectric plant, or – increasingly – from wind or solar energy.  These original sources of energy are then converted into electricity at generation plants and delivered using transmission lines (such as those in the picture accompanying this post) to those aforementioned electric outlets.

Here is another thing most Americans don’t know.  When the energy source travels from its place of origin – a coal mine in the case of coal, a wellhead in the case of natural gas – to the power plant in which it is converted to electricity, and then on to its ultimate destination at the electric outlet, it has taken a very inefficient journey.  In fact, during that journey around 70 percent of the useable energy is lost.  Most of that loss results from the generation process.

What is more, depending on what fuel is used to generate the electricity, varying amounts of greenhouse gases are released into the atmosphere during the generation process.  That is why, for example, in our new environmentally conscious climate, natural gas is now the preferred fuel for electricity generation.  It is much cleaner than coal; presently it is much more abundant and reliable than wind or solar power; and it is much less controversial than nuclear power.

Of course, in addition to using natural gas to generate electricity to power electric home heaters, water heaters or stoves, natural gas is also used directly to power natural gas home heaters, water heaters or stoves.  And guess what?  This direct use of natural gas in homes or businesses is far more efficient than turning it into electricity for the same purpose – natural gas only loses about 10 percent of its useable energy traveling from the wellhead to the burner tip.  And being more efficient, these direct uses also are more environmentally friendly.  In fact, a typical American home generates twice as many greenhouse gas emissions using an electric resistance water heater than one using a comparable natural gas water heater.

That is why AGA is working to educate more Americans, including our political leaders, about the advantages of the direct use of natural gas. It increases energy efficiency, reduces greenhouse gas emissions and saves consumers money. If you’d like to see how much smaller your carbon footprint would be with increased direct use, go to www.comfortableresponsible.org and check out their carbon calculator. You might be surprised.

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Small wonder that the just-launched White House blog recently spoke of President Obama signing “two Presidential Memoranda aimed at getting us on the path to energy independence.”

Granted, anything that can reduce our over dependence on foreign energy imports is a good thing and in his two memoranda President Obama directed the Department of Transportation to establish higher fuel efficiency standards for vehicles – known as Corporate Average Fuel Economy (CAFE)- while paving the way for California and more than a dozen other states to raise emissions standards above and beyond the national standard.

But to play Devil’s Advocate for a moment, which is the more important goal – energy independence or energy security? I would argue that Daniel Yergin, the Pulitzer Prize winning author of The Prize: The Epic Quest for Oil, Money and Power, is right when he says energy security is more important – and certainly more achievable – than energy independence, and  achieving energy security will actually necessitate more energy interdependence.  According to Yergin, the key is diversity, not only diversity of energy sources, including renewables and the expanding global liquefied natural gas market, but also diversity of energy suppliers.  The more buyers and sellers there are, freely trading as many different forms of energy as currently exist, the less likelihood of supply disruptions and the more likelihood of a moderating effect on both price and volatility.

Of course, using less energy is also a critical goal, and the more that government at all levels can facilitate energy conservation and efficiency, the better – not only for our economy, but also for our environment.  But the larger point remains.  Our political leaders have been talking about “energy independence” since the Nixon Administration in the late 1960s and almost 50 years later we are more dependent than ever.   I doubt very much we can ever achieve energy independence.  But if we strengthen our ties to the global community of energy suppliers and buyers, I believe we can achieve energy security.

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