Energy Efficiency Programs

June 9, 2009 by Kristin Schrader Marcell · 2 Comments
Filed under: energy

Recently, the American Gas Association released a report that shows that an increasing number of states are implementing regulations that allow local natural gas utilities to set in place energy efficiency programs that help customers reduce their energy bills.

Specifically, the May 2009 issue of the Natural Gas Rate Round-Up reported that 19 states have regulations that permit the recovery of revenues and margins lost due to utility-sponsored energy efficiency programs. In addition, 11 states as well as Canada have approved financial incentives for utilities that invest in energy efficiency.

These measures are important because they align utility incentives with helping customers reduce their energy usage. As a result, where utilities are able to recover energy efficiency program costs and lost revenues, and earn a profit on energy efficiency services, they become stronger partners with customers in achieving conservation.

Effective regulatory approaches, such as decoupling and other innovative rate designs, are a true win for both customers and utilities. Customers save money by using energy more efficiently, and utility companies can promote efficiency and conservation measures without placing themselves in financial jeopardy.

In fact, the report says that by the end of 2007, utility companies in states with energy efficiency or demand management programs achieved a savings of 9 percent of total natural gas usage per residential participant—a direct consumer cost savings.

After seeing these benefits and the opportunities for efficiency and conservation, would you support this type of energy efficiency program in your state?

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Tags: decoupling

“Decoupling” Has Nothing to do with Divorce

April 28, 2009 by Bruce Kauffmann · Comments Off
Filed under: Natural Gas

Without customers, natural gas utilities – like most businesses – would not survive. But the same is true of shareholders – without them utilities would not survive either, so utilities, and the public utility commissions that regulate them, need to find a balance between keeping costs as low as possible for the customer, while at the same time ensuring a fair return for the shareholders that provide the capital that allows utilities to expand and grow.

090326pullquote “Decoupling” Has Nothing to do with Divorce

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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