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 Regulatory Approaches to Promoting Energy Efficiency 

Natural gas energy efficiency programs are widespread throughout the country and successfully deliver energy and financial savings to customers.  Important to the success of these programs is ensuring that utility incentives are aligned with helping customers reduce their usage – i.e., where utilities are able to recover direct program costs and lost revenues, and earn a profit on energy efficiency services, they are stronger partners with customers in achieving conservation.  

Direct Program Cost Recovery

All 35 states with natural gas energy efficiency programs allow direct program costs to be recovered from ratepayers.  Direct program costs include utility-subsidized customer equipment replacement and upgrades, subsidies for the weatherization of homes and businesses, loan discounts for financing, and the costs of energy audits, technology demonstrations, and consumer and building operator training. 

Lost Revenue Cost Recovery

Energy efficiency leads to reduced customer payments for utility service, even though the regulator-authorized costs of providing utility service do not decrease.  This is due to the nature of traditional and widely used rate designs, in which fixed costs are recovered through variable energy charges.  This conflict between traditional rate designs and customer energy efficiency is now widely understood and regulatory methods that allow utilities to recover revenues lost when customers reduce energy consumption are becoming routine.   

Rate Design (RD)

The most common way to mitigate lost revenues is to use a non-traditional rate design that breaks the link between utility revenue and the energy consumption of its customers.  The following utilities use either revenue decoupling or a flat monthly fee rate design to recover revenues lost from energy efficiency.

State                              Utility Cases                          Case Number

Arkansas

Arkansas Oklahoma Gas

Arkansas Western Gas

CenterPoint Energy

 

Docket No. 07-026-U

Docket No. 06-124-U

Docket No. 06-161-U

California

 Pacific Gas & Electric

San Diego Gas & Electric

Southern California Gas

 

Docket No.02-02-012

Docket No. 02-02-012

Docket No. 02-02-012

 
Georgia Atlanta Gas Light

Docket No. 8390-U

Illinois Integrys Energy

North Shore Gas: 07-0241

Peoples Gas: 07-0242

Indiana

Citizens Energy Group

NIPSCO/NiSource

Vectren Corp.

Docket no.42767

Docket No. 43051

Docket No. IURC No. 42943

 

Maryland

Baltimore Gas & Electric

Washington Gas Light

Docket No. 8780

Docket No.8990

 

Missouri

Atmos Energy

Missouri Gas Energy

Docket No. GR-2006-0387

Docket No. GR-2006-0422

 

North Carolina

Piedmont Natural Gas

PSC of North Carolina

Dockets G-9 Sub499, G-9 Sub 461, G-44 Sub 15

Docket No. G-5 Sub 495

 

North Dakota       Xcel Energy

Docket No. PU-08-171

New Jersey

New Jersey natural Gas

South Jersey Gas

Docket No. GR05121020

Docket No. GR05121020

 

New York

Consolidated Edison

National Fuel Gas Distribution

Docket No. 06-G-1332

Docket No. 07-G-0141

 

Ohio

Columbia Gas

Duke Energy

Vectren Corp.

Docket No.08-0072-GA-AIR

Docket No. 07-589-GA-AIR

Docket No. 05-1444-GA-UNC

 

Oregon

Cascade Natural Gas

NW Natural

Docket No. UG-167

Docket No. UG-143

 
Utah Questar Gas

Docket No. 07-057-T01, 07-057, 08-057-22

Virginia Virginia Natural Gas/AGL

Docket No. PUE-2008-00060

Washington

Avista Utilities

Cascade Natural Gas

Docket no. UG- 060518, 090135

Docket No.UG-060256

 

Margin Tracker (MT)

The second method of mitigating marginal revenue loss caused by decreased customer energy consumption is to use a margin tracker.  Margin trackers estimate the level of decreased distribution revenues caused by energy efficiency and recover the loss as a surcharge to rates.  There is a great deal of uncertainty in the measurement of consumption reductions specifically caused by energy efficiency, as opposed to the measurement of all energy reductions.

State                              Utility Cases                          Case Number

Connecticut                

Connecticut Natural Gas         

Southern Connecticut Gas

Docket No. 93-02-04

Docket No. 93-03-09

 
Kentucky

Delta Natural Gas

Louisville Gas and Electric

Case No. 2008-00062

Case No. 2007-00319

 
Massachusetts

Bay State Gas/NiSource

Berkshire Gas/Energy East

National Grid

NSTAR Electric and Gas

Docket No. DPU 08-123 and DPU 04-39

Docket No. DPU 08-121 and DPU 04-38

Docket No. DPU 07-104, DPU 02-31 and DPU 08-109

Docket No. DPU 08-122 and DPU 04-37

 
New York

National Grid

Case No. 08-G-0609

 

Oregon

Avista Utilities

Northwest Gas

Avista Corporation PUC OR. No.5

Avista Corporation PUC OR. No.5

 

Ontario, Canada Union Gas Limited Docket No. EB-2006-0021

Financial Incentives for Energy Efficiency Programs


An important goal of energy efficiency policy is trying to make energy efficiency a profitable undertaking as opposed to simply a breakeven business initiative.  Recent federal legislation urged state commissions to implement policies that provide a timely earnings opportunity for utilities' energy efficiency programs.  Three types of natural gas energy efficiency incentives in current use are the shared savings incentive, the performance target incentive, and the rate of return adder.

Shared Savings (SS)

Shared savings incentive programs measure actual ratepayer benefits and allow the company to earn a percentage of the savings received by customers.  The annual incentive that the companies earn from their energy efficiency programs is recovered from customers through a surcharge in the following year.

   State                            Utility Cases                                Case Number

California

Pacific Gas and Electric

San Diego Gas and Electric

Southern California gas

Docket No. A.08-07-031

Docket No. A.08-07-023

Docket No. A.08-07-022

 
Kentucky   

Delta Natural Gas

Louisville Gas and Electric

Docket No. 2007-00089

Docket No. 2007-00477

 
Minnesota

Alliant Energy

CenterPoint Energy

Xcel Energy

Docket No. 09-359

Docket No. E,G-999/C1-98-1759

Docket No. E-017/M-09-199

 
Ontario, Canada Union Gas Limited Docket No. EB-2006-0021

Performance Targets (PT)

Performance target incentives allow the utility to earn a financial reward for meeting certain program goals such as the number of upgraded thermostats installed, the number of homes winterized, and overall customer participation level.  The variable reward is calculated according to a formula that considers the overall program budget and whether goals were achieved.

State                            Utility Cases                        Case Number

Massachusetts            

Bay State Gas/NiSource    

Berkshire Gas/Energy East

National Grid

NSTAR Electric and Gas

Docket No. DPU 08-123 and DPU 04-39

Docket No. DPU 08-121 and DPU 04-38

Docket No. DPU 07-104, DPU 02-31 and DPU 08-109 

Docket No. DPU 08-122 and DPU 04-37

New Hampshire

National Grid

Northern Utilities/Unitil

Docket No. DG 09-049

Docket No. DG 06-036 Order 24,630

 
New York National Grid Case No. 08-G-0609
Rhode Island National Grid    Docket No. 4000
 

Rate of Return Adder (RRA)

Rate of return adders are premised upon capitalizing and earning a profit on energy efficiency program investments in the same manner as traditional utility capital investments.  As the utility spends within an approved energy efficiency plan, the company charges the investment to a regulatory asset.  At the time of the next rate case, the regulatory asset and associated carrying costs are placed in the rate base, thereby allowing the utility the opportunity to earn a return on energy efficiency investments.

State                        Utility Cases                                       Case Number

Missouri Laclede Gas

Docket No. GR-2007-0208

New Jersey Public Service Electric and Gas Docket No. EOO4121550
Nevada Nevada Energy  Docket No. 07-06029
Wisconsin Alliant Energy Docket No. 6680-UR-114
 
 

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