Natural Gas in a Smart Energy System

Fact Sheet

Natural Gas in a Smart Energy System

The world in which utility companies deliver energy is changing

Amidst pending carbon legislation, emerging "smart" technology, and increasingly integrated, consumer-driven energy markets, electric and natural gas utilities are exploring both new requirements and new opportunities. In this changing world, utilities must take a more holistic look at our energy system in order to continue serving the needs of American homes and businesses in the most cost-effective and environmentally sustainable way.

Increasingly, electric and combination utilities are considering direct use of natural gas as a way to achieve electric demand side management (DSM) goals such as reduction in the rate of growth of peak demand, and lower overall use of primary energy.

Encouraging the use of natural gas where it is a viable substitute for electricity and converting loads currently served by electricity to natural gas will:

  • Improve the efficiency with which energy is consumed
  • Reduce electricity usage
  • Reduce CO2 emissions and could become an important component of an electric utilities overall energy efficiency strategy

Resources for understanding the issues associated with natural gas end use as an electric DSM tool (Smart DSM):

  • Northwest Gas Association Assessment of the Potential Benefits of Direct Use of Natural Gas - An assessment of the potential benefits of natural gas as a regional resource strategy. This study finds there is potential for direct use of natural gas to reduce regional greenhouse gas emissions by 1.3 million tons annually beginning in 2009.
  • NRRI Study - Electric-to-Gas Substitution: What Should Regulators Do? - On May 29, 2009, the National Regulatory Research Institute (NRRI) published a study on "fuel switching," discussing the benefits and costs, market defects and regulator options. Electric-to-gas substitution or fuel switching refers to the decision of small, generally residential, consumers to use natural gas rather than electricity for certain end-use applications, such as space heating, water heating, cooking and clothes drying. The study states that if there are market barriers, imperfections or regulatory obstacles that prevent consumers from making rational or socially desirable end-use appliance decisions, regulatory intervention may be appropriate where the regulatory intervention passes a cost-benefit test.
  • Electric-to-Gas Fuel Switching Presentation by consultant Paul Raab at the summer meeting of the National Association of Regulatory Commissioners (NARUC) on June 20, 2009.


Examples of proceedings in states where Commissions have received comments related to Smart DSM:

  • Oklahoma (various utilities) - Oklahoma Natural Gas presented testimony demonstrating direct use of natural gas as effective and cost-effective for acheiving electric efficiency goals. One accomplishment of the ruling was that utilities would in the future be allowed to promote natural gas as an electric DSM tool if it supports the goals of the commission. A filing of this nature is planned for later this year or early next. See the record (Docket No. RM-200700007) for a summary of written comments filed at the Commission. See Appendix A for summary of latest comments as of November 28, 2008 regarding fuel-switching. The appendix includes comments from regional utilties including: Centerpoint Energy Page 2; OG&E Page 3; ONG Page 4; PSO Page 5.
  • Pennsylvania (UGI) - In Pennsylvania, Act 129 mandates electric efficiency targets. UGI is successfully reaching out to electric utilities to show how natural gas can serve as a DSM tool. See Comments of UGI Utilities, Inc. filed March 12, 2009. The concept is receiving good reception so far; of the four electric utilities with filings, two include natural gas. See the record (Docket No. M-2008-2069887) for a view of the Case Summary, Daily Actions and public documents associated with the selected docket number.
  • Kansas (Kansas Gas) - In May 2009, the Kansas Comission concluded a hearing on fuel-switching, to determine whether it is appropriate to offer incentives to encourage customers to behave in consumer switching behavior. See the record (Docket No. 09-GIMX-160-GIV) for example of how commission staff are responding to the concept in general.