Regulatory Approaches to Promoting Energy Efficiency

Fact Sheet

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 Oklahoma Gas

Arkansas Western Gas

CenterPoint Energy


Docket No. 07-026-U

Docket No. 06-124-U

Docket No. 06-161-U








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


Citizens Energy Group


Vectren Corp.

Docket no.42767

Docket No. 43051

Docket No. IURC No. 42943



Baltimore Gas & Electric

Washington Gas Light

Docket No. 8780

Docket No.8990



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



Columbia Gas

Duke Energy

Vectren Corp.

Docket No.08-0072-GA-AIR

Docket No. 07-589-GA-AIR

Docket No. 05-1444-GA-UNC



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


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 Natural Gas

Southern Connecticut Gas

Docket No. 93-02-04


Docket No. 93-03-09







Delta Natural Gas

Louisville Gas and Electric

Case No. 2008-00062


Case No. 2007-00319





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





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



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



Delta Natural Gas

Louisville Gas and Electric

Docket No. 2007-00089

Docket No. 2007-00477



Alliant Energy

CenterPoint Energy

Xcel Energy

Docket No. 09-359

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