CEE Members Share Their Perspectives

Opportunities for energy savings are really starting to open up in natural gas efficiency. As energy prices continue to rise, new programs across the United States and Canada are coming into play, making way for new markets. These developments have resulted in an expanding need for new super efficient gas technologies in all major end uses, along with a need for getting existing efficient technologies from the custom and niche markets to the mass market.

During a session at the recent CEE-ACEEE Market Transformation Symposium, four CEE members shared their perspectives on trends in gas efficiency programs, including gas efficiency program growth, characteristics of successful programs, challenges and benefits of delivering gas and electric efficiency programs to customers, and the challenges programs have in meeting state and national goals.

Growth
According to a recent CEE report, U.S. gas efficiency program budgets increased 68 percent from $248 million in 2006 to $416 million between 2006 and 2007. Ninety-seven percent of these budgets are administered by CEE members, many of whom direct programs for both natural gas and electricity. Bruce Johnson of National Grid noted that some regions of the country are growing even faster:

• Northeast increased from $49.3 million to $97.1 million, an increase of 97 percent
• California increased from $94.1 million to $182.5 million, an increase of 94 percent
• Southwest increased from $5.5 million to $11.9 million, an increase of 116 percent

National Grid is the largest distributor of natural gas in the northeast United States, with approximately 3.4 million customers in New York, Massachusetts, New Hampshire, and Rhode Island. Johnson commented that National Grid spending on gas efficiency programs is expected to double from 2007–2012, from $45 million to approximately $101 million.

In addition to high efficiency water heaters, space heating, and home weatherization, Johnson described how National Grid is currently helping customers explore a variety of innovative gas technologies, including combined heat and power (CHP), fuel cells for the residential market, and solar thermal.

He noted that gas efficiency programs help participating customers via lower total bills, reduced operating costs, access to trusted technical expertise and financial assistance, and assistance in meeting environmental objectives. They help National Grid by strengthening long-term relationships with customers, enhancing shareholder incentives, and improving the reliability of the distribution system. Finally, efficiency programs support National Grid’s commitment to the environment by reducing greenhouse gas emissions.

Johnson noted that sometimes rate design can inhibit gas utilities from starting efficiency programs. For example, traditional utility ratemaking requires that rates be designed to capture fixed costs through volumetric sales. A utility can fully recover these costs only if its customers consume a certain level of energy. With energy efficiency, actual usage declines below the level inherent in the rates approved by the regulator. So basing the utility’s rates on a benchmark level creates a financial disincentive for it to promote energy efficiency. When customers use less energy, the utility’s revenues drop and financial performance suffers. Utilities must be able to recover the cost of programs and lost revenue due to energy efficiency.

Like many of the utilities represented on the panel, National Grid plans to work with regulators while continuing to focus on the energy efficiency needs of its customers. In addition, National Grid is focusing on extensive workforce development in the Northeast by training its employees in gas and electric energy efficiency programs while they continue to expand. Through CEE, National Grid is also working with equipment manufacturers to encourage research and development of promising high efficiency technologies and stimulating market transformation.

Balance
Michael Brophy, of Enbridge Gas Distribution, commented on the need for gas utilities to balance the competing needs of ratepayers, public policy objectives, corporate objectives, and market realities. Enbridge serves approximately 1.8 million industrial, commercial, and residential customers in Ontario, Canada. Brophy highlighted the need for Enbridge gas efficiency program budgets to be consistent with customer and business needs, and to be part of an overall revenue requirement presented to the Ontario Energy Board for approval.

He also noted that program incentives must adequately compensate utilities for eroding their core business. Program incentives should be relatively predictable, stable, and approved in a timely fashion. He expressed the opinion that, to be most effective, gas efficiency programs should be governed by an efficient and transparent regulatory framework based on clear rules and independently audited.

Keys to Success
CenterPoint Energy is the third largest publicly traded natural gas delivery company in the United States, with three million natural gas customers in six states, including the high growth areas of Houston and Minneapolis. They have established gas efficiency programs in Minnesota, but they are also facing increased savings targets. Angie Kline of CenterPoint Energy noted that new regulations in Minnesota require all Minnesota natural gas utilities to save 1.5 percent of natural gas throughput with energy efficiency programs.
In 2008, CenterPoint Energy is planning to spend $8.3 million on conservation programs. She noted that while expenditures are balanced between residential and commercial and industrial market segments, most of the energy savings are driven by commercial and industrial market. On the other hand, the residential market segment drives customer participation. If spending and energy savings goals are met, the approved program qualifies for a conservation improvement program financial incentive. Kline outlined the following key factors that have contributed to the success of CenterPoint Energy conservation programs.

• A stable regulatory framework that enables and supports timely funding and cost recovery of expenditures, provides financial incentives mechanism for utilities, establishes base rate fixed cost recovery, and allows for budget flexibility and the ability to modify programs.
• A strong delivery mechanism. Kline highlighted the many entities involved in effective program delivery including utilities, vendors, community action groups, trade allies, engineering firms, distributors, HVAC contractors and plumbers, retailers, and nonprofit agencies. It takes time to get all these program delivery pathways up and running, which is why allowing for program ramp-up time is so important.
• Strong internal organization and commitment to aligning utility resources to successfully deliver programs, including regulatory, sales, marketing, customer service, IT, accounting, and communications.

Looking to the future, Kline noted that carbon reduction initiatives at the state and regional level will likely lead to increased requirements for conservation. As a consequence, the bar on energy savings will likely be raised, resulting in increased tension among many natural gas utilities between selling natural gas and conserving natural gas. She expressed the opinion that these factors will make nonvolumetric rate design, also known as decoupling, all the more important in successful gas efficiency programs in the future.

Targeted Markets, Big Savings
Pacific Gas and Electric (PG&E) serves six million customers in a service territory covering 70,000 square miles. Keith Reed explained that PG&E exceeded its 2007 savings target of 14.9 million therms by 7.7 million therms and that its target for 2008 is 19.5 million therms. How is PG&E going to deliver those savings? The strategy is to employ both mass market and target market approaches to deliver 60 percent of a three year gas savings target of 47.5 million therms.

Rebates and incentives for high efficiency gas appliances, equipment, and other measures, targeted to the mass market, are expected to deliver approximately 9.51 million therms over three years. Targeted market approaches are expected to deliver 17.71 million therms or 37 percent of PG&E three year savings goal. Under this approach, the PG&E gas efficiency program is looking to gas saving in specific industrial processes and equipment in specific market sectors such as agriculture and food processing, fabrication and heavy industry, commercial office buildings, and hospitality.

In order to reach these energy savings targets, Reed commented that it has also been productive to follow up with major commercial and industrial customers in the PG&E service territory, such as Conoco Phillips, Frito Lay, Sierra Pines, Stanislaus Foods, Equity Properties, and Hilton.

While gas efficiency programs are experiencing major growth, they are also facing ever increasing savings targets. Participants in this session highlighted the types of technologies and conditions that gas programs need to grow their efficiency programs. In addition, they highlighted some innovative technologies and delivery strategies that programs will need to pursue in order to reach evolving energy savings targets in the future.

Common Challenges
Johnson, Brophy, Kline, and Reed all spoke to where they’re meeting challenges and where they’re finding success. From the experiences of these programs in the United States and Canada, a few common challenges emerged.

Getting the right regulatory structure is very important for the future of gas efficiency programs. Volume rate design as it exists today in most states poses challenges to many gas efficiency programs. Gas efficiency programs spoke to the need for working proactively with regulators in the states where they operate to address this financial dilemma.

Programs are also faced with the challenge of achieving absolute savings targets, while making programs relevant to their full customer base. For CenterPoint, 80 percent of the savings are in commercial and industrial programs and 80 percent of the participants are in residential programs. Working to address both residential and commercial and industrial sectors will be very important for gas programs in the future.

To help deliver commercial and industrial savings, Reed pointed out that steam traps present a huge opportunity for immediate savings. Large savings up front open the door to start building trust and credibility with customers. Once this relationship with the customer is begun, bigger energy saving projects may follow in the future. Steam traps could be the premium motors of natural gas efficiency programs. All presenters agreed that food service was a good starting point for gas efficiency programs, and further, PG&E has identified a huge opportunity for gas efficiency by targeting major specific market segments like food service, food production, oil refineries, and other big customers within a program’s service territory.

The CEE Gas Committee is working to help its members find new ways to meet the higher savings targets members are facing. The Gas Committee is currently supporting residential space and water heating programs, and it is exploring commercial space heating technologies. If you would like more information or would like to participate on the Gas Committee, please contact Kara Rodgers.

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