Designing a successful natural gas DSM regulatory framework

An IndEco article

By: Judy Simon

Canada’s natural gas local distribution companies (LDCs) have long been active proponents of energy conservation, both in their own utility operations and with their customers. With rising energy prices, constrained supplies and growing environmental concerns, they increasingly are being requested by government, regulators and consumer groups to carry out more aggressive demand-side management (DSM) – that is, programs that reduce their customers’ demand for energy. Most of Canada’s LDCs operate in a regulated DSM environment. Therefore, it is critical that this environment support them in their efforts to achieve greater energy savings.

A ‘one size fits all’ natural gas regulatory framework across Canada is not appropriate. Different models can be effective, provided the model is tailored to meet the specific needs of the particular jurisdiction. Notwithstanding this need for tailoring, there are common elements to any successful natural gas DSM regulatory framework:
  • Clear decision mechanism and regulatory rules. The decision mechanism must carefully delineate the roles and responsibilities of each participant and the rules of engagement for their participation. The regulatory rules should be consistent with the materiality and importance of DSM relative to other utility expenditures. Regulatory instruments to yield the desired level of DSM and to balance utility risk and reward are necessary.
  • A long term, predictable source and level of DSM funding that reflects the maturity of the DSM market. This will facilitate long range planning and investment perspectives.
  • Who pays for DSM reflects who benefits from it. Where DSM programs are designed to meet both utility and government objectives, consideration of shared funding related to shared benefits may be appropriate.
  • A systems approach to the definition of DSM. A systems approach is more reflective of the true costs of energy, sending more correct pricing signals to the marketplace, and of the benefits to society.
  • Alignment of government energy policies and DSM regulatory frameworks. Government energy policies and the DSM regulatory framework should support each other.
  • Capturing the broad range of DSM benefits There is an opportunity for government to call upon natural gas DSM to fulfill broader societal objectives such as mitigating climate change.

As Canadian natural gas DSM matures, regulators will need to respond to the greater effort needed to achieve savings, and to the different types of DSM customer programs that will be required.

Source document

This article originally appeared in the Spring 2006 issue of Canadian Natural Gas

Related information

IndEco services:
Energy services
Strategic planning services
Management systems services
Regulatory affairs

Natural gas DSM:
Greening the natural gas industry
Best practices in natural gas DSM
Regulatory frameworks for DSM
DSM in North American gas utilities