Declining average customer use of natural gas: Issues and optionsAn IndEco project report
Natural gas utilities across Canada are experiencing declining gas usage per customer. For some utilities the decline is across all sectors; for others the decline is centred on residential and on small commercial and small industrial customers. This decline has been happening in the market over time due to energy efficiency improvements in new construction and the turnover in stock to higher efficiency gas furnaces. The decline has gained greater notice in recent years because high and volatile gas prices are moving consumers to further reduce gas use. These prices are creating increased pressure on the utilities from governments and stakeholders to place greater emphasis on energy efficient gas use through the delivery of demand-side management (DSM) services to customers. In addition, there are specific factors pertinent to particular franchise areas that are magnifying the decline.
From a customer perspective, decline in average use is very positive; it means that customers are using natural gas more wisely and are saving money on their gas bills. From a utility perspective, decline in use per account has a positive benefit because this contributes to customer retention. For utilities with DSM, their DSM programs further help their customers to achieve wise gas use and savings on gas bills. However, if declines in average use are not properly addressed through effective rate regulation, this could jeopardize the continued effectiveness of gas DSM, discourage utilities from promoting wise gas use and result in significant lost earnings for the utility.
The Canadian Gas Association retained IndEco Strategic Consulting Inc. in June 2006 to explore at a high level the nature and extent of the decline in gas usage across Canadian natural gas utilities, to identify implications of this decline and to assess options for managing its negative consequences on the gas utilities. This paper documents the research and findings of this work.
Canadian gas utilities are experiencing a 1.9% decline per year
Ten natural gas utilities across Canada participated in this study. They are: AltaGas, ATCO Gas, Enbridge Gas Distribution, Gaz Métro, Manitoba Hydro, Pacific Northern Gas (PNG), SaskEnergy, Terasen Gas and Union Gas. Each utility was asked to provide data from which to analyze actual declines in average use. Enbridge Gas New Brunswick and Heritage Gas in Nova Scotia were excluded from the study as these utilities are relatively new and are focused on adding customers to the distribution system.
In addition to obtaining data from the utilities relevant to analyzing declining average use, IndEco conducted telephone interviews in July and August 2006 with Enbridge Gas Distribution, Gaz Métro, Manitoba Hydro, Terasen Gas and Union Gas, and in October 2006 with PNG and AltaGas to supplement the data analysis.
A major finding of this work is that Canadian natural gas utilities have been experiencing a steady trend of declining natural gas use per customer. Analysis of actual use data, provided by the utilities over this period, and normalized by number of customers and weather, shows a decline in average use of natural gas across all sectors of 19% over the past 13 to 15 years, while across the residential sector, that decline has been 16%. This corresponds roughly to a decline in average use of 1.9% per year for all sectors and to a decline in average use in the residential sector specifically, of 1.1% per year.
How to address declining average use
The utility response to declining average use per customer should be tailored to the market conditions and the regulatory environment in which the utility operates. These conditions differ across the country and among the individual utilities.
There are a number of options for addressing declining average use per customer in Canadian gas utilities. Five options are discussed in this paper, and they are: ignore declining average use, incorporate declining average use in the load forecast, decouple revenue from gas use, make adjustments to fixed and volumetric charges and address decoupling in performance based regulation (PBR). These options are not completely distinct or independent from one another and more than one option can be operating at the same time for a particular company.
For a detailed discussion of these options, please view the report at the link below.
About the authorHeather is a senior consultant with IndEco. She is a Professional Engineer with extensive experience in energy and environmental issues, with a focus on energy conservation, demand response and renewable energy technologies.
Canadian Gas Association
Other related IndEco reports:
Designing a successful natural gas DSM regulatory framework
Canadian natural gas distribution utilities' best practices in demand side management
Regulatory frameworks for demand side management