Demand side management in North American gas utilitiesAn IndEco project report
In Enbridge Gas Distribution’s (EGD) 2003 rates case before the Ontario Energy Board, EGD stated its desire to obtain a better understanding of DSM frameworks in other jurisdictions. EGD is the largest distributor of natural gas within the province of Ontario, serving about 1.6 million residential, commercial and industrial customers across Ontario. EGD introduced DSM programs in 1995, since then they have saved customers more than 650 million dollars on their energy bills, helped make Ontario more competitive, and reduced atmospheric emissions associated with energy use.
EGD requested IndEco and Navigant Consulting to develop and conduct a survey of North American natural gas jurisdictions to give EGD a better understanding of natural gas DSM in other jurisdictions. In particular, EGD was interested in how DSM budgets and targets were set in other jurisdictions.
The survey was designed by IndEco and Navigant Consulting to meet the following objectives:
- explore the treatment of DSM in both cost of service and performance-based regulation (PBR) regulatory frameworks
- identify similarities and differences in the regulatory treatment of natural gas and electric DSM across jurisdictions and within the same jurisdiction
- obtain insight into how DSM plans are designed, approved and delivered in other jurisdictions
- explore the level of regulatory scrutiny of DSM plans
- determine how the budget and target setting processes work
- review the incentive mechanisms offered to encourage DSM by the utility
- identify tracking and reporting obligations.
Twelve jurisdictions were selected from across North America to participate in this survey. These jurisdictions were selected based on evidence of reasonable levels of natural gas DSM obtained from previous projects by the research team, various industry reports and publications and references from survey participants.
Some of the key findings of this survey are described below. These findings have been grouped according to the key elements of the survey:
The DSM programs offered by utilities operate under both PBR and cost of service regulatory regimes. These regulatory frameworks sometimes vary between electricity and gas utilities or between different gas utilities in the same jurisdiction.
Design, approval and delivery of DSM plans
In most jurisdictions, utilities develop a DSM plan and a regulator approves it. The DSM programs are then delivered by the utility, or delivery is contracted out, or some combination of the two. In a minority of jurisdictions there is a central agency which is responsible for developing the DSM plan, most of these central agencies outsource DSM delivery. Generally, there is limited regulatory scrutiny of the DSM plans.
Very few jurisdictions have a formal consultative process, but utilities typically involve stakeholders in developing the DSM plans.
Budget and target setting process
The DSM budget is almost always set first, before the target is developed. Many jurisdictions allow multi-year DSM plans, in which the budget, the target or both are set for multiple years. The DSM funding levels range from 0.2% to 2% of total customer bills and average 1%.
Utility DSM incentive mechanisms
Five of the jurisdictions surveyed have utility DSM incentive mechanisms. These incentives are typically based on the DSM budget, volumetric savings of gas, benefits realized as determined by a total resource cost test (TRC benefits), incremental TRC benefits realized over a set target or some combination of these.
Tracking and reporting
The majority of utilities file a report with their regulator on DSM at least annually. These reports typically include a description of DSM programs and a summary of expenditures and achievements.
Overall we found a great diversity in the frameworks under which utilities offer DSM; jurisdictions define their DSM frameworks to meet the needs of their situation, and the needs of their utilities.
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