Natural Gas Efficiency Programs Report

Transcription

1 Natural Gas Efficiency Programs Report 2008 Program Year Copyright 2009 American Gas Association All Rights Reserved Prepared by Policy Analysis Group American Gas Association 400 N. Capitol St., NW Washington, DC December 2009

2 Copyright & Distribution: Copyright 2009 American Gas Association. All rights reserved. This work may not be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by information storage and retrieval system without permission in writing from the American Gas Association. Notice: In issuing and making this publication available, AGA is not undertaking to render professional or other services for or on behalf of any person or entity. Nor is AGA undertaking to perform any duty owed by any person or entity to someone else. Anyone using this document should rely on his or her own independent judgment or, as appropriate, seek the advice of a competent professional in determining the exercise of reasonable care in any given circumstances. The statements in this publication are for general information and represent an unaudited compilation of statistical information that could contain coding or processing errors. AGA makes no warranties--express or implied-- or representations about the accuracy of the information in the publication or its appropriateness for any given purpose or situation. Information on the topics covered by this publication may be available from other sources, which the user may wish to consult for additional views or information not covered by this publication.

3 Contents INTRODUCTION... 1 EXECUTIVE SUMMARY... 2 METHODOLOGY AND SURVEY SAMPLE... 3 I. NATURAL GAS EFFICIENCY PROGRAM CHARACTERISTICS... 4 II. NATURAL GAS EFFICIENCY PROGRAM FUNDING AND IMPACTS Natural Gas Efficiency Program Expenditures and Funding Natural Gas Efficiency Program Savings Impacts III. NATURAL GAS EFFICIENCY PROGRAM PLANNING AND EVALUATION IV. NATURAL GAS EFFICIENCY REGULATORY REQUIREMENTS AND COST RECOVERY TREATMENT V. THOUGHTS AND COMMENTS Delivery Barriers and Lessons Learned Market Penetration Most Successful Attributes Most Innovative Features Appendix A State Energy Efficiency Program Provisions and Practices Appendix B Natural Gas Efficiency Program 2008 Expendtitures and 2009 Budgets by State Appendix C Natural Gas Efficiency Program 2008 Expenditures and 2009 Budgets by Region Appendix D 2008 Estimated Natural Gas Efficiency Program Savings Impacts by Region Appendix E Survey Participant Companies... 31

4 Introduction Awareness of the energy economy has steadily grown beyond the purview of business and public policy. Economic and environmental concerns have become increasingly important drivers of consumer decisions about energy. With this has come increased attention to the potential for energy efficiency to mitigate cost increase for consumers, reduce greenhouse gas emissions and enhance energy security. For natural gas distributors, investing in natural gas efficiency programs presents an opportunity to achieve these objectives and contribute to the communities in which they operate. Many have long-performing natural gas efficiency programs, while others have been working with their regulators to pave the way for new programs that will accelerate progress toward a clean energy future and allow them to build sustainable value for their businesses and customers. The AGA Natural Gas Efficiency Programs Report Program Year presents data collected from members of the American Gas Association and the Consortium for Energy Efficiency 1 on utility-funded natural gas efficiency and conservation programs. The purpose of this report is to show the magnitude of this rapidly growing market in the U.S. and Canada and to identify practices and trends in program planning, funding, administration and evaluation. The report looks retrospectively at the status of the natural gas efficiency market in 2008, including expenditures and savings impacts, and presents a snapshot of budgets for Also explored are regulatory approaches to advancing the natural gas efficiency market. This third annual study illustrates how natural gas utilities have been working with their customers to help them reduce their carbon footprint and increase cost savings and with their regulators to bring about progressive policies that support such initiatives. The data collection effort has expanded significantly in this year s survey. An important contributor to this year s data gathering project is the Consortium for Energy Efficiency (CEE). AGA and CEE joining forces has eliminated duplication of effort by our organizations, reduced the reporting burden for respondents, and enlarged the sample pool threefold expanding the survey to more utilities in the U.S. and Canada and to third-party administrators of utility-funded efficiency programs. AGA would like to thank the members of AGA and CEE in the U.S. and Canada for participating in this important data-collection effort. We appreciate tremendously the time and effort given by all survey respondents throughout the data collection process, including extensive clarification and data validation follow up. (See Appendix E for a listing of participating companies). 1 The Consortium for Energy Efficiency ( is a nonprofit public benefits corporation that develops initiatives for its North American members to promote the manufacture and purchase of energy-efficient products and services. CEE members include utilities, statewide and regional market transformation administrators, environmental groups, research organizations and state energy offices in the U.S. and Canada. Natural Gas Efficiency Programs Report 2008 Program Year, Page 1 of 31

5 Executive Summary The American Gas Association (AGA) and the Consortium for Energy Efficiency (CEE) surveyed their members in the United States and Canada during 2009 on the status of their natural gas efficiency programs. Based on 2008 program year data and 2009 budget figures: Natural gas utilities fund 96 natural gas efficiency programs 89 in 34 states and seven in Canada. U.S. utilities plan to launch eight new programs in Residential natural gas efficiency program participants in the U.S. saved on average seven percent of usage or about 54 Therm per year an annual average cost saving of $214 per residential customer on energy bills. In the United States, utilities invested nearly $565 million in natural gas efficiency programs in 2008 and have budgeted about $927 million in This represents a 64 percent increase 2. Natural gas efficiency program expenditures approached $632 million in North America in 2008, and they are estimated to grow to more than $1 billion in 2009 (a 61 percent increase). Utilities spent from 0.02 to 8.5 percent of net natural gas distribution revenues (net of gas costs) for natural gas efficiency programs in In 2008 U.S. customers saved nearly 30 trillion Btu through natural gas efficiency programs (a 156 percent increase from 11.3 trillion Btu in 2007), thus avoiding 1.6 million metric tons of carbon dioxide (CO 2 ) emissions. Natural gas savings impacts from efficiency programs reached nearly 38 trillion Btu in North America, a threefold increase from 11.4 trillion Btu in 2007 and the equivalence of nearly two million metric tons of avoided CO 2 emissions. Eighty-eight percent of natural gas efficiency programs provide weatherization measures for lowincome customers in single and multi-family homes. Thirty-three states require that utilities fund natural gas efficiency programs. Twenty-one states mandate that utilities implement programs specific to low-income customers. Thirty states allow recovery of natural gas efficiency direct program costs, 17 allow recovery of lost margins, and 11 provide utilities with performance-based incentives for natural gas efficiency programs. Recovery of natural gas efficiency direct program costs are allowed via the following mechanisms: special tariff or rider in 34 states base rates in 23 states system benefits surcharge in 17 states other mechanism in six states. Sixteen percent of regulator-approved natural gas efficiency programs encourage fuel switching, and 15 percent measure efficiency from the energy source to the usage site by applying a full fuel-cycle analysis. U.S. spending on evaluation, measurement and verification activities surpassed $12 million in 2008, and it is estimated to approach $31 million in 2009 (a 158 percent increase). 2 The 2008 and 2009 survey samples are similar; however, 2009 budgets include data for eight newly launched programs. Natural Gas Efficiency Programs Report 2008 Program Year, Page 2 of 31

6 Methodology and Survey Sample The American Gas Association (AGA) and the Consortium for Energy Efficiency (CEE) surveyed their U.S. and Canadian members in 2009 on the status of their 2008 natural gas efficiency programs, including low-income weatherization. This report is based on the responses of these utilities, which have natural gas service territories in 34 states and Canada. Also included are data from third-party administrators of utility-funded natural gas efficiency programs 3. The response rate from utilities that administer or fund natural gas efficiency programs was 81 percent, based on our knowledge of existing programs. Thus actual natural gas efficiency market statistics are understated in this report. Two variations of the survey were distributed: 1) a short form (which focuses on natural gas efficiency program funding and savings impacts) was distributed primarily to CEE members, including administrators of statewide energy programs; and 2) a long form (which has questions on program characteristics, expenditures, budgets, evaluation and regulatory treatment) was distributed to all AGA members. The introductory part of this report and part II encompass all collected data from short and long forms, while the rest of the report discusses responses from a subset of companies that completed the long form (74 companies in the U.S. and one in Canada). The utilities represented in this report (including those that fund third-party programs) account for about 64 percent of the natural gas delivered by local natural gas utilities in the United States, with an aggregate annual throughput of 8.4 trillion cubic feet (Tcf) 4. These companies served more than 41 million residential customers cumulatively, corresponding to 64 percent of U.S. residential natural gas market. The survey asked respondents to describe their natural gas efficiency programs during the 2008 calendar year or coinciding program year for which data were available. Also 2009 data were collected for approved natural gas efficiency program budgets and estimated participant counts. Not all reporting companies answered every question on the survey. The sample, therefore, varies question to question. Because the survey pool varies year to year, this report does not directly compare 2008 with prior year data, except for illustrative purposes, when discussing program expenditures and savings impacts. Tables and charts represent a simple tally of the responses to the survey questionnaire. In this report, the term natural gas efficiency program refers to a set of activities designed to promote a costeffective and prudent approach to energy usage, including single and multifamily residential low-income weatherization; indirect impact activities; and new and existing building direct impact activities (see page 7 for examples of such activities). Report footnotes provide additional information regarding methodology. 3 Appendix E lists the companies represented in this report, including those that did not respond directly but whose data were provided by third-party administrators. However, only aggregate information is presented in the report. Appendix B, C and D present data at a state and/or region level only for companies that agreed to release their information. 4 Based on Energy Information Administration 2008 consumption data Natural Gas Efficiency Programs Report 2008 Program Year, Page 3 of 31

7 I. Natural Gas Efficiency Program Characteristics According to 2008 program year data, there are at least 89 active natural gas efficiency programs in the U.S. and seven in Canada that are funded by local natural gas utilities. Utilities plan to launch eight new programs in 2009, and several are planned for 2010 (see Figure 1). Figure 1 Utility-Funded Natural Gas Efficiency Programs (96 Active & 8 Planned Programs in 34 States & Canada in 2008) The 89 U.S. programs include 81 that are administered by utilities (in part or whole) and eight solely by a thirdparty agency as part of a collaborative, such as the Energy Trust of Oregon, New Jersey Clean Energy Project or Wisconsin Focus on Energy. Several utilities fund third-party administered programs in conjunction with their own; however, to avoid double-counting, these are not counted separately in this report. From this point forward, except in part II. Natural Gas Efficiency Program Funding and Impacts, this report describes a subset of utility-implemented natural gas efficiency programs for which a complete set of data was obtained. This subset comprises 75 programs (74 in the U.S. and one in Canada) implemented by 41 natural gas distributors and 34 combination gas-electric utilities (see Table 1). Table 1 NATURAL GAS EFFICIENCY PROGRAM BY UTILITY TYPE COMPANY TYPE PROGRAMS PERCENTAGE Investor Owned Natural Gas Distributor 41 55% Investor Owned Gas & Electric Utility 34 45% TOTAL % Natural Gas Efficiency Programs Report 2008 Program Year, Page 4 of 31

8 Of the 75 natural gas efficiency programs, 60 are primarily administered by the utility, seven by a third-party (state agency, non-profit or not for profit), and eight by more than one entity. This latter category includes utilities that administer their own programs as well as fund statewide programs (see Table 2). Table 2 NATURAL GAS EFFICIENCY PROGRAMS ADMINISTRATION PROGRAMS PERCENTAGE Utility Administered 60 80% Third Party Administered 7 9% Combination of Entities 8 11% TOTAL % The majority of natural gas efficiency programs (52 of 75) are administered as natural gas-only, while 23 are combined with electric efficiency programs (see Figure 2). Figure 2 Natural Gas Efficiency Programs Structure Total = 75 programs Gas Only (52) 69% Gas & Electric (23) 31% Gas Efficiency Program Characteristics Natural Gas Efficiency Programs Report 2008 Program Year, Page 5 of 31

9 Twenty-one of the 75 respondents (28 percent) reported that they had partnered with other utilities (natural gas, combination and electric) to jointly administer efficiency activities. These programs may be pilots (12 percent) or fully implemented (88 percent), and they range from newly launched to mature programs that span 20 or more years and average nine years of service. Forty-seven percent of programs have been in place for 10 years or longer (see Table 3). Table 3 NATURAL GAS EFFICIENCY PROGRAMS SINCE INCEPTION YEARS OF SERVICE NUMBER OF PROGRAMS Less than 1 (2008 start) < or more 14 TOTAL 75 Forty-five percent of natural gas efficiency programs (34 of 75) grew since the 2007 program year with new efficiency products, activities and outreach. Utilities accomplished this by targeting new markets and customer classes, adding new measures, boosting rebate programs, expanding low-income weatherization programs, hiring staff, enlisting third-party administrators, enhancing outreach (via marketing, training, discounted conservation kits, online usage analyzers and educational activities), and increasing funding, products, incentives and participation levels. Only four percent of programs contracted during the same period by removing certain measures and eliminating programs that would be replaced with new ones in the following program year. When asked to select all goals that drive their natural gas efficiency programs, respondents identified them as follows: 99 percent target direct impact on energy savings; 80 percent engage in behavioral change (with education, training or direct outreach to customers and others); 60 percent seek market transformation (through manufacturers, distributors, retailers and consumers of energy-related products and service); 37 percent aim for avoided emissions; and 20 percent pursue other goals. These include economic development, assisting hard-to-reach markets under distress, reducing uncollectible expenses due to write offs of arrears for low-income customers and moderating growth in electric consumption (to meet legislative requirements and statewide goals for electric efficiency programs), and avoiding transmission line upgrades (see Table 4). Table 4 PURPOSE OR GOAL OF NATURAL GAS EFFICIENCY PROGRAM (75 natural gas efficiency programs with one or more goals) GOAL NUMBER OF PROGRAMS PERCENTAGE Direct Impact on Energy Savings 74 99% Behavior Change 60 80% Market Transformation 52 69% Direct Impact on Avoided Emissions 28 37% Other 15 19% Natural Gas Efficiency Programs Report 2008 Program Year, Page 6 of 31

10 Respondents were asked to identify all customer classes included in their natural gas efficiency programs. Ninety-nine percent of programs (74 of 75) offer natural gas efficiency measures to residential customers, and 67 percent (or 50 programs) have commercial and small industrial (C & I) accounts. One-third of programs (25 of 75) have only residential customer participants, while 65 percent include all customer classes. Just one program has only C & I efficiency activities. Natural gas efficiency program participant counts were obtained for 74 active programs in the 2008 program year and from seven planned for In 2008, 1,145,664 residential customers and 90,618 C & I customers were enrolled in natural gas efficiency programs. Residential programs have as few as 18 and as many as 285,000 customers, with an average of 15,000 participants. Commercial programs have from three to more than 31,000 accounts, with an average of 1,900 participants. Estimates for the 2009 program year show nearly 1.5 million customers participating in natural gas efficiency programs of which 1,395,394 are residential customers and 94,075 are C & I accounts (see Figure 3). Figure 3 Gas Efficiency Program Participants in North America 1,600 1,489 Program Participants (000) 1,400 1,200 1, ,236 Commercial & Industrial Residential Gas Efficiency Program Characteristics Survey respondents were asked to identify all natural gas efficiency activities offered to customers in each sector. Data were provided for 74 programs. As shown in Table 5, 88 percent of programs (65 of 74) provide weatherization activities for low-income customers in single and multifamily homes. Other offerings include customer education (in 64 residential and 39 C & I programs), direct impact activities for existing buildings (in 60 residential and 43 C & I programs), and direct impact measures for new buildings or expansions (in 39 residential and 33 C&I programs). Direct impact programs for existing buildings consist of equipment replacements and upgrades (e.g., appliances, doors, windows, insulation and thermostats), building retrofits, commercial food service, process equipment, energy management systems and custom process improvements. For new buildings or expansions, direct impact programs include energy efficient homes, Natural Gas Efficiency Programs Report 2008 Program Year, Page 7 of 31

11 energy efficiency design assistance and industrial efficiency. Other indirect programs include certification, online tools, technical assessments and training. Table 5 UTILITY IMPLEMENTED NATURAL GAS EFFICIENCY PROGRAM ACTIVITIES BY CUSTOMER CLASS Total = 74 reporting EE programs with one or more EE activities ENERGY EFFICIENCY ACTIVITIES RESIDENTIAL C & I Residential Low Income Weatherization 65 Indirect Impact Programs Certification 20 9 Education Online Tools Technical Assessment Training Direct Impact Programs Existing Buildings Direct Impact Programs New Construction/Expansion Other 13 9 When asked to identify all products covered in their residential natural gas efficiency program, 69 respondents indicated that their programs include the following: furnaces (66 programs), boilers (50), storage water heaters (49), tankless water heaters (39), HVAC quality installation (27), clothes washers (22), dishwashers (10) and solar water heaters (4). In 46 C&I programs, the following products are covered: boilers (43 programs), furnaces (43), storage water heaters (37), tankless water heaters (34), gas pack rooftop HVAC units (20), HVAC quality installation (17) and solar water heaters (6). Natural gas efficiency programs offer customer incentives geared toward energy savings. These include appliance rebates and equipment financing. Respondents reported an aggregate annual incentive budget of $152 million for 67 residential programs in 2008 and $81 million for 47 C & I programs (see Figure 4). The estimated incentive budget for 2009 is $261 million for 75 residential programs and $151 million for 59 C & I programs. The 2009 numbers include programs launched in Figure 4 Gas Efficiency Program Customer Incentive Budgets by Sector 67 Residential & 47 C&I programs = $233.5 million Residential $152.4 million 35% 65% Commercial & Industrial $81.0 million Gas Efficiency Program Chracteristics Natural Gas Efficiency Programs Report 2008 Program Year, Page 8 of 31

12 Seventy-one percent of natural gas efficiency programs (53 of 75) include cash incentives for high-efficiency natural gas appliance installations. All 53 programs offer these rebates to residential customers, 37 offer them to commercial customers, and 25 to small industrial customers. Forty-seven percent (25 of 53) offer rebates to all customer classes. Eligible appliances for cash rebates include high-efficiency water heaters (40 programs), boilers (7), furnaces (7), general space heating (32) and programmable thermostats (12). Rebates for other measures (in 24 programs) include ranges, dryers, clothes washers, combined space and water heating units, drain water heat recovery, Energy Star Homes, roof top dampers and weatherization. As seen in Table 6, rebate dollar amounts vary widely, depending on the type and number of measures. Table 6 GAS APPLIANCE REBATE PROGRAMS Water Heaters Boilers Furnaces RESIDENTIAL General Space Heating Programmable Thermostats Available Programs Dollar Range $9 $750 $100 $750 $200 $400 $70 $7,500 $14 $25 $10 $1,500 COMMERCIAL Available Programs Dollar Range $17 $2,500 $100 $5,000 $200 $400 $50 $50,000 $20 $25 $20 $10,000 INDUSTRIAL Available Programs Dollar Range $100 $400 $200 $400 $75 $100,000 $20 $300,000 Other For commercial and industrial programs, the rebate dollar range is even wider. Some incentive imbursements consist of a set dollar amount per high-efficiency appliance unit; others involve a percentage of total insulation or equipment purchase cost, capped at a specific dollar amount; while others have a specific dollar amount per square footage or Therm saved. Many commercial and industrial rebates are awarded on a custom, or sitespecific, basis. Other measures that qualify for rebates in C & I programs include clothes washers, fryers, steamers and other commercial kitchen appliances. A number of programs help customers finance high-efficiency natural gas appliance purchases. Twenty percent of programs (15 of 75) grant these loans to qualifying customers. Of the 15 programs, seven offer financing to residential customers, five to commercial customers and three to both. Three of the 15 programs offer interest-free loans; three provide interest rate buy-down and two include both. Seven programs have other types of loans, such as no interest for 12 months, low-fixed rates and other annual percentage rates. Forty-seven percent of programs (7 of 15) administer these loans in house, while 53 percent (8 programs) assign loan processing to a third-party. Five of 15 programs (or 33 percent) use on-bill financing, where loan installments are added directly to qualifying customers monthly bill. Rentals for high-efficiency natural gas appliances are offered by 4 percent of programs (3 of 75), two of which are residential and one is commercial. Natural Gas Efficiency Programs Report 2008 Program Year, Page 9 of 31

13 Eighty-nine percent of natural gas efficiency programs (67 of 75) are promoted via an array of marketing and outreach efforts in the form of collateral materials, internet tools, direct outreach, trade and home show promotions, print ads, press releases, training, radio ads and TV/cable ads. Other activities include customer contact centers, co-op marketing via trade allies, and partnerships and coalition building (see Figure 5). Figure 5 Natural Gas Efficiency Program Marketing and Advertising Total = 75 EE programs including one or more activity 70 Marketing and Advertising Activities Energy Efficiency Program Organization & Structure Fifty-six respondents identified the portion of natural gas efficiency program dollars used for marketing activities. Expenditures for marketing ranged from less than one to 65 percent of overall natural gas efficiency program dollars and averaged nine percent. Table 7 breaks down outreach spending as a percentage of program budgets into percentage ranges. As shown, half the programs used 5 percent or less of program budgets for marketing and outreach. Table 7 MARKETING AND OUTREACH SPENDING AS PERCENTAGE OF OVERALL NATURAL GAS EFFICIENCY PROGRAM BUDGET PERCENTAGE OF PROGRAM BUDGET NUMBER OF PROGRAMS 1% or less 9 1% > 5% 19 6% 10% 15 11% 25% 9 26% 50% 3 Greater than 50% 1 TOTAL 56 Natural Gas Efficiency Programs Report 2008 Program Year, Page 10 of 31

14 Twelve percent of respondents (9 of 75) indicated that their natural gas efficiency program includes a regulator-approved codes and standards advocacy program that promotes improvements to building efficiency codes and appliance standards. This is performed through studies, drafting guidelines, expert testimony, stakeholder meetings, research, and marketing and compliance improvement activities (such as funding for statewide contractor training on adopted building codes). Nineteen percent (14 of 75) of respondents indicated that their natural gas efficiency program includes pre-commercial demonstrations of emerging technologies. Of the 14, five stated that their public utility commission requires such demonstrations. Natural Gas Efficiency Programs Report 2008 Program Year, Page 11 of 31

15 II. Natural Gas Efficiency Program Funding and Impacts This section describes utility funding for natural gas efficiency programs in the U.S. and Canada and the resulting annual energy savings impacts. Program year 2008 expenditures correspond to funding by 92 utilities for programs they or other parties administer. These third parties include non-profits, public benefit corporations and state agencies that run statewide programs. Approved budgets for 2009 represent planned funding for these 2008 programs and eight others launched in Respondents were asked to break down 2008 expenditures and 2009 approved budgets by customer class or sector. Where data were not available by sector, a slight percentage of respondents reported combined dollar amounts in the Other category. Given that the reporting methodology varied among respondents, expenditure and budget data should be regarded as estimates rather than exact figures. Natural Gas Efficiency Program Expenditures and Funding In the U.S. utilities spent nearly $565 million in 2008 on natural gas efficiency programs and plan to spend about $927 million in 2009 (see Table 8). Program expenditures approached $632 million in North America in 2008, and they are expected to increase to more than $1 billion in See Appendix B and C for state and region breakdowns of natural gas efficiency program funding for companies that agreed to release their data. Table 8 NATURAL GAS EFFICIENCY PROGRAM EXPENDITURES AND BUDGETS BY CUSTOMER CLASS 2008 EXPENDITURES ($ MILLION) 92 PROGRAMS 2009 APPROVED BUDGETS ($ MILLION) 103 PROGRAMS SECTOR U.S. CANADA N. AMERICA U.S. CANADA N. AMERICA Residential $185.9 $20.1 $ $320.9 Low Income C & I Other TOTAL 2 $564.9 $66.8 $631.7 $926.6 $91.2 $1, A negligible percentage of funds in the Other category represents evaluation, verification and measurement funds not included in the other categories. 2 Totals may not add up exactly due to rounding. Figure 6, which shows utility spending on natural gas efficiency programs from 2007 through 2009, indicates that utility spending in the U.S. grew by 77 percent from 2007 to 2008 and by 64 percent from 2008 to Utility program funding in North America increased by 92 percent from 2007 to 2008 and is expected to grow by 61 percent in This comparison is intended for illustrative purposes only, since the growth cannot be Natural Gas Efficiency Programs Report 2008 Program Year, Page 12 of 31

16 attributed entirely to new and expanded programs but also to the difference in survey samples from one year to the next. Figure Gas Efficiency Program Expenditures in the U.S. and Canada $1,018 million 103 programs US Dollar (million $) $329 million 53 programs $638 million 92 programs Canada United States Gas Efficiency Program Funding and Impacts A look at 2008 natural gas efficiency program expenditures across sectors shows that North American utilities apportioned 33 percent of funding for residential programs, 29 percent for C & I, 27 percent for low-income and 11 percent for other program activities (see Figure 7). Other expenses include labor and administrative costs, regulatory filing charges, education and outreach, market research, contractor training, codes and standards, financing, and planning and evaluation. Figure Gas Efficiency Program Expenditures by Customer Class 92 programs in N. America = $631.7 million Other $68.5 million 11% 33% Residential $206.0 million 29% Commercial & Industrial $185.2 million 27% Low Income $172.0 million Gas Efficiency Program Funding and Impacts Natural Gas Efficiency Programs Report 2008 Program Year, Page 13 of 31

17 Eighty-one percent of natural gas efficiency programs are funded by ratepayers (via base rates, system surcharges and natural gas efficiency tariffs or annual trackers), 4 percent by shareholders, and 15 percent by shareholders and ratepayers (see Figure 8). Figure 8 Gas Efficiency Program Funding Sources (75 programs) Shareholders (3) Ratepayers (61 programs) 4% 81% 15% Ratepayers & Shareholders (11) Gas Efficiency Program Funding and Impacts Based on 69 survey responses and other data sources, utilities disbursed from 0.02 to 8.5 percent of net natural gas distribution revenues (net of gas costs) for natural gas efficiency programs in Of the 69 responding companies, 51 used less than one percent of net revenues for natural gas efficiency programs, 15 used between one and five percent, and three spent 5 or more percent. American Recovery and Reinvestment Act stimulus funds were not included in reported 2008 natural gas efficiency program expenditures and 2009 approved budgets. Natural Gas Efficiency Program Savings Impacts Estimated 2008 annual natural gas savings impacts were reported for roughly 86 programs by customer class 5. Data were not available for a number of respondents, either because savings are not tracked or not yet available for In some of these cases, estimates were provided based on prior year data. While the majority of respondents provided annualized savings, accumulated in 2008, some were able to report only for the most recent program year (with, for example, some program months falling in 2007 and some in 2008). Where data were not available by sector, a slight percentage of respondents reported overall savings in the Other category. Some respondents were unable to separate low-income program savings from overall residential program savings. Others included savings for multi-family programs with C&I program savings. Given that the reporting methodology varied among respondents, natural gas savings data should be regarded as estimates rather than exact figures. 5 Respondents were asked to report net impacts that is, to exclude free riders, savings due to government mandated codes and standards, natural operations of the marketplace (e.g., reduced usage because of higher prices), and reduced usage because of fluctuations in weather or the business cycle. Fifty-six percent of respondents were able to provide net impacts. Natural Gas Efficiency Programs Report 2008 Program Year, Page 14 of 31

18 As shown in Table 9, in 2008 U.S. utilities saved nearly 290 million Therm (or 29.9 trillion Btu) through natural gas efficiency programs, thus avoiding nearly 1.6 million metric tons of carbon dioxide emissions (CO 2 ). Natural gas savings in North America were about 367 million Therm (or 37.9 trillion Btu), the equivalence of nearly 2 million metric tons of avoided CO 2 emissions. For a breakdown of savings impacts by region, see Appendix C. Table NATURAL GAS EFFICIENCY PROGRAM SAVINGS IMPACTS BY CUSTOMER CLASS (MILLION THERM) 86 PROGRAMS SECTOR U.S. CANADA N. AMERICA Residential Low Income C & I Other TOTAL Other includes codes and standards. The negative number represents interactive effects of DSM electric savings. 2 Totals may not add up exactly due to rounding. Figure 9 compares 2008 with prior year data and shows that natural gas savings from U.S. efficiency programs grew by 150 percent in 2008 to 29.9 trillion Btu (from 11.3 trillion Btu in 2007). In North America, natural gas savings increased threefold (from 11.4 trillion Btu in 2007 to 37.9 trillion Btu in 2008). This comparison is for illustrative purposes, because this growth cannot entirely be attributed to new and expanded programs but also to differences in survey samples from one year to the next. Figure 9 Gas Efficiency Program Savings Impacts in North America Tbtu 86 programs Trillion Btu Tbtu 44 programs Canada United States Gas Efficiency Program Funding and Impacts Natural Gas Efficiency Programs Report 2008 Program Year, Page 15 of 31

19 A look across sectors at 2008 natural gas efficiency programs in North America shows that 34 percent of savings are attributed to residential programs (including low-income activities) and 57 percent to C & I programs. Nine percent of natural gas savings are classified as other (see Figure 10). Figure Gas Efficiency Program Savings by Customer Class 86 programs in N. America million Therm (36.7 trillion Btu) Other 31.2 million Therm 8% Residential million Therm 31% Commercial & Industrial million Therm 57% 3% Low Income 10.2 million Therm Gas Efficiency Program Funding and Impacts In the U.S. annual natural gas savings per efficiency program participant averaged 7.1 percent for residential participants and 8.6 percent overall. Natural gas savings per year averaged Therm per U.S. customer overall and 54.3 Therm per residential customer, which translates to average cost savings of $214 per residential customer on annual energy bills 6. 6 Natural Gas efficiency program participant counts and annual natural gas savings data were available for 55 programs. Calculations were derived from survey data and 2008 Energy Information Administration consumption and price data. Natural Gas Efficiency Programs Report 2008 Program Year, Page 16 of 31

20 III. Natural Gas Efficiency Program Planning and Evaluation Survey respondents were asked to describe their approach to natural gas efficiency program planning, measurement and evaluation (EM&V). Sixty-four percent of respondents confirmed that their program includes an EM&V component. Forty-one percent of respondents (30 of 74) reported having conducted a market assessment, potential, baseline, or feasibility study before implementing their natural gas efficiency programs. Spending for 2008 EM&V expenses exceeded $13 million in North America and is expected to grow to $32 million in In the U.S., EM&V spending surpassed $12 million in 2008 and is estimated to approach $31 million in 2009 (an increase of 158 percent). When assessing annual energy savings from direct impact natural gas efficiency programs, 46 percent of respondents (30 of 65) determine savings at the individual program level, five percent (3 of 65) at the overall portfolio level, and 49 percent (32 of 62) at both levels. Nineteen percent of respondents (14 of 75) also determine energy savings from indirect impact programs. Based on 70 responses, the public utility commission is responsible for conducting the impact evaluation in 62 cases (89 percent) and the utility in eight cases (11 percent). When the utility is the responsible party, the evaluation is conducted by a consultant for 55 percent of respondents (34 of 62 responses) and by in-house staff for 44 percent (27 of 62). One respondent reported that both in-house staff and evaluation consultant conduct the impact evaluation. Sixty-seven of 74 survey responses indicated that there are regulatory requirements for reporting natural gas efficiency program impacts. When asked how often evaluators must submit a report to the regulator, respondents selected one or more reporting cycles, depending on the report type or recipient (i.e. regulator versus energy board) see Table 10. Other reporting frequencies include semi-annual, three times per year and once in two, three or five years. Table 10 EE Program Reporting Frequency 67 survey responses with one or more reporting cycles Monthly 12 Quarterly 25 Semi Annually 2 Annually 46 All of the above 7 Other 9 Eight of 74 responses indicated that greenhouse gas, or carbon emission, reduction is currently a performance measurement for their natural gas efficiency program, while five indicated that this measure is pending. When asked which metric is used to compute achievable energy efficiency gains specific to a particular program or measure, respondents indicated that source-to-site energy measurement is used for 13 percent of programs (9 of 59), while site-only measurement is used for 85 percent. 7 Reasons cited for using a particular metric are legal requirements (23 percent, or 13 of 57 respondents) and available resources (56 percent or 32 responses). Other reasons account for 21 percent of responses. These include a combination of legal requirements and available resources and accepted practice. 7 Source energy also known as full fuel-cycle analysis is a more accurate measurement of efficiency. Site energy analysis accounts for energy used or consumed only by the end-user at the usage site. On the other hand, a full fuel-cycle analysis takes into account not only onsite energy consumption but also consumption and losses during the production, generation, transmission and distribution cycles. This allows for a realistic comparison of relative efficiency among different technologies, especially when comparing the efficiency of natural gas applications from source to site with that of other fuels. Natural Gas Efficiency Programs Report 2008 Program Year, Page 17 of 31

21 Of the 60 natural gas efficiency programs for which cost effectiveness is evaluated, 52 are assessed at the individual program or activity level, 42 for the overall portfolio and 12 at the sector or customer class level. Table 11 shows how respondents answered when asked to describe all the tests used to determine costeffectiveness. Total Resource Cost testing was used by 78 percent of respondents (47 of 60). Six reported using all five tests. Table 11 Tests Used to Determine Natural Gas Efficiency Program Cost Effectiveness 8 60 responses with one or more test Total Resource Cost (TRC) Measures net program costs including both participants and utility s costs (e.g., equipment and installation, operation and maintenance and other related costs of participant and utility) and benefits (e.g., avoided supply costs, natural gas delivery cost reductions, tax credits) Utility Cost Test (UCT) Narrower version of TRC excluding participant costs and measuring net costs incurred by program administrator (e.g., customer rebates and other financial incentives) at the utility (UCT applies) or at other organization (PAC applies) Ratepayer Impact Measure (RIM) Applies only to utility programs measuring impact on all consumer bills/rates because of changes in utility revenues and operating costs due to program implementation Participant Test (PCT) Calculates quantifiable costs (e.g., out of pocket expenses of participating in program) and benefits (e.g., reduction in utility bill, rebate payments, tax credits) to participating customers Societal Test (SOC) Broader version of TRC adopting a societal perspective measuring not only participants and utility s costs but also externality cost and benefits (e.g., environmental impacts) For a thorough description of each cost-effectiveness test, see Appendix C-4 in Model Energy Efficiency Program Impact Evaluation Guide, A Resource of the National Action Plan for Energy Efficiency, November 2007, Natural Gas Efficiency Programs Report 2008 Program Year, Page 18 of 31

22 IV. Natural Gas Efficiency Regulatory Requirements and Cost Recovery Treatment This section describes some of the regulatory and legal requirements that underpin natural gas efficiency programs, including direct program cost and lost revenue treatment and financial incentives for well-performing programs. Data were provided for 75 natural gas efficiency programs, although not all respondents answered all questions. According to survey responses, market studies that assess the economic and efficiency potential of natural gas efficiency program implementation were conducted in 19 states. Thirty-three states require utility funding for natural gas efficiency programs, either by ruling (eight states), statute (two states) or both (23 states). Statutory goals for natural gas efficiency programs include energy savings in eight states, cost-effectiveness in three states and both in five. Other goals are stipulated in two states. Twenty-one states require utilities to implement conservation and efficiency programs for low-income customers. All 74 natural gas efficiency programs are administered in states that mandate funding by utilities for such programs. Respondents identified 30 states that allow recovery of natural gas efficiency program direct costs, 17 that allow recovery of margins lost from implementing efficiency programs, and 11 that provide utilities with performance-based incentives for natural gas efficiency programs (see Figure 11). Figure 11 Regulatory Treatment for Gas Efficiency Program Direct Costs, Lost Revenues and Performance Incentives Number of States Program Cost Recovery Lost Margin Recovery Performance-Based Incentives Gas Efficiency Regulatory Treatment Natural Gas Efficiency Programs Report 2008 Program Year, Page 19 of 31

23 Sixty-eight natural gas efficiency programs are administered in the 30 states identified as having assured recovery of natural gas efficiency program direct costs (e.g., rebates and administrative costs). When asked to select all approved mechanisms that apply, respondents identified the following cost recovery mechanisms: 34 use a special efficiency or conservation tariff or rider; 23 can recoup natural gas efficiency costs through base rates; and 17 apply a mandated system benefits (or public goods) surcharge on customer bills. Six also use other mechanisms (see Figure 12). Figure Regulator-Approved Gas Efficiency Direct Program Cost Recovery Mechanisms 68 responses Reporting Utilities Special Tariff or Rider Base Rate Recovery System Benefits Charge Other Methods Gas Efficiency Regulatory Treatment Thirty-five natural gas efficiency programs are implemented in the 17 states identified in the survey as having approved recovery of lost revenues that result from natural gas efficiency program implementation. Lost margin recovery provisions are pending in three states. Thirty-respondents reported no recovery of lost revenue, and four reported straight fixed variable rates. Of the 35 allowed recovery of lost margins, 16 respondents have lost revenue recovery, 14 have full revenue decoupling and six partial revenue decoupling. Partial decoupling was explained as follows: 1) not applicable to all customer classes; 2) weather mitigation rate design; 3) subject to earnings and energy savings test; 4) equal to achieved natural gas savings; 5) pilot with fixed cost recovery adjustments (positive and negative) based on actual usage per pre-existing customer; Natural Gas Efficiency Programs Report 2008 Program Year, Page 20 of 31

24 and 6) not associated with weather but to usage. It is interesting to note that natural gas efficiency programs are implemented in nearly all states that allow decoupling of natural gas utility rates (see Figure 13). Figure 13 States with Natural Gas Efficiency Programs and Revenue Decoupling 2008 Year Source: Natural Gas Efficiency Programs Survey and Natural Gas Rate Round-Up Update on Regulatory Approaches to Promoting Energy Efficiency, May 2009 When asked about the method used to recover lost revenues, 34 of 36 respondents allowed margin recovery answered as follows: 13 of 34 via a margin tracker (or true-up mechanism); 11 through rate design (such as rate stabilization, flat monthly fees and utility revenue rate decoupling); and nine via a lost revenue adjustment mechanism (LRAM). One reported other methods (including an incentive mechanism and a combination of rate design and LRAM). When asked whether there are adjustment limits or caps placed on their margin trackers, 2 of 11 respondents that answered the question said yes. Six reported that their true-up occurred annually, and one at another (unspecified) schedule. Figure 14 Approved Methods for Lost Margin Recovery (34 responses) Other (1) Lost Revenue Adjustment Mechanism (9) 3% 27% 36% Margin Tracker (13) 33% Rate Design (11) Gas Efficiency Program Funding and Impacts Natural Gas Efficiency Programs Report 2008 Program Year, Page 21 of 31

25 Nineteen natural gas efficiency programs are run in the 11 states identified as having approved financial incentives for utilities that implement natural gas efficiency programs or meet specific targets. Nine of the 19 respondents share savings with ratepayers; seven have performance targets; and three have rate of return incentives. The incentive mechanism is pending approval for three other respondents. Ten respondents have financial incentives equal to a portion of overall net benefits produced by the natural gas efficiency program, ranging from -12 to 30 percent of overall net program benefits; eight are awarded specific financial rewards for meeting savings goals; and one selected other (a general rate of return with 10 year depreciation). Sixteen percent of respondents (12 of 75) reported that their regulator-approved natural gas efficiency program encourages fuel switching through financial incentives (e.g., rebates, loans and other benefits) to customers who install natural gas equipment in new homes, convert to natural gas from other fuels, or replace old equipment with new higher-efficiency natural gas equipment. Appendix A summarizes natural gas efficiency program requirements and practices by state and for Canada. These include market assessment studies, mandated utility funding for natural gas efficiency programs, requirements for low-income residential programs, approved recovery for direct program costs and lost margins, utility performance incentives, fuel switching and source-to-site energy measurement. Natural Gas Efficiency Programs Report 2008 Program Year, Page 22 of 31

26 V. Thoughts and Comments Program administrators were asked to share their experiences with implementing natural gas efficiency programs. The following is an anecdotal account based on respondent observations regarding program delivery barriers, market penetration, most successful attributes and program innovation. Delivery Barriers and Lessons Learned A big challenge for many program administrators during 2008 was the economic downturn. With customers constrained for capital, many program managers found customer response to be lower than expected. The lack of federal tax credits in 2008 did not help. Some businesses elected to extend the life of their existing equipment rather than invest in new high efficiency natural gas appliances. One remedy was to raise rebate levels to strengthen participation. In some markets, on the other hand, media coverage of high natural gas prices positively impacted customer participation. Program delivery involves more hurdles in some markets due to increasing competition from other providers of energy efficiency services. For mature programs, with the low-hanging fruit gone, the challenge is to find innovative opportunities for savings. Newer energy efficiency technologies may help stimulate these saturated markets. Respondents encourage experimentation with newer technologies when determining new measures for customers, if they are cost-effective. Also helpful with high participant saturation are automated rebate processing systems. Also effective for program administrators are tracking and monitoring systems that provide necessary data for evaluating, validating and supporting their programs. For newer programs, customer conservation education and programmable thermostats are considered among the most cost-effective measures, although it is vital not to underestimate the ramp-up time involved in launching a program. Well-timed advertising and regular direct outreach to customers ensures that they are educated about program availability and offerings; however, this requires time and customer motivation to conserve varies from region to region, thus various approaches are needed for different markets. Ramp-up periods may also be impacted by time required for obtaining various approvals within state agencies. An effective means to promoting conservation and encouraging behavioral change is to partner with other utilities and organizations. Also linking up with national and regional energy efficiency associations for information and assistance may be of value. Rehab projects and weatherization are other areas that provide greater savings potential, particularly with a large demand for low-income home weatherization. However, to optimize savings, it is necessary to set adequate levels of funding for materials per customer and an appropriate poverty qualification threshold. Residential high-efficiency space heating programs are easier to implement when HVAC contractors are educated about program offerings. Essential for these contractor-driven programs are quality networks of trained contractors and incentives that encourage program promotion. As one respondent stated, contractors are the most influential channel in selling high-efficiency equipment and providing information on rebates. Thus it is generally agreed that a necessary component of successful program delivery is a strong trade alliance (with heating contractors, plumbers, mechanical contractors, foodservice dealers and so on). Regular contact with these trade allies not only helps with program marketing but also improves the likelihood that highefficiency equipment, such as water heaters, will be stocked. In some markets, poor inventories are a common barrier. Commercial programs are often more difficult to implement because they require targeted marketing and longer ramp up, although this market is showing promising results in many regions. The small multi-family market (2-8 units) was cited as particularly hard to reach, necessitating several customer contact points to achieve overall therm savings. One program addressed this challenge by adding air sealing as a measure to encourage greater participation and data analysis to identify higher energy users. Energy consultants can help in efficient program planning and development and by cultivating specific areas. A continual dialogue with utility board or commission staff is indispensible to making certain that the program Natural Gas Efficiency Programs Report 2008 Program Year, Page 23 of 31