Policy Options for Energy Efficiency Programs: Decoupling and Other Innovative Rates

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Policy Options for Energy Efficiency Programs
Decoupling and Other Innovative Rates

• Joint Meeting of the NARUC Committees on Gas,
  Electricity, Consumer Affairs, and Energy
  Resources and the Environment
• New York City, New York
• July 17, 2007
• Cynthia J. Marple
• Director, Rates and Regulatory Affairs

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U.S. Natural Gas Customer Usage and Investment
(Distribution Sector)

• 15 million new residential customers from 1980 to
  2005
• 96 billion in new construction from 1980 to 2005
• 1980 total residential consumption 4.7 Tcf
• 2005 total residential consumption 4.8 Tcf

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U.S. Customer Energy Efficiency

• Decreased gas consumption on a per customer basis
  equaled one percent per year from 1980 to 2000
• Energy efficiency and conservation are trending
  upward
• Total per residential customer consumption
  decreased 33 percent between 1980 and 2005
• U.S. TREND Declining Use Per Customer

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Traditional Rate Design

• Turn of the last century design
• Volumetric each unit of commodity is assigned a
  pro-rata share of costs
• Implies cost recovery only if customers dont
  conserve
• Increasing sales is a major objective
• Contains a financial disincentive for
  aggressively promoting energy efficiency and
  conservation

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Why Innovative Rate Design?

• New Paradigm Regulatory Goal is Shifting From
  Building Infrastructure to Encouraging Efficient
  Use of Resources
• High and volatile natural gas prices
• Global climate change
• Appliance and building efficiency
• Under-recovery of approved costs

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Types of Innovative Rates

• Automatic Adjustments and Cost Trackers (partial
  decoupling)
• Weather Normalization Clause (decouples weather)
• Bad Debt Tracker (cost tracker)
• PGA Clause (cost tracker)
• Revenue Decoupling
• Rate Stabilization Tariffs
• Flat Monthly Fee and Variants
• Fixed Monthly Distribution Charge
• Two-Tier Customer Charge
• Straight Fixed Variable (Demand Rate)

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NATURAL GAS REVENUE DECOUPLINGAS OF JULY 12, 2007
Pending Revenue Decoupling
Approved Revenue Decoupling
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Decoupling Tariffs

• APPROVED - 10 States
• CA Pacific Gas and Electric
• CA - San Diego Gas and Elec.
• CA Southern California Gas
• CA Southwest Gas
• IN Vectren Indiana
• MD Baltimore Gas and Elec.
• MD Washington Gas
• NJ NJ Natural Gas
• NJ South Jersey Gas
• MO Atmos Energy
• OH Vectren Ohio
• OR Cascade Natural Gas
• OR NW Natural Gas
• NC - Piedmont Natural Gas
• UT Questar Gas Co.
• WA Avista Corp.
• WA Cascade Natural Gas

• PENDING - 9 States DC
• AR Arkansas Oklahoma
• AR Arkansas Western
• AR CenterPoint Energy
• AZ UNS Gas
• CO PSC of Colorado
• DC Washington Gas
• IL Peoples Gas/Integrys
• MI CMS Energy
• NY Consolidated Edison
• NY National Fuel Gas Dist.
• TN Chattanooga Gas
• VA Washington Gas
• WI Wisconsin Gas
• WI Wisconsin Electric
• 7 Million Residential Customers
• Of 58 Million Customers in U.S.

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Decoupling Calculation A Representative Example
Average Usage300,000,000 Annual Distribution
Service Cost 1,000,000 Residential Customers100
Mcf per customer per year

• Per Mcf (Volumetric)
• 100,000,000 Mcf/yr - Total System Throughput
• 3 Distribution Charge/Mcf

• Per Customer (Non-volumetric)
• 1,000,000 Residential Customers
• 300 Distribution Charge/customer

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Decoupling Calculation (Cont)Average Usage

• Traditional Rate Design
• 5 volume reduction
• 95 Mcf/Cust./yr
• x3 Dist. Chg/Mcf
• 285 Rev/Cust.
• 15 Rev Shortfall
• 15 Loss in Yr 1
• No rate adjustment in Yr 2

• Revenue Decoupling
• 5 volume reduction
• 95 Mcf/Cust./yr
• x3 Dist. Chg/Mcf
• 285 Rev/Cust. in Yr 1
• 15 Rev Shortfall
• 100 Mcf/Cust./Yr
• x3.15/Dist. Chg/Mcf
• 315 Rev/Cust. in Yr 2
• 15 Rev Adjustment in Yr 2

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Decoupling CalculationHigh and Low Volume Usage

• High Volume (133 Mcf/yr)
• 5 volume reduction
• 399 Expected Rev.
• 126 Mcf/Cust./Yr
• x3 Dist. Chg/Mcf
• 378 Rev/Cust. in Yr 1
• 21 Rev Shortfall
• 133 Mcf/Cust./Yr
• x3.15/Dist. Chg/Mcf
• 420 Rev/Cust in Yr 2
• 21 Rev Adjustment in Yr 2

• Low Volume (67 Mcf/yr)
• 5 volume reduction
• 201 Expected Rev.
• 64 Mcf/Cust./Yr
• x3 Dist. Chg/Mcf
• 192 Rev/Cust. in Yr 1
• 9 Rev shortfall
• 67 Mcf/Cust./Yr
• x3.15/Dist. Chg/Mcf
• 210 Rev/Cust. in Yr 2
• 9 Rev Adjustment in Yr 2

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STATES ADOPTING VARIOUS TYPES OFINNOVATIVE
NATURAL GAS RATES
States with Non-Volumetric Rate Designs JULY 12,
2007
Approved Rate Stabilization Tariffs
Weather Normalization Adjustment
Pending Rate Stabilization Tariffs
Approved Straight Fixed Variable
Approved Revenue Decoupling
Pending Straight Fixed Variable
Pending Revenue Decoupling
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For further information, contact

• Cynthia Marple
• Director, Rates and Regulatory Affairs
• American Gas Association
• 400 N. Capitol St., NW
• Washington, D.C. 20001
• [phone]
• cmarple_at_aga.org

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