Natural Gas Demand-Side Management
| In May, 2010, the ECO released its first Annual Report on the progress of activities in Ontario to reduce or make more efficient use of electricity, natural gas, propane, oil and transportation fuels. Click here for more information on this report, including videos and communications materials. | |||||
Union Gas and Enbridge Gas Distribution – the two companies that distribute almost all of the natural gas consumed in Ontario – have been required to create Demand-Side Management (DSM) plans and obtain OEB approval of their DSM plans since the mid-1990s. These plans set out programs that will be delivered, their delivery cost and the natural gas savings expected by the distributor.
As with the electricity sector, the policy framework that governs conservation of natural gas in Ontario is in transition. The original regulatory framework governing natural gas DSM was established by the OEB in 1993 and governed utilities activities, remaining largely unchanged until 2006 when the OEB reviewed several important issues. In late 2008, the OEB signalled that it would begin a consultation process to review the current rules governing gas DSM.
The purpose of the consultation is to produce new guidelines that build upon the existing regulatory framework set out in the early 1990s and further developed in 2006. Depending on the OEB’s decision, the review has the potential to reflect an evolutionary approach that emphasizes the traditional regulatory approach or a more enhanced ambitious approach to pursue energy efficiency and environmental protection. The ECO will monitor the Board’s decision for inclusion in a future report.
The revised regulatory framework was to be used by Enbridge and Union to file their next DSM plans for activities that would begin in 2010. In April 2009, the OEB informed Enbridge and Union that the GEGEA might impact the regulatory framework of natural gas DSM and the treatment of gas conservation programs. Consequently, the Board directed the distributors to file one-year DSM plans for 2010 by May 2009 using the existing current DSM framework. In January 2010, the OEB extended the one-year extension for a further year directing distributors to again file one-year plans for 2011 using existing regulatory rules until government policy issues were settled and the review of the DSM framework could be completed.
In the meantime, the OEB advised, it would contract for expert advice to conduct a review of best practice DSM frameworks in other jurisdictions, as well as undertake a study of alternative methods to estimate conservation program impacts.
From the ECO’s perspective, two key points emerge from the current reform of gas sector conservation.
First, regulation of gas conservation was neglected because the OEB stopped the review of the gas framework and requested one-year plans from distributors, while awaiting government policy direction on electricity. Gas is the primary heating fuel in Ontario. The potential savings on consumers’ bills and emissions reductions from reduced consumption is large – possibly more than savings from electricity. Regulation of natural gas and electricity conservation are increasingly inter-related and this is further reason for the need for stability in the electricity sector.
Second, the delay was used productively to acquire research studies. The ECO commendably notes that one of the studies, a comparative jurisdictional review of best practices for natural gas DSM regulation, includes an examination of changes to the benefit-cost approach for screening potential DSM programs. The study, which is not OEB policy, advises that design of DSM frameworks is increasingly dependent on regulators’ response to climate change and carbon emissions. It suggests that an aggressive stance on climate change may justify a different DSM framework and recommends Ontario adopt a benefit-cost test that includes environmental externalities, noting that the Societal Cost test has advantages given provincial policy objectives regarding conservation and climate change. It also recommends coordinating with MEI to establish a value for carbon emissions.
The ECO believes the need has developed to integrate Ontario’s recent legislation for greenhouse gas (GHG) emissions trading – which contains market-based policy approaches to monetize environmental externalities through mechanisms like cap and trade – with energy conservation policy. Approaches like the use of carbon taxes have been broached in other provinces, for example, British Columbia and Quebec. Also, Quebec’s Energy Efficiency Agency uses a Societal Cost Test that internalizes environmental externalities. A recent report indicates how this test could be used in Ontario and offers other methods to account for these costs.
The ECO urges the OEB to incorporate the effect of greenhouse gas emissions and other environmental externalities in the DSM regulatory framework because the government passed the Environmental Protection Amendment Act (Greenhouse Gas Emissions Trading) in December 2009 to enable use of financial instruments and market-based approaches for GHG emissions. One of the government’s stated objectives with the act is to establish a reliable “price-on-carbon” signal. This is an acceptance in principle that carbon emissions should be monetized. The ECO believes this approach to accounting for environmental effects of energy should be reflected in the regulatory framework: its impact on screening programs conservation targets and in the natural gas DSM and electricity CDM policy.
Citing This Article:
Environmental Commissioner of Ontario. 2010. Annual Energy Conservation Progress Report, 2009 (Volume One): Rethinking Energy Conservation in Ontario. Toronto, ON : Environmental Commissioner of Ontario. pp. 30-32
