Rethinking Energy Conservation in Ontario – Results:Natural Gas Utility Conservation Programs
| In November, 2010, the ECO released volume 2 of its 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. | |||||
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Natural gas conservation in Ontario has not been as high profile as electricity conservation, perhaps because the Ontario government’s role has not been as central in setting policy. However, as Volume One of our report highlighted, final energy consumption of natural gas in Ontario is almost double the consumption of electrical energy, making the conservation potential of natural gas significant. The potential reductions in greenhouse gas emissions are also significant, as natural gas has a greater carbon content per unit of energy than does electricity in Ontario (given Ontario’s electricity supply mix). In addition to the government, the primary delivery agents for natural gas conservation in Ontario have been the two large gas utilities, Enbridge Gas Distribution and Union Gas.
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Natural Gas Conservation Framework
Gas utilities have offered conservation programs since the mid-1990s. Their actions are regulated by the Ontario Energy Board (OEB), as funds for conservation programs are recouped through gas rates. The current framework for the regulation of natural gas conservation by the utilities was largely established by a 2006 decision of the OEB (case # EB-2006-0021).
The OEB decision included the following key elements:
- Utility conservation budgets were set at approximately $20 million per utility per year, and would be gradually increased
from 2006 levels.
- Conservation planning would be done using use a three-year planning horizon.
- Conservation programs would be required to be offered to all sectors (residential, commercial, industrial) and rate
classes. The costs of conservation programs would be allocated to different rate classes in proportion to the amount of conservation spending on each class.
- Utilities would receive financial incentives tied to the performance of their conservation programs, in comparison with
a conservation target. Performance of conservation programs would be evaluated using the Total Resource Cost test (see section 2.0 for more information on this test).
- Evaluation of conservation performance would be the joint responsibility of the utility and an Evaluation and Audit
Committee (EAC). The evaluation framework for natural gas conservation is described in section 2.0.
Utility Program Offerings
Following the OEB decision, Enbridge and Union filed three-year conservation plans that outlined their proposed conservation programs for 2007 to 2009, which were approved by the OEB. Both utilities proposed a broadly similar set of programs. The actual programs delivered in these years have closely followed the original three-year plans.
For residential consumers, utilities have focused on providing low-cost measures to reduce hot water consumption, such as free energy-efficient showerheads, aerators and pipe insulation. These programs have had a large reach – Union Gas delivered more than 80,000 energy savings kits in 2009 alone. Utilities have also offered small rebates for the purchase of energy-efficient items, such as programmable thermostats and high-efficiency furnaces. Updates to government codes and standards have affected utility programming in the residential sector. For example, both utilities previously offered incentives for high-efficiency furnaces and for building new homes to Energy Star standards. Changes to the Ontario Building Code and product energy efficiency standards have raised minimum efficiency standards and made it difficult for utilities to costeffectively offer incentives for higher levels of energy efficiency above the minimum standards. As a result, both utilities have cancelled the incentive for high-efficiency furnaces, and Union has also cancelled the Energy Star For Homes incentive.
Conservation programs of other parties (particularly the provincial and federal government’s Home Energy Savings Program/ecoENERGY program, discussed in section 4.4) have also competed with the gas utilities in the residential sector by providing incentives for natural gas conservation measures.
Programs for low-income consumers have included free programmable thermostats in addition to the above measures to reduce hot water consumption. Both companies have offered a free weatherization program to improve the building envelope through insulation and air sealing. However, these programs have only been available to a small number of customers in specific geographic areas.
Program offerings for commercial and industrial customers have been broader in scope. For small commercial customers, the focus has been on incentives for prescriptive technology improvements, such as energy recovery ventilators and pre-rinse spray valves for commercial kitchens. For larger customers, customized solutions have been more important, particularly for the industrial sector, given the process-specific nature of much of its energy use. Programs have included subsidized audits and performance testing of energy-intensive equipment such as boilers, in addition to financial incentives for purchasing energy-efficient equipment. Design assistance and incentives for energy-saving measures have been provided for new commercial buildings.
The 2006 OEB decision required the utilities to set aside $1 million per year from their conservation budgets for long-term market transformation initiatives. The goal of market transformation programs is not necessarily to deliver near-term energy savings, but to change the market in a way that will lead to long-term conservation benefits after the original program is discontinued. Examples include programs to boost customer awareness of specific energy efficient products or to build training to deliver energy efficiency services. In 2009, both utilities directed the bulk of their market transformation funds to promoting drain water heat recovery to home builders and water heater providers, through information and financial incentives.
Program Results and Performance Against Targets
The conservation performance of Enbridge and Union Gas through the years 2007 - 2009 are shown in Tables 7 and 8, respectively. The 2009 results for Enbridge (in Tables 7 and 9) are based on draft results, as final results had not been filed with the OEB, as of October 2010.
Table 7: Performance of Enbridge Gas Conservation Portfolio 2007 - 2009
| Year | Gas Saving | Net Benefits - Target | Net Benefits - Actual | % of Target Acheived | Net Benefits ($)Per Utility Dollar Spent |
|---|---|---|---|---|---|
| 2007 | 85.1 million m3 | $150.0 M | $199.8 M | 133% | 9.7 |
| 2008 | 77.3 million m3 | $168.3 M | $182.7 M | 109% | 7.9 |
| 2009 | 74.4 million m3 | $210.4 M | $213.4 M | 101% | 8.4 |
| Source: Sources: Enbridge Gas Distribution, 2008, Demand Side Management F2007 DSM Draft Annual Report; Enbridge Gas Distribution DSM Evaluation & Audit Committee, 2008, Enbridge Gas Distribution’s 2007 DSM Audit Summary Report; Enbridge Gas Distribution, 2009, Demand Side Management F2008 DSM Draft Annual Report; Enbridge Gas Distribution DSM Evaluation & Audit Committee, 2009, Enbridge Gas Distribution’s 2008 DSM Audit Summary Report; Enbridge Gas Distribution, 2010, Demand Side Management 2009 DSM Draft Annual Report |
Table 8: Performance of Union Gas Conservation Portfolio 2007 - 2009
| Year | Gas Saving | Net Benefits - Target | Net Benefits - Actual | % of Target Acheived | Net Benefits ($)Per Utility Dollar Spent |
|---|---|---|---|---|---|
| 2007 | 55.9 million m3 | $188.0 M | $215.9 M | 115% | 13.4 |
| 2008 | 62.9 million m3 | $180.2 M | $262.8 M | 146% | 13.0 |
| 2009 | 92.6 million m3 | $220.2 M | $308.3 M | 140% | 13.9 |
| Source: Union Gas, 2008, Demand Side Management 2007 Evaluation Report (Final Audited Report); Union Gas, 2010, Audited Demand Side Management 2009 Annual Report |
The gas savings reported are only the first year savings achieved from programs undertaken in the year in question (lifetime savings would be approximately 10 to 15 times this amount). To put this in perspective, the amount of reduction in gas consumption achieved by Enbridge from its 2009 conservation programs is approximately one-half of one per cent of the total volume of gas distributed by Enbridge in the same year. This amount would be in addition to persistent savings achieved by programs delivered in earlier years.
As Tables 7 and 8 show, both utilities have exceeded their performance targets in all three years. However, Enbridge has not obtained its maximum financial incentive (recall that incentives to utilities are capped when the utility has reached 137.5% of the performance target) in any of the three years, while Union has obtained the maximum incentive in two of the three years.
The ECO notes with interest the very high values of net benefits per utility dollar spent. The difference in these values between Union Gas and Enbridge may reflect the difference in their customer base – Enbridge has a larger percentage of residential consumers, and the residential sector has delivered lower levels of net benefits than the commercial and industrial sectors. These values are shown in Tables 9 and 10, which break down conservation spending and results in 2009 by customer segment.
Table 9: 2009 Enbridge Conservation Results Divided By Customer Segment
| Sector | Spending (% of total) | Gas Savings (% of total) | Net Benefits (% of total) |
|---|---|---|---|
| Residential Low-Income | $1.5 M (6%) | 1.0 million m3 (1%) | $3.0M (1%) |
| Other Residential | $10.5 M (41%) | 16.2 million m3 (22%) | $58.1M (27%) |
| Commercial, Industrial, Institutional, and Multi-Residential | $7.8 M (31%) | 57.2 million m3 (77%) | $157.0M (74%) |
| Market Transformation | $0.9 M (4%) | Not Applicable | Not Applicable |
| Evaluation & Administration | $4.7 M (19%) | Not Applicable | -$4.7M (-2%) |
| Totals | $25.4 M (100%) | 74.4 million m3 (100%) | $213.4M (100%) |
| Source: Union Gas, 2010, Audited Demand Side Management 2009 Annual Report
Table 10: 2009 Union Gas Conservation Results Divided By Customer Segment
Tables 9 and 10 reveal that the commercial and industrial sector provides the lion’s share of gas savings for both Union and Enbridge. In addition, program offerings in this sector deliver high gas savings and net benefits in proportion to the amount of money spent, whereas programs in the residential sector (especially programs for low-income consumers) deliver less savings per dollar spent, reflecting the relatively higher proportional cost to deliver these programs. Given the incentive structure in place, this means that utilities are motivated to maximize the amount of conservation funds spent in the commercial and industrial sector. Continuation of the Framework through 2010-2011As noted in Volume One of the ECO’s 2009 Energy Conservation Report, anticipated regulatory changes related to the Green Energy and Green Economy Act, 2009 led the OEB to direct the gas utilities to use the existing gas conservation framework to develop their conservation plans for 2010 and 2011. The utilities’ plans for these years have been quite conservative, changing little from the 2007- 2009 plans in their program offerings. However, Enbridge did add a new industrial pilot program in 2010 to subsidize industrial metering and data collection equipment and fund on-site energy engineers for industrial firms. Enbridge has also adjusted its budget for 2011 to devote a larger share of its budget to market transformation initiatives ($3.8 million proposed, compared to $1.1 million for 2010). Issues and ECO CommentAs the OEB has now resumed its work in updating the regulatory framework for natural gas conservation (case # EB-2008-0346), the ECO will examine the framework in more detail in future reports. At this time, the ECO limits our comments. The ECO notes that both gas utilities have been successful in achieving the conservation goals set out for them in 2007 through 2009 and makes two points that arise from its review of 2007 to 2009 program results: (1) the desirability of higher conservation budgets, and (2) the need to develop innovative conservation programming for the residential sector. The very high values of net benefits per utility dollar spent in 2007 - 2009 indicate that natural gas conservation is delivering incredible benefits to the province, and is far from the point where additional spending on conservation would no longer be cost-effective. The ECO believes that higher conservation budgets would enable the capture of additional cost-effective conservation opportunities. These higher utility conservation budgets would likely result in additional investment in commercial and industrial conservation, perhaps through higher incentive levels that would attract additional participants. A report prepared for the OEB noted that the leading gas utilities in the United States spend substantially more on conservation (measured as a percentage of utility revenues minus the cost of gas) than do Enbridge and Union Gas. The Minister of Energy has also expressed support for increasing conservation spending, in a directive to the Ontario Energy Board: I also urge the OEB to consider expanding both low-income and general natural gas DSM [Demand-Side Management, another term for conservation] efforts relative to previous years. While mindful of the OEB’s responsibility to ensure the balancing of ratepayers’ interests, I would support efforts by the OEB to expand DSM efforts in general, considering the scale of investments being made on electricity CDM [conservation and demand management] and the natural gas DSM experience and funding levels of other leading jurisdictions. The ECO also believes that the existing regulatory framework has served to limit the breadth and scope of residential conservation programs. Programming by gas utilities in this sector has stagnated and focused almost exclusively on lowcost hot water conservation measures. This is a consequence in part of the financial incentive structure (and the cost-benefit tests used), which encourages utilities to focus primarily on the commercial and industrial sector, and also to focus on “low-hanging fruit” – quick hits that deliver savings through cheap and simple technology change-outs. Changes to the incentive structure may be required in order to drive innovative conservation programming in the residential sector. The ECO also notes that the government, electric and gas utilities, and the Ontario Power Authority are all active in the residential sector. Given the high delivery costs associated with delivering conservation programs in this sector, there is a need for a coordinated approach that can address both gas and electricity savings. Co-operation has been fairly limited to date with gas utilities including compact fluorescent light bulbs in one of their residential programs. The ECO makes no conclusion as to whether the appropriate program lead is the gas or electric utility, the Ontario Power Authority or the government. |
