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LDCs: That Giant Sucking Sound

The consequences of short-sighted rate making.
Fortnightly Magazine - July 2005

residential use per customer, after taking into account weather variations, fell between 1.7 Mcf per year and 2.5 Mcf per year across MGE's three geographic regions in Missouri. 2 While based on a somewhat different time period, these results fall in the same range as the AGA's findings that show a 2 Mcf per year annual decline in weather-normalized residential per-customer use between 1997 and 2001 for customers in the Midwest Census region. 3 In addition to MGE's declining residential usage pattern, it was found that small commercial per-customer usage, after taking into account weather variations, fell each year by 3.8 Mcf to 7.7 Mcf across MGE's three geographic regions in the 1994-2003 period. 4

Declining residential usage trends may be due to both reduced weather-sensitive usage and non-weather sensitive, or base-load usage. Among the factors leading to reduced weather sensitive usage are improved appliance efficiencies, increased incidence of automatic thermostats, improved thermal efficiencies of homes, and increasing awareness of the value of conservation achieved through thermostat setbacks and insulation measures. Among the factors leading to declining base loads are improved water heater and clothes dryer efficiencies, greater incidence of pilotless water heaters and electronic-ignition stove tops, increased installations of water heater wraps, and lifestyle changes, including greater reliance on microwave ovens and convenience foods. Declining market penetration of various gas-burning appliances contributes to both falling per-customer base loads and weather-sensitive loads.

The MGE analyses confirm that both reduced weather sensitivity and declining base loads have contributed to the residential and small general service usage trends. Figure 3 demonstrates this result for MGE's Kansas City region's residential and small commercial customers. The figure shows declining base loads, approximated by average monthly usage in July and August, and declining weather sensitivity, measured by average November-March usage per customer per heating degree day. 5

These usage declines are significant for Missouri Gas Energy. With the base rates in effect at the time the analyses were performed, Missouri Gas Energy would experience a delivery revenue shortfall of $3 million between the end of the test year in the rate case and the end of the first year after new rates became effective.


  1. In addition to my studies, other company-specific analyses demonstrate declining usage trends. Two residential studies, one involving Columbia Gas of Ohio and one involving Aquila, Inc. (Kansas), are examples. In his analysis of Columbia Gas of Ohio customer usage, William Gresham determined that residential base load usage per customer fell by 5.3 percent between 1980 and 2000 and heating load per customer fell by 6.6 percent during this same period (William Gresham, "Natural Gas Consumption Trends and Price Elasticity," Presentation to the Southern Gas Association Gas Forecasters Forum, October 2002). Gresham's residential statistical analysis also shows approximately a one percent per year decline in weather-normalized residential usage over the period 1990 through 2002. In his recent testimony in Aquila's Kansas rate case, Paul H. Raab noted that "From 1993 to 2003, residential usage in Aquila's Kansas service territory has dropped from 101 Mcf/year in 1993 to 79.3 Mcf/year in 2003, a reduction