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A Consumer Advocate's View: Decoupling and Energy Efficiency

Two sides of the same coin.

Fortnightly Magazine - June 2006

pay. Moreover, the days of supply portfolios with long-term contracts unfortunately are no longer with us.

On the supply side, the American Gas Association estimates only 63 years of economically recoverable supplies left in the United States. 6 As the United States turns its attention to foreign sources of gas and the importation of liquefied natural gas from countries like Algeria and Venezuela, we cannot ignore that we will be competing with emerging countries such as China and India for those supplies in a global market.

The purpose of this article is not to focus on the national security and energy independence issues that arise from these circumstances, but rather to examine what we can do in the United States to ensure affordable and reliable supplies for residential consumers in both the short and long term.

Given this serious backdrop of events, how do we go about maintaining adequate and affordable supplies now and in the future? Looking only at the short term without planning for the future will leave us in a quandary down the road. We should not leave a legacy of energy problems for our children, but rather a legacy of energy solutions.

Long-Term Solution

Energy efficiency is the best short-term solution. By reducing the demand for natural gas on a regional basis we can accomplish two objectives. First, energy-efficiency programs provide customers with more tools to control their natural-gas use and consequently reduce their bills. Second, to the extent that we can inculcate the region with a sense of purpose in terms of engaging in serious energy efficiency, we can reduce the overall price for natural gas that customers must pay. For example, a recent study by the American Council for an Energy-Efficient Economy (ACEEE)—which the Office of the Ohio Consumers’ Counsel sponsored along with a number of other Midwest state agencies—indicates that a 1 percent reduction in demand over a five-year period in the Midwest could result in a reduction in price in the 10 to 20 percent range. 7

Moreover, energy efficiency also is part of the long-term solution simply because any sustained reduction in demand benefits customers. 8 The Midwest Natural Gas Initiative is a commitment from government agencies in eight Midwest states that have pledged to reduce demand by 1 percent per year over five years. If successful, all customers from this eight-state region would enjoy lower prices (in the 10 percent to 20 percent range) than would have been the case without the reductions in demand due to energy efficiency. 9

The utilities are a logical choice for promoting energy-efficiency programs because of their regular contact with customers through monthly billings, inserts, and other means. Nevertheless, it must be recognized that like any business, the natural-gas companies are interested in selling more product—not less. Only an appropriate rate structure can provide an incentive to utilities for a program that is intuitively inconsistent with their shareholders’ interests.

Decoupling Option

Revenue decoupling— a regulatory mechanism that separates sales from revenues so that a utility is economically neutral as to the level of gas sold—can remove