Canadian natural gas distribution utilities' best practices in demand side managementAn IndEco project report
On behalf of the Canadian Gas Association (CGA), IndEco and Bruce Vernon & Associates conducted a primary research project into DSM best practices among CGA’s natural gas utility members across Canada. Excerpts from the executive summary of the project report are provided below, along with a copy of the full report.
Canadian natural gas local distribution companies (LDCs) have long been active proponents of energy conservation both in their own utility operations, and, since the early 1990’s in many cases, through formal initiatives to encourage their customers to utilize natural gas wisely.
Over time LDCs have developed a sophisticated approach to DSM, utilizing market research, engineering analysis and statistical modelling to identify and evaluate conservation and efficiency opportunities. Customers have come to value the subject matter expertise that LDCs have developed and to trust the utility’s recommendations of measures that should be adopted.
This study examines DSM practices among the CGA’s Canadian natural gas utility members between 2000 and 2004 and, based on the research conducted and the advice from these LDC DSM practitioners, identifies those practices that should be considered ‘best in class’. Best in class is the concept of ‘Best Practice’ that is defined in this study as “documented strategies and tactics employed by successful organizations and programs” .
To complete this study a team was formed by the Canadian Gas Association (CGA) under the auspices of members of CGA’s DSM Task Force:
- Atco Gas (Atco)
- Enbridge Gas Distribution (also representing Enbridge Gas New Brunswick) (Enbridge)
- Société en Commandite Gaz Métro (Gaz Métro)
- Manitoba Hydro
- SaskEnergy (also representing Heritage Gas)
- Union Gas Limited (Union)
- Terasen Gas Inc. (also representing Terasen Gas Vancouver Island) (Terasen)
Financial support for the study has been provided by CGA member companies and by CGA under a Letter of Cooperation with Natural Resources Canada. This study forms part of a broader federal-provincial- industry (includes gas and electricity energy industries) DSM initiative that includes: DSM potential, regulatory frameworks, and monitoring / reporting.
The study team also includes IndEco Strategic Consulting Inc. of Toronto (as lead consultant) and B. Vernon & Associates of Vancouver. Work on the study was conducted between March and June 2005.
The data requirements for this study were addressed in two phases: a quantitative phase comprised of a written request for information from the participating LDCs and a qualitative phase comprised of a series of face to face and telephone participant interviews.
The study team used two main criteria to select the best practices:
- Actionable. To be included as a best practice, the practice has to be practical and achievable by other LDCs.
- Results Oriented. Such practices must materially contribute to the objective of reducing customer energy use.
On examination it became clear that the suggested best practices were of two types:
- Industry wide - those that have already been adopted by four or more Canadian gas LDCs.
- Leading edge – those practices that are not in widespread use, i.e. by fewer than four Canadian gas LDCs.
This distinction does not suggest that leading edge best practices are in some sense more important than those that are characterized as industry wide. It suggests only that some practices are more broadly adopted than others and therefore, that some may be more difficult to adopt (because of cost or other barriers), or that the lack of adoption more broadly of some practices may be a reflection of the maturity of the DSM industry.
Findings – DSM organization and management
Organization and management of DSM is an important determinant of DSM success. Integration of DSM as a core business practice is key. Five best practices in DSM organization and management were identified:
- BP1 Integrate DSM throughout the company as a part of routine business practice (leading edge)
- BP2 Create a defined process for external stakeholder involvement in DSM outside of the formal regulatory process (leading edge)
- BP3 Develop appropriate, effective shareholder performance incentives to motivate DSM excellence (leading edge)
- BP4 Instil a corporate culture of innovation (leading edge)
The leading edge best practices in DSM organization and management reflect the maturity of the DSM programs of these organizations and the ability of the regulatory environments to support them. It is anticipated that other natural gas utilities in Canada will adopt these leading edge best practices as their programs mature. Regulators need to be encouraged to continue to support and foster innovation in DSM organization and management in the utilities they regulate.
The CGA can play a role in supporting DSM innovation across Canada. Research and development into innovative technologies and the development and piloting of new programs can be resource intensive, potentially making it difficult for some of the smaller LDCs. There would be a benefit to having increased collaboration and information sharing among the Canadian natural gas companies with respect to R&D and program development. It would likely be more cost-effective and would avoid duplication of effort. The facilitation of such information sharing and collaboration is a potential role for the Canadian Gas Association.
Findings- DSM planning
Good planning is critical to successful DSM. The study team has identified five best practices in planning.
- BP5 Minimize planning uncertainty through multi-year approach (industry wide)
- BP6 Develop programs that minimize lost opportunities (industry wide)
- BP7 Design programs in collaboration with industry (leading edge)
- BP8 Assess market as part of program design (leading edge)
- BP9 Provide programs for ‘hard to reach’ customers (leading edge)
- BP10 Extend DSM efforts beyond natural gas conservation/ efficiency (leading edge)
While DSM planning has been one of the strengths within the industry, significant opportunities remain to achieve additional customer savings through new approaches to collaboration with industry, to composition of the DSM portfolio, and to understanding customer needs. Multi-year planning and budgeting of DSM increases the ability of LDCs to capture these significant opportunities.
The CGA could facilitate the sharing of information and best practices on DSM planning, among its members. Utilities should be encouraged by their regulators to cooperate with their electric utility counterparts on achieving net energy savings and efficient load building.
Findings – DSM program delivery
Canadian natural gas LDCs are experienced and effective deliverers of DSM programs. Program delivery is the only DSM activity directly seen by customers and prospective participants. The method of program delivery, how it is positioned and how it is branded helps determine the success of programs. Three existing best practices in program delivery were identified in this study.
- BP11 Deliver programs in partnership with other agencies and stakeholders (industry wide)
- BP12 Position LDC as a provider of unbiased energy solutions (industry wide)
- BP13 Brand DSM (leading edge)
Currently, LDCs approach the issue of partnerships on an independent basis, even though many of their potential partners are national in scope (e.g. retailers, appliance manufacturers). There is an opportunity for development of collaborative approaches to establish these types of partnerships. The CGA DSM taskforce could potentially act as a catalyst for this purpose.
Findings – DSM monitoring, evaluation and reporting
Monitoring and evaluating the results of DSM is essential to the continual improvement of these programs. DSM reporting has uses beyond regulatory compliance, including stakeholder buy-in and stimulating internal management support for DSM. The best practices identified with respect to monitoring, evaluation and reporting are:
- BP14 Ensure there is an effective feedback loop between monitoring & verification and program design (industry wide)
- BP15 Develop a formal methodology for verifying energy savings (industry wide)
- BP16 Create a concise annual report on DSM activities and results that is available and easily accessible to the public (leading edge)
While the cost-benefit tests used by various LDCs may be similar, the input assumptions often differ, making it hard to compare program results. The values used for input assumptions can also be a very contentious issue with stakeholders, particularly where there is a utility incentive.
There is value in having a consistent industry wide approach for determining the value of input assumptions to cost-benefit tests. The CGA DSM task group may be able to facilitate the development of this approach.
Review full report
Regulatory frameworks for demand side management includes a review of DSM practices in North American jurisdictions, and a recommended framework for Ontario.
IndEco services in regulatory affairs
IndEco services in management systems