Ken Silverstein EnergyBiz Insider Editor-in-Chief

Consumers want relief. And interest groups and policymakers are joining forces to come up with new ideas to lower prices and encourage energy efficiency. What's going on? Here are some new approaches:

The American Gas Association and the Natural Resources Defense Council want to make sure gas companies win some incentives for promoting energy conservation. That's because utilities' earnings are tied to the volume of natural gas that customers use -- as is the case in most states -- even a small reduction in natural gas consumption can make a large cut into a utility's profitability. This presents a strong financial disincentive for natural gas utilities to promote energy efficiency.

Several natural gas utilities have worked with their state regulators to reform the way their rates are set up -- in essence, separating the utility's recovery of its fixed costs from the volume of natural gas delivered to customers. In some states, periodic adjustments called "true-ups" can move customers' rates up or down modestly to ensure that utilities recover their authorized fixed costs regardless of fluctuations in energy use.

This sets "the stage for unleashing the fastest, cleanest and least expensive responses to natural gas price increases," says Ralph Cavanagh, senior attorney for the defense council. "By changing the way that natural gas utility rates are structured, state regulators can remove unintended obstacles to energy-efficiency progress and thus help consumers save money on their energy bills while improving environmental quality."

Take Oregon: The Oregon Public Utilities Commission voted unanimously to renew its Conservation Tariff for four years. That tariff breaks the link between a company's earnings and the quantity of energy consumed -- all to reward suppliers for encouraging conservation. The new tariff covers all residential and commercial gas use by customers.

"Since coming on the books in 2002, the Conservation Tariff has proven its value to the public by promoting conservation," says Northwest Natural Gas Co.'s CEO Mark Dodson. "An independent study filed in March found that it was working well for customers, promoting conservation and stabilizing NW Natural's earnings ..."

Meantime, the National Association of Regulatory Utility Commissioners and the Environmental Protection Agency are creating the Energy Efficiency and Renewable Energy Projects, all to cut demand and the resulting emissions. Such projects engage state utility commissions to work with the EPA to explore approaches for reducing consumer electric and gas bills through cost-effective energy efficiency, renewable energy, and clean distributed generation.

Proactive States

The five States involved are Arkansas, Connecticut, Hawaii, Minnesota, and New Mexico, plus the District of Columbia. The projects will serve as a vehicle for EPA and the states to investigate the proper role for energy efficiency, which, in a growing number of states nationwide, is delivering energy savings at a significantly lower cost than construction of new electricity supply.

"The true joy will come when we see real efficiency projects in the field, producing value for America's ratepayers and the world," says Chairman Michael Dworkin of the Vermont Public Service Board.

In Colorado, the governor says that a new energy law will save consumers and businesses more than $500 million by 2020. The measure requires such things as illuminated exit signs and swimming pool pumps use less energy starting in 2008. Altogether, supporters say that peak electricity would be cut by 215 megawatts by 2020.

And, utilities are taking the initiative, too. Piedmont Natural Gas is encouraging customers to get started on energy conservation measures this winter to reduce the impact of rising wholesale natural gas prices on their heating bills.

It recommends setting the thermostat five degrees lower, and dropping the temperature even more when away from home for several hours. It also says that consumers ought to consider adding a high efficiency natural gas vent free unit heater to areas where they spend the most time as well as clean furnace filters at least four times a year.

"We suggest customers conduct an energy assessment and plan to take action now rather than wait until the first cold snap drives legions of homeowners to the local home improvement store," says June Moore, vice president of customer service for Piedmont Natural Gas. "Piedmont is committed to helping our customers manage their heating costs this winter, while actively partnering with them on efforts to address the root causes of the current price spike."

Portland Gas & Electric, meantime, sponsored a survey that found that facility managers spend less than five percent of their time on energy matters. Rather than fight that reality, it chose to provide an all-encompassing web-based service that helps such managers not just with lowering their power bills but also with improving their operations and maintenance procedures.

Brighter Future

In some jurisdictions across the country, customers can opt into real-time or time-of-use pricing programs, which is a step beyond energy conservation. Such programs allow users to adjust their usage, for example, from 3 p.m. to 7 p.m. during summer weekdays when the cost of electricity is highest.

If an industrial plant is flexible and can run key machinery at times when the electricity load overall is at its lowest ebb, then it could save a lot of money. Residential customers, on the other hand, would simply choose to run their dishwashers or washing machines in the late evening to avoid being hit with higher costs.

The federal government is also playing a role in facilitating and encouraging wise energy use, while simultaneously protecting the environment and conserving natural resources. Lower energy bills, of course, result in an increase in funds available for other critical purposes.

"Each and every individual action we take -- from turning off lights in unoccupied rooms to turning off computer monitors and computers, if possible -- adds up to a brighter future for us all," the Energy Department says.

To be sure, not everyone thinks government has a role to play when it comes to promoting energy efficiency. Sterling Burnett, with the National Center for Policy Analysis in Dallas, says that if people want more energy-efficient household appliances or insulation systems, they can buy these products. "But I have problems with government forcing these choices through tax policy, subsidies or mandates."

But governments are getting involved. Many policymakers are persuaded that energy efficiency is an essential prong in the national debate about energy policy. Natural gas shortages and high prices necessitate this. As such, they are creating incentives to get individuals and business to save energy.

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