Energy utilities have taken on multiple new mandates in recent years: reducing environmental impact; enhancing safety, reliability, and resilience against physical climate threats such as flooding, storms, and wildfires; and making energy affordable and accessible for all consumers. Making the most of every unit of energy produced, transported, and delivered—in other words, energy efficiency—typically emerges among the simplest, least-cost, and most effective means to achieving these ends.

The American Gas Foundation (AGF) engaged MCR Performance Solutions (MCR) to evaluate the full range of current and future potential benefits that could accrue from natural gas utility energy efficiency (EE) programs. Specifically, MCR was asked to 1) evaluate the current state of gas utility EE programs and the cost-effectiveness of a prototypical portfolio of programs under current methodologies and an assumed future state, and 2) provide perspective on the potential for gas utility EE programs to support achieving the aforementioned customer and societal goals. The purpose of the study is to fill knowledge gaps by evaluating the full range of benefits derived from natural gas utility energy efficiency programs and review trends and factors that can lead to improvements in program design, targeting, and implementation.

In collaboration with AGF staff and a Steering Committee comprised of representatives from natural gas utility companies, MCR performed the following analyses:

• A national portfolio review of existing natural gas utility EE programs, including spending, regulatory mechanisms, delivery mechanisms, and non-energy benefits (NEBs) currently reported and/or included in cost-effectiveness analyses.
• Evaluation of a current and assumed future approach to cost-effectiveness testing, including quantification of energy savings, cost avoidance, and customer bill impact using MCR’s proprietary modeling tools.
• A trends assessment examining future EE potential, including emerging EE programs and measures as well as potential positive externalities including benefits to non-gas energy consumers, energy equity/needs of low-income and underserved constituencies, and policy/regulatory activity.

MCR made several key observations:

• Current federal policy and funding priorities emphasize energy efficiency, bringing new or increasing scale of existing parties directly or indirectly related to EE program implementation.
• The deployment of and spending devoted to natural gas EE programs varies considerably, both between regions and within them.
• A wide range of EE measures and technologies are currently available, and though only a handful of new measures and technologies appear imminent in the near future, there are opportunities for new approaches to program design and incentives.
• Although most jurisdictions primarily use the Total Resource Cost Test or Utility Cost Test,1 test parameters vary widely.
• Natural gas EE programs can drive a wide range of impactful, cost-effective direct2 and indirect3 non-energy benefits to the broader energy system.

Driven by the National Standard Practice Manual for Benefit-Cost Analysis of Distributed Energy Resources (NSPM-DER), the evolution of approaches to the cost-effectiveness analyses that enable regulatory approval, cost recovery, and often utility performance incentives—especially the benefits included in such analyses—may create opportunity for some natural gas utilities that consider EE from a strategic, not only compliance, perspective over the next three to five years. EE program designs may be able to leverage new federal sources to enable support for new EE measures (e.g., gas hybrid heat pumps). Approaches to EE program implementation may be able to leverage new partners (e.g., weatherization agencies and state energy offices) and new strategies, such as geotargeting, to emphasize specific sectors and/or geographic pockets of the utility customer base where such targeting is advantageous. In short, policy, regulatory, and market dynamics are bringing change.

This report provides an in-depth review of existing natural gas utility EE programs as well as the potential for future development of programs, delivery approaches, and incentive strategies. The study also highlights the many opportunities to leverage indirect and non-energy benefits that come from the optimal and efficient use of natural gas delivery infrastructure.