Shareholder Incentives for Gas DSM: Experience with One Canadian Utility

Chris Neme, Vermont Energy Investment Corporation
Kai Millyard, Kai Millyard Associates

Keywords

Abstract

This paper reviews a unique shareholder performance incentive mechanism established in 1999 for Enbridge Gas Distribution (EGD) in Ontario to encourage more effective demand-side management (DSM). The sole metric of performance is the present value of net economic benefits to ratepayers calculated using the total resource cost test. EGD’s actual performance each year is compared to a target set for that year. After an audit of its savings claims, EGD shareholders are awarded incentives equal to a percentage of all net benefits above the target (initially they also faced symmetrical penalties for falling short of the target).

This mechanism has had important impacts on EGD’s performance. Perhaps most importantly, EGD’s total incremental annual savings have doubled – despite greater scrutiny that lowered net per measure savings assumptions. They are also double (as a percent of sales) those of an adjacent utility that is not eligible for performance incentives.

The incentive mechanism has also raised some difficult issues. For example, it has taken several years to sort out rules governing target-setting, when targets can be retrospectively adjusted, and assumptions used to estimate actual benefits for comparison to targets. The incentives have also led to great emphasis on short-term savings from retrofit measures and limited investment in lost opportunity markets and market transformation.