Utilities that have been urging their customers to conserve energy over recent years found out something very interesting on Thursday -- consumers are actually listening, according to a new report from the American Gas Association (AGA).

Since natural gas costs unexpectedly spiked in 2000, natural gas utilities have been encouraging their customers to use energy wisely. According to the AGA's new study, An Economic Analysis of Consumer Response to Natural Gas Prices, customers have followed through "beyond all expectations." AGA said households decreased consumption of natural gas by a steady 1% annually between 1980 and 2000.

After the 2000 price spike, households reduced consumption by 2.2% annually between 2000 and 2006. They accelerated their reduction to a stunning 4.9% annually between 2004 and 2006. In total, households reduced their consumption of natural gas by 33% between 1980 and 2000. Surprisingly, this pattern occurred in all regions of the country.

"Natural gas customers have listened to their natural gas utilities: they've dialed back their thermostats, put on their sweaters and made extremely efficient use of an already highly efficient fuel," said AGA CEO David N. Parker. "That's commendable, but it cannot entirely offset an increasing demand for natural gas; demand that will be further stimulated by climate change reduction efforts." In the last 15 years, more than 90% of new electricity generation facilities constructed were natural-gas fired, according to the Department of Energy.

Parker noted that while the conservation findings were encouraging, the United States still needs to increase domestic gas production. "We fully support energy efficiency, but it must be coupled with efforts to increase the supply of our clean fuel," he said.

Paul Wilkinson, vice president, policy analysis for AGA, said, "Customers are paying higher prices for natural gas despite the fact that the U.S. has abundant natural gas resources. Unfortunately, most of these are off-limits to exploration and production, despite the industry's outstanding safety and environmental record."

Wilkinson added, "Companies can't drill off the East Coast; they can't drill off the West Coast; they can't drill in the eastern Gulf of Mexico and in large sections of the intermountain West. Additionally, natural gas imports are constrained by an inability to construct LNG [liquefied natural gas] receiving terminals."

Roger Cooper, executive vice president, policy and planning for AGA, said, "Natural gas utilities are also adjusting to a higher price and higher efficiency environment."

Cooper noted that historically natural gas utility revenues and earnings have been linked to the volume of natural gas flowing to their customers. Natural gas utilities pass the cost of the natural gas itself straight through to customers at its wholesale cost. Because of the essential and effective role that utilities have played in encouraging conservation, many public utility commissions, environmental organizations and local gas utilities have been re-examining traditional rate designs. He added that currently there are 17 gas utilities in 10 states serving almost 24% of U.S. residential customers that have in place "decoupled" rates that break the link between a utility's earnings and residential customers' gas consumption.

Cooper added that there are several variations of innovative new rate designs that encourage energy efficient behavior and benefit customers, utilities and the environment. In addition to decoupled rates, many gas utilities have adopted other innovative rate designs that also tend to remove any financial disincentive for a utility to promote customer energy efficiency and conservation. All of these rate designs build upon successful efficiency programs already operating in many areas and have helped remove barriers that may have limited utilities and customers from pursuing cost-effective energy efficiency resources, he said.

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