Recent estimates state that the European Union is on course to achieve only half of the 20% energy consumption reduction target by 2020. As the first governmental stakeholders involved in the implementation of energy saving initiatives, municipalities play a strategic role in the energy planning process. This paper focuses on establishment of an energy planning methodology for small municipalities with numbers of inhabitants in range of 1,000-10,000 which often face common problems associated with low efficient district heat supply systems and decreasing energy consumption in buildings. Particular attention is paid to DSM (demand side management) activities. DSM scheme includes legislative and financial flows with small investments from municipality side. Based on increased information and motivation it promotes reduction of energy consumption in all kinds of buildings. Practical experience has shown that application of DSM measures allows achieving 20% energy savings in municipal buildings during the first year.