How focusing on value to customers changes a DSM portfolio: One utility`s example

Conference · Sat Dec 31 04:00:00 EST 1994

OSTI ID:192133

Herman, P; Chamberlin, J

The controversy continues as to the appropriate strategy for demand-side management (DSM) in integrated resource planning. This disagreement centers around whether the goal of DSM is the minimization of rates or the minimization of the cost of energy services (as measured by the Total Resource Cost [TRC] or all ratepayers test). Each strategy has its drawbacks. A fallacy of the RIM test strategy is that it fails conservation programs that cost less to implement than the power they replace and that provide benefits to ratepayers as a whole. A particular problem with the TRC test strategy is that any increase in energy use-whether due to off-peak load building, overall load growth, or even takeback, is regarded as a cost and is seen as having no value, even to program participants. As a consequence, utilities adopting the TRC test strategy have a very difficult time undertaking actions that increase (or retain) even when they increase customer value. This assumption of no value is not only nonsensical but is also conceptually wrong. This paper discusses an alternative DSM strategy that explicitly accounts for changes in customer value. The basis of this strategy is a new value test that was developed rigorously from the economic principles of efficiency. However, we have structured the Value test strategy within the general framework of the existing tests, and we have found that it generally does not require any more or different information than the current tests. The results of applying this value strategy, however, can have a significant impact on a utility`s DSM plan, This paper begins with a brief discussion of the Value test perspective. We then present an empirical example of the calculation of the Value test and demonstrate how a utility`s DSM plan would change going from a strategy of either rate reduction or energy service cost reduction to a strategy of customer value.

• OSTI ID: 192133
• Report Number(s): CONF-940129--
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
COST BENEFIT ANALYSIS
DIAGRAMS
MANAGEMENT
POWER DEMAND