Reforming demand-side management for the competitive power era

Conference · Fri Sep 01 04:00:00 EDT 1995

OSTI ID:93825

Herman, P; Chamberlin, J

When demand-side management got its start back in the late 1970s, it had a clear purpose. Skyrocketing oil prices, natural gas shortages, the rejection of nuclear power, and reliability concerns meant that utilities had to further diversify their resource mix. Given the concurrent growth of the environmental movement, conservation-type DSM was a logical alternative. Conservation was indigenous, available, and offered environmental benefits; at the time it also provided utilities with a win-win-win-win-win situation. That is, in the late 1970s and early 1980s the cost of new power was believed to be significantly higher than the cost of existing power-that is, marginal costs were higher than rates. Under these conditions, conservation programs lowered rates, lowered bills (revenue requirements), lowered total resource costs (total energy service costs), lowered costs to society as a whole (including environmental costs and other externalities), and provided shareholder benefits. However, since the late 1970s we have lost track of the original clear purpose of DSM. The world is not the same today as it was when DSM began. The energy crisis that gave birth to conservation no longer exists, largely due to cheap, plentiful supplies of natural gas and excess generation capacity. Utility economics have changed: for the last decade marginal costs have been below rates. Thus, conservation no longer offers a win-win-win-win-win situation. Instead, at best it is lose-win-win-win-lose. That is, conservation continues to lower average bills, total resource costs, and overall costs to society, but it does so for the most part at a cost to rates and shareholders. When these losses first became evident, they were ignored-perhaps because their impacts were small. However, by the end of the 1980s DSM had grown substantially, large customers had become vocal about DSM rate impacts, and many states had begun to consider regulatory incentives to offset shareholder losses.

• OSTI ID: 93825
• Report Number(s): CONF-950398--
• Country of Publication: United States
• Language: English

Related Subjects

24 POWER TRANSMISSION AND DISTRIBUTION
29 ENERGY PLANNING, POLICY, AND ECONOMY
DEREGULATION
ELECTRIC POWER INDUSTRY
ENERGY DEMAND
MANAGEMENT