DSM Programs Permit Wider Customer Choice

DSM Programs Permit Wider Customer Choice

By Wayne Beaty, Contributing Editor

A few years ago, demand-side management (DSM) programs were implemented to reduce peak loads to forestall the installation of new generation and reduce costs. Many of these DSM programs are still in place, but there is a completely new equation in the electric utility industry today in providing electricity and other services to customers. Federal legislation has made it easier for wholesale electricity suppliers to gain access to transmission and distribution systems to sell energy.

Chris Alford, CSC Consulting, says, “There is an immediate need to develop effective residential DSM programs. A combination of competition, deregulation and new solutions is requiring that utilities move forward soon, or risk a dramatic loss of residential and small business customers.” Alford says that Internet technologies could be the pivotal resource in making these programs successful. Low-cost consumer products, coupled with Internet-style technologies and networks, can be used to enable interactive communications with a utility`s residential and small business customers. The result can be an affordable, competitive advantage that scales to millions of homes. By installing links with customers on a large scale, utilities hope to achieve the following:

get new customers outside existing service territory;

keep customers already being served;

leverage a unique, intelligent link to customers;

lower overall energy generation and procurement costs;

give incentives to customers to shift their energy use patterns; and,

provide a channel for additional, non-energy products and services aimed at both existing and emerging interactive information markets.

DSM and Integrated Resource Planning

DSM programs, according to Daniel Boyle, GE Power, are built strongly on the premise of integrated resource planning (IRP), with a primary focus on developing regulatory incentives to promote the adoption of energy efficiency and alternative, decentralized energy generation means. Boyle, in his presentation at DistribuTECH(TM) `97, said this effort resulted in today`s system of regulator-imposed, utility-managed DSM programs. Deregulation threatens this paradigm. Ralph Cavanagh of the Natural Resources Defense Council is opposed to open competition on environmental grounds. He believes utilities will cut back energy efficiency and alternative energy programs as “automatic money losers.”

Others view DSM programs as subsidies–the transfer of money or wealth schemes where the utilities are asked to subsidize users to be more efficient at the expense of other ratepayers who may have already been more efficient.

Boyle contends that this historical linkage of DSM to supply is a vestige of the regulated utility paradigm and ironically is embedded in the landmark deregulation legislation, the Energy Policy Act of 1992 (EPAct). IRP was mandated by EPAct and is essentially an energy planning process whereby requirements are determined by equating energy conservation measures as supply options. A kWh earned is equal to a kWh delivered to users. Boyle quotes from an ASME transactions paper on IRP in describing this approach as least cost planning (LCP). Under this approach, since energy supply options are treated side by side with energy savings measures, total costs, including environmental impacts, are expected to be minimized.

DSM is a broad term, encompassing the planning, implementation and evaluation of utility-sponsored programs to influence the amount or timing of customers` energy use. This affects the energy (kWh) and capacity (kW) that the electric utility must provide to meet the demand. DSM is a resource option complementing electrical supply. It relies on peak clipping, valley filling, load shifting and strategic conservation. When the social costs or environmental costs of nuclear or fossil fuel consumption are included in this assessment, the advantages of energy savings and renewables are magnified substantially, and it is believed that this demonstrates a high degree of social benefit from the IRP approach. Clark Gellings, the Electric Power Research Institute, was quoted as estimating that “cost-effective technologies have the potential to cut the nation`s electricity use by 30 to 75 percent without lifestyle changes or reduced growth of the Gross National Product.”

DSM and LCP are seen as synonymous, limited only by existing institutional incentives for the private sector utilities to earn more by selling more. Success stories around the country are noted by regulatory creativity in uncoupling a utility`s profits from its sales of kilowatt hours in an attempt to provide equal incentives for the utility to promote energy conservation.

David Wooley and Alfred Cavallo, in an IEEE Press publication on real planning, sham competition and state regulation, consider retail wheeling a sham form of competition, which will ruin progress towards energy efficiency and merely “reallocate the nation`s electricity bill.” The advent of IRP, they say, which takes advantage of DSM, public involvement, and increasingly sophisticated planning tools, means that the states are finally on the verge of implementing true LCP systems that would avoid the mistakes of the past. Current pressures to overthrow state LCP in favor of federal pre-emption or elimination of retail electric utility franchises (retail wheeling) arise not from inherent failures of regulation, but rather from a failure to regulate well.

Given this historical context, Boyle submits, energy efficiency advocates have had difficulty separating their goal from the means, namely regulator-induced, utility-sponsored DSM. In an era when vertically integrated electric utilities are disappearing, it is difficult to see how these programs can survive. It seems clear that to unbundle electricity, we need to uncouple and dismantle the paradigm of regulator-imposed DSM derived from an IRP and LCP, centralized planning perspective. Boyle said that we do not have to conclude from this that energy efficiency will become a victim, nor do we have to abandon the techniques of DSM. On the contrary, the fundamental view is that energy efficiency will be enhanced with the industry structure based on rebundling.


To determine the manner in which energy service companies (ESCO) might implement DSM techniques, Boyle assumes that DSM investments will be owned or leased by ESCOs that will be the primary beneficiaries. By further assuming that ESCOs will operate in a competitive environment, we can convince ourselves that they will determine price based on marginal costs and societal efficiency will be preserved, notwithstanding the social cost of generation due to the environmental impacts. To better defend the premise that retail wheeling may promote energy efficiency, we need to evaluate in more depth the role of the ESCO in the new market structure. Customers will be free to choose their ESCO, and the choice will most likely be based on price, service and perception of quality. By invoking the tools of DSM peak shaving, valley filling and load shifting, ESCOs will be able to better manage their load profile and improve their ability to offer competitive rates. Considerations that an ESCO`s cost is fundamentally determined by its sourcing abilities, involving both contracting for generation and the use of financial tools to hedge its exposure, it is clear that a flatter demand profile will be a key indicator of a given ESCO`s financial performance.

DSM and Value-Added Services

As competitive pressures mount for electric utilities, they are working more closely with their customers to micro-manage energy use and operations to save money. This partnership includes researching the efficiencies of combining utility and telecommunications technologies with home energy use technologies. Some of the partnership arrangements have been in place for awhile and others are relatively new. Michael Roach, Public Service Co. of Colorado (PSCo) reports that his company`s industrial interruptible rates have been available to customers with interruptible loads of 500 kW or greater since the early 1980s. Customers receive a discount in exchange for providing a valuable “peak shaving” capacity resource for PSCo`s electric system.

In past years, PSCo used one-way radio technology to interrupt customers. The one-way system was not reliable, and there was no information about customer compliance or available load until billing meters were read–up to one month after an interruption. PSCo chose to replace the old system with a new two-way radio-based interruption system that allows near real-time control and monitoring of interruptible loads. The pilot, two-way system used pole-mounted RTUs with leased data lines. The pilot system worked well but was too expensive for this type of application.

The next step was to define the basic requirements of two-way communication; automatic load control at customer sites; system timing; SCADA compatibility; and cost. The new system resides within the SCADA system. It was determined that the system should not exist as a separate stand-alone application, making the interruptible resource as easy to implement as other resources at the generation level.

Click here to enlarge image

Click here to enlarge image

DSM programs depend on receiving and processing consumption data. This pole-mounted CellNet MicroCell Controller (left) processes data from individual meters as frequently as every five minutes. This meter (right) in Kansas City is the interface between the energy service provider and the customer through which vital information is obtained. Photo courtesy of CellNet.

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