Economic losses from rolling blackouts reduced through conservation programs

BOULDER, Colo., July 24, 2001 — Rolling blackouts have thus far been avoided in California this summer, because customers have picked up on the dual benefits of reducing their loads.

The first benefit is obvious: lower energy use means lower direct bills. But the second benefit is avoiding outages that have substantial costs on business and society.

E Source, an energy research and consulting firm headquartered in Boulder, Colorado, estimates that if customers have eliminated ten rolling blackouts from occurring, the state economy has saved some $2.5 billion in direct losses.

Customers have figured this out both on their own and through a number of programs put forth by utilities. But the next, more sophisticated approach to reducing electricity demand is just about to emerge.

The key is to set up a system in which the least valuable uses for electricity are dropped for those customers who have the least to lose during outages. Airlines do it. When a flight is oversold, they hold a mini-auction to see who will give up their seat.

Essentially, those people with the least to lose and the most flexibility, volunteer and get bumped. They, in essence, bid the lowest amount to solve the airline’s problem. This is much better both economically and from a customer service standpoint. Rather than randomly telling a half-dozen people that they just don’t fit on the flight and accepting their wrath, you give them an option.

The same thing can happen in the electricity business. Research by E Source shows highly varying costs of outages across business customers. Based upon extensive national research, E Source finds that some 33% of large energy customers claim to have little to no costs when outages of 10 to 30 minutes occur on a summer weekday. And 23% claim to have little to no costs when outages of 2 hours occur.

These customers can be targeted to participate in load reduction programs during critical times, and be compensated for their inconvenience while solving a huge problem. What the economy gets in return is a huge boost.

Bill LeBlanc, Vice President at E Source says, “By simply selecting the lowest value energy uses to turn off during these shortages, instead of knocking everyone off the grid, the direct economic benefits can be tremendous. We estimate that the customer-stated economic loss incurred by taking all businesses off-line for an hour on a typical summer day is about $250 million in California. Multiply that number times the potential for 10 or 20 outages over the summer, and the losses are staggering. It may be possible to eliminate over 90% of that economic loss through intelligent targeting.”

The E Source study, “Reliability in the Emerging Electricity Marketplace: the End-User Perspective,” focused on seven large commercial and industrial market sectors including continuous process manufacturing, financial services and data centers, and healthcare. Extrapolating the results to the full population of about 230,000 businesses in these seven sectors, the total costs of outages rise to over $7 billion per year.

This evolving business model, in which selective reductions are realized, requires new technology applications and laser-focused marketing. LeBlanc states, “New communication and control technology already in use in other industries can be readily adopted by the electric power business. The Internet hooks it all together in almost real time.”

E Source says that finding the targeted customers who can reduce load without much suffering is tricky, but not impossible. Tia Hensler, Director of Market Research at E Source says it is a matter of taking the time to focus on the energy customer when doing outage planning.

“Information exists to help utilities target these types of programs. End-users, especially the larger, more sophisticated companies, know this technology is out there and expect their energy suppliers will be doing everything possible to help their own customers through this period of tight supply.”

Previous articlePepco asks customers to reduce electricity use, activates Kilowatchers club program
Next articleNew England’s electric power system handles two straight days of record-breaking demand

No posts to display