The Evolution of DSM

Clark W. Gellings, Electric Power Research Institute

In the 1970s, sharp increases in fuel prices accompanied by high inflation and interest rates drove up utilities’ costs of building, financing and operating their systems. Resulting price increases were met with customer protests, decreased kilowatt-hour sales and changes in energy use. Utilities suddenly were presented with significant uncertainty concerning two crucial elements of the planning process: cost projections and customer demand forecasts. As resource planning became more difficult, the consequences of inaccurate projections became immense.

This began a shift toward demand side management (DSM), beginning with the introduction of load management. Load management efforts were followed by interest in what was then called conservation, with technology as the driving force of early programs. Utilities developed energy-saving options, tested hardware and looked at ways to communicate with customers about their options. These early programs had limited success in part because they were not customer-friendly.

DSM, in contrast, focused more specifically on customers. Instead of what-if studies on individual technologies, DSM encompassed an integrated look at technology options, customer needs and utility considerations. This framework addressed the need for a logical process to help utilities optimize the supply-demand interface, and it presented a unique marketing tool. It was structured to convince supply-side planners that demand shouldn’t be considered fixed. It integrated supply options and demand changes concurrently.

By the 1990s, DSM had become an umbrella term for increased efficiency, load management and conservation—all with an emphasis on reducing the need for electrical energy, generation capacity or both. By 1993, more than 600 U.S. utilities had launched more than 2,300 DSM programs involving nearly 20 million participants. Annual expenditures were measured in the billions of dollars, energy savings were measured in billions of kilowatt-hours and peak load reductions in thousands of megawatts.

By the mid-1990s, however, many utilities turned away from DSM. Retail customers focused more on reducing costs, improved service and support from utilities. International competition, environmental compliance and power-quality concerns prompted customers to search for technology solutions. Wholesale customers continued to demand lower prices. Regulatory pressures and competition from wholesale and retail wheeling made cost the byword among utility executives.

Utility strategies were channeled from DSM to competition—sustaining as much existing business as practical—and to growth markets. As a result, utilities generally focused on competing, offering expanded energy service or both. DSM, then practiced as an energy efficiency option, was not viewed as integral to these strategies.

Utilities spent billions pursuing energy services businesses, convinced that their fortunes lay not in satisfying the regulated retail customers, but in unregulated services businesses. Some states filled the vacuum with mandated efficiency programs. Others formed energy research and technology transfer institutions. By the early 2000s, few utilities had customer programs that they funded absent any regulatory mandates.

Today, utilities focused on customer retention are working hard to understand customer segments and to develop programs or initiatives attractive to those segments. Those focused on enhancing revenues and meeting customer needs are beginning to address the portfolio of electrotechnologies that deliver the unique advantages of electricity while helping consumers enhance productivity, increase comfort and sustain environmental compliance. These technologies typically reduce total energy requirements but consequently increase the use of electricity.

As a result, DSM is alive and well—and growing once again.

Citing his work in DSM specifically, the Electric Power Research Institute named Gellings a fellow in November 2009, recognizing “his more than 28 years of technical innovation and leadership that has provided significant benefit to the public.”


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