The Rebirth of DSM

Some experts believe demand side management (DSM) has taken on new life and is currently being resurrected. DSM is changing from a government-encouraged energy conservation program to an entrepreneurial, private enterprise activity. “Information that allows end-users and energy providers to develop performance contracts and engage in load management activities is going to take the place of traditional DSM,” said Joe Polaski, a former Public Service Electric & Gas Co. employee who worked in the marketing and DSM department. Polaski is currently President of Measuring & Monitoring Services Inc, an independent company that offers metering and information services to utilities, energy service providers (ESPs), power marketers and end-users. Polaski and other industry experts see load profiling and management as tools that utilities and other energy suppliers can use to enhance service to commercial and industrial customers, as well as increase revenue.

DSM History

DSM programs were initially implemented in the 1970s to conserve electricity during the energy crisis. Government agencies and some regulatory bodies were enthusiastic about the concept and pushed hard for utilities to implement DSM-the government even supported DSM through subsidies.

Most utilities on the other hand weren’t enthusiastic and resisted DSM. As long as utilities could buy reasonably priced electricity from neighboring utilities or other outside suppliers, there was little economic reason to encourage DSM. “After all, encouraging customers to use less of the commodity you are selling doesn’t offer much to your shareholders,” said Joe Lano

David Price, vice president of solutions in energy and utilities at Logica, a systems integration company that provides load estimation out-tasking services for load profiling and settlement, agreed with Lano

Today, however, DSM is experiencing a revival as load profiling, load management and load control are seen as activities that can increase customer satisfaction and perhaps even increase revenue.

No utility or privately owned business manager is going to deliberately discourage the sale of his or her product. On the other hand, smart managers are sensitive to their customers’ needs and will do what they must to retain customers, attract new customers and increase revenue. Offering load profiling and load management services is a way to do just that. “DSM technology development and applications are no longer being driven by conservation, but instead by economics,” Polaski said. Utilities are finding new reasons to offer their customers load management.

Value-Added Services

“As utilities and ESPs have learned from the California market, there is little money to be made in the competitive market by simply selling the commodity. Electricity providers are learning that value-added services are the key to increasing revenue,” Polaski said. Lano

Technologies that allow not only electricity suppliers, but also gas and water providers to learn about their customers’ energy usage can play a big role in helping these companies customize packages of value-added services. Effectively packaged information, such as load profiling information (data collected from views of energy consumption measurements taken over time), is the first step in determining what type of services to offer energy users, Polaski said.

The changing energy markets (gas and electricity) are changing the customers’ needs. End-users need information that helps them understand how to benefit from deregulated energy markets. They need to know how to effectively manage their facilities and energy usage.

According to Polaski, a recent Energy Manager’s Survey by E-Source indicates that energy managers want energy information for:

    Benchmarking;
  • Technical assistance on energy efficiency measures;
  • Energy audits and commissioning;
  • Real-time usage and billing data; and
  • Bill verification.

Even though using energy information to lower rates is a factor, it did not rank as one of the five most important. According to Polaski, this most likely means that for many companies the price of investing in metered load profiling only to purchase commodity is not worth the small savings (1 percent to 2 percent) that has been seen in the early deregulated markets.

Opportunities

The new end-user preferences listed above, create enormous opportunities for utilities since they already have the customer base and experience with bill analysis, energy analyses and forecasting. Aggressive utilities and energy suppliers can offer their commercial and industrial customers submetering technology to help customers gain a better understanding of their energy consumption. Submetering data can be turned into information that will help customers allocate costs to the various departments within their organization, or determine if a piece of equipment is using too much energy and needs to be repaired or possibly replaced.

Accurate load profiles can also be very useful to both energy buyers and sellers when they are negotiating power purchase agreements. Without a profile, purchase agreements often are based on averages of how similar facilities consume power. However, many facilities’ actual energy consumption doesn’t fit the averages. This means someone has to pay for the risks associated with not having detailed load profiles. Accurate load profiles make for a much more accurate usage agreement, meaning buyers avoid peak demand or other “misusage” charges. In addition, sellers reduce the risk of having to purchase power at higher prices to fulfill an inaccurate purchase agreement. Utilities can offer such services for free to strengthen their relationship with their best customers. As an alternative, utilities can offer load profiles and analyses as an extra service at an additional cost.

Perhaps the biggest advantage from load profiling and load management systems for utilities is that such technology provides them with information that can prove to their customers that they can offer the best energy value. Changes in regulations and new technologies have created many new options for commercial and industrial customers. These customers now have the option of bypassing the utility altogether by directly purchasing power or fuel for on-site generation from third-party suppliers. Cogeneration is also an attractive option for industrial customers. However, efficiency is often more cost effective than cogeneration or on-site generation. Utilities may be able to keep customers, attract new customers and build loyalty if they can offer customers the support needed to gain efficiencies.

However, Lanoe warns that utilities probably will not be able tro develop load profiling and load management solutions alone. They will have to partner with companies that have been working with end-users’ energy managers, he said.

The concept of collecting, processing and storing end-user’s usage data is a new concept to many utilities. In most cases the equipment is not in place and, even if it is, most utilities are not able to collect interval data, process it and turn it back into useful information for the customer, Price said.

Recently, new companies, as well as new partnerships offering load management services to utilities and ESPs for their commercial and industrial customers have been springing up on a regular basis. Some utilities, such as Tampa, Fla.-based TECO Energy and Columbus, Ohio-based AEP, have created non-regulated subsidiaries to provide monitoring and measuring services to energy consumers. According to Polaski, in the past 16 months, load measurement and management activity has been increasing at a phenomenal rate. “There is a lot of activity with the old-time DSM technologies, but for different reasons,” he said.

Shaving Peak Demand

Some industry experts believe the incredible price spikes seen in the Midwest in the summers of 1998 and 1999 will give some utilities incentive to implement technology and programs that will allow them to better manage load during peak demands, decreasing their need to pay exorbitant rates for peak power. In addition, the peak power alerts and blackouts that were seen in some parts of the United States this past summer have led many to believe there is an increasing need for load management.

At a recent meeting in Palm Beach, Fla., sponsored by the Association of Energy Service Professionals, a standing-room-only crowd pondered load management issues such as reliability, availability and cost of electric power experienced this past summer and predicted for future heat waves. Experts including Neal Wolkoff, New York Mercantile Exchange (NYMEX) executive vice president; Joel Gilbert, the Demand Exchange; Bill Smith, EPRI; and Steve Rosenstock, EEI, discussed how pricing signals and creative partnerships could help.

“The key attribute of markets that work efficiently is when true price signals are seen by all participants. It is ironic that the electric utility industry has been insulating customers from these price signals as it moves toward full deregulation,” said Wolkoff.

However, until utilities put more real-time recording devices into place at the retail level and give their customers the ability to make operational decisions when electricity prices rise above $500 per kilowatt hour, load management will not succeed as a viable method of shaving peak load, Price said. In addition, California is currently the only market that allows various retail rates. “Until a robust retail market exists, few utilities will be willing to make the large investment in load management as a means of shaving peak load,” he added.

A number of utilities are still not sure they want to be in the supply business, since retail choice has been disappointing, Price said. “The level of investment for load management equipment is high. Many of the utilities that have decided to stay in the supply business aren’t sure they want to be in the measurement business.”

Lanoe agreed. “Utilities are looking for ways to serve customers and most are not comfortable with the long-term payoff that comes along with investing in load management technology simply as a means of reducing peak load,” he said.

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