[BETA] Fortnightly

One of the great attractions of demand-side management (DSM) lies in its ability to accommodate one-stop shopping. In contrast to the traditional supply-side approach, DSM allows energy utilities to minimize price hikes and maintain environmental quality even while meeting increasing needs.

Nevertheless, some of the initial excitement has waned. For example, The Wall Street Journal reviewed 11 programs in late 1993 and found that 8 realized less than half their projected savings. Sacramento Municipal Utility District (SMUD) also fell short on conservation goals set for June 30, 1993: It cut peak capacity by only 28 megawatts (MW), instead of 42 MW; energy savings came in at 38 gigawatt-hours (Gwh), missing its goal of 65 Gwh.1

Although the president of SMUD's Board ascribed the shortfall to the slowdown of the entire California economy, we should examine what such reports mean for the utility industry. Were expectations inflated for DSM? Will a little fine-tuning cure this underachievement? Upon evaluating recent published reports and private surveys, we suggest that DSM programs will prove more successful over the long term if utilities and regulators concentrate less on technical fixes and more on consumer behavior.

A New Plan for Regulators

Over the past few years, regulators across the country have encouraged utilities to promote energy efficiency and conservation through DSM programs. These efforts reflect the assigned role of regulation (em to maintain equity by balancing the short- and long-term needs of both consumers and energy service companies. Regulators have worked closely with utilities to develop the kinds of incentives that have placed utilities at the forefront of energy efficiency. So when questions arise about actual savings, regulators naturally exhibit concern.

Some of the original DSM estimates were too high. But that does not mean the programs failed. The DSM programs in the Wall Street Journal report fell short of targets projected by groups like the Rocky Mountain Institute, but they did save electricity for half (em or less than half (em the cost of producing it, even before adding up environmental savings. Most regulators and utilities are now using more modest, but still impressive, projections.

Also, program authors typically have designed energy-efficiency plans to adopt known engineering practices and thus gain immediate tangible results. Consistent with standard practice, utilities and regulators have used engineering estimates to assess the impact of DSM programs. Apply the technology, and measure the result. When measurements fall short of expectations, regulators might question, among other things, whether utilities know how to implement the programs and whether consumers understand the new technologies.

Experience shows that DSM programs that include customer education will typically prove more successful than those that do not. In the case of large industrial and commercial users, this education is often provided through straightforward personal contact between the engineer who represents the utility and the person responsible for energy management at the customer premises. The energy savings enable cost-effective audits and followup visits that help promote customer education. But in some instances, employees far removed from the decisionmakers may continue to misuse new technologies. The problem is even more serious