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Demand-side Management: Mitigate, Don't Eliminate

Fortnightly Magazine - October 1 1995

most customers' energy bills."1

This policy preference for the TRC test is rooted in mutual benefits to customers, the utility, the environment, and the economy. Because DSM initiatives are designed by utilities to reduce total revenue requirements, they therefore minimize rate-base needs,

reducing total utility costs recovered from ratepayers.

DSM costs and benefits are best evaluated with the TRC screening test. The TRC compares the total costs of the program (participant costs and program operating costs) against its total benefits (reduced participant bills, utility operating costs, fuel costs, new generation needs, and other reduced costs). Under established industry and regulatory practice, if a DSM program passes the TRC test (a "TRC program"), it saves more than it costs and should be implemented.

Resource Efficiency:

The Upside

Participants. Participants in a TRC program receive direct and indirect benefits. Many such programs reduce electricity use by promoting energy-efficient or

energy-conserving technologies. Reduced use means participant bills will go down, producing direct financial benefits. Even if short-term rates increase, the total cost of electricity (rate x usage) will be minimized. Many TRC programs can also improve overall comfort levels (through higher lighting levels or improved temperature comfort), yielding extra benefits usually not quantified in normal cost/benefit analyses of program selection.

Utilities. The utility that pursues TRC programs will also benefit. Utility costs normally reflected in the rate base will be reduced. For example, by implementing

energy-efficiency programs that reduce and manage consumption, the utility will cut costs associated with electricity generation, fuel purchases, transmission and distribution, line losses, and building new plants to meet growing demand. DSM can also help manage load profiles by shifting electricity use from peak periods to offpeak times when the per-unit cost of electricity is lower. In the long run, utility rates would be lower than if no DSM were pursued.

Utilities that fully pursue TRC programs may minimize future uncertainty by better managing system growth. They also minimize regulatory risk associated with stricter local, state, federal, or international environmental regulations. For example, they may reduce future costs for associated toxic or greenhouse gas emissions, or for acid rain control or spent nuclear fuel disposal. Perhaps most important, the increasingly difficult, costly, and contentious approval process for siting and construction of new generating capacity can be minimized or eliminated. By taking low-cost

actions now, utilities and their shareholders may effectively hedge against high compliance costs in the future.

The Environment. DSM programs that reduce consumption yield proven environmental benefits by avoiding generation and cutting plant emissions. For example, electric generation from fossil fuel produces significant greenhouse gases. These gases are thought to contribute to global climate change due to their heat-trapping ability. To attack this potential problem, the United States has formally committed to reduce national greenhouse emissions to 1990 levels by 2000. One of the cornerstones of the Clinton Administration's policy to meet this goal is to reduce carbon dioxide emissions through increased energy efficiency.

Generating plants fired by fossil fuels also emit sulfur dioxide and nitrogen oxide (NOx) (em gases that form acid rain as well as tropospheric