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 for residential customers. The incremental benefit of DSM at any one site is so small that budgets must be strictly maintained. Furthermore, residential consumers are not energy experts; they probably know very little about how they use energy. The technological applications may arrive in place, and yet the energy savings may not achieve predicted results. Consumers are only human.
To capture maximum benefits from DSM, both utilities and regulators must enter new terrain. Consumer education is where regulators can provide important leadership. As political institutions, regulatory agencies are risk averse. They make judgments in heavy political traffic, with failure seen as big news and success often going unnoticed. By refocusing DSM efforts on consumer education, regulators can help utilities improve results and rescue DSM programs tottering on the brink of extinction.
Educate, but Verify
Consumer behavior has a powerful impact on energy efficiency. A study conducted at Princeton University, for example, demonstrated that energy use at identical townhouses with identical appliances varied by as much as 100 percent. The researchers attributed the variance primarily to differences in consumer behavior.2 Consumer behavior in just one area (em space heating (em accounted for one-quarter of all energy savings in the residential sector in 1986, totaling one quad.3 Effective consumer education should em-phasize the long-term benefits of energy efficiency to counter the inconsistent, short-term signals of the market.
Two studies by the Alliance to Save Energy have demonstrated that adding intensive energy education to weatherization programs can produce significant energy savings. In one case, Pennsylvania Electric Company (Penelec) tested three approaches to incorporating education in a low-income weatherization program (see Figure 1). Penelec customers who watched a video and participated in three home visits increased their savings to 16.4 percent, in contrast to 8.4 percent for the control group. In the second study, the Alliance worked with Niagara Mohawk Power Corp. and the New York State Weatherization Assistance Program to add three in-home education sessions (plus a setback thermostat and affordable payment plan) to an existing weatherization program. Participating households cut energy use by 25.7 percent, versus 16.3 percent under the standard program (see Figure 2). Other programs also show promise, such as the Neighborhood Energy Workshops in Minneapolis and Ontario Hydro's energy management program. These programs stress certain key actions:
s Go Public. Make usage visible; publicize success.
s Customize Data. Each house is different.
s Slow Down. Choose three to six programs; nobody needs 100 ways to save energy.
s Respect Privacy. Houses use energy; people live in them.
s Let Business Lead. Business and government must support energy efficiency through public activities.
s Track True Savings. Don't focus just on home visits.
Evaluations that focus strictly on consumer action are new for utility DSM programs. They force utilities and regulators to redefine what is measured and how. General insights from sociology, psychology, anthropology, human ecology, and economics will play a larger role in designing or creating new DSM tools such as: 1) survey questionnaires, 2) sampling strategies, 3) interview techniques, 4) market delivery strategies or financial incentives, and 5) analytical models.
The formation of a National Data Base on Energy Efficiency Programs (DEEP) marks a step along the way to a more a complete picture of consumer behavior. DEEP has taught us a good deal about programs that achieve high participation rates, energy savings, and manageable costs. Nevertheless, this information is not always available to the program analysts involved in designing, implementing, and evaluating programs conducted by their own organization.
In any case, remember this about DSM "shortfalls": What you think you see may not be what you are actually seeing. The matter is not black and white; too many variables abound. Original assumptions could include errors.
"Take-back" effects are another concern; some households actually use more hot water after installing low-flow shower nozzles. Greater-than-expected conservation by nonparticipating customers (the control group) will attribute small net energy savings to the program. And then we have the most common source of apparent program shortfalls (em quality-control problems that occur during the installation of energy-control measures. Utilities tend to underestimate these factors. To the public they are all but invisible. Cost-conscious utilities that are anxious to trim budgets, but wary of political fallout from cutting high-visibility programs, may rely on reports of poor performance to justify discarding DSM programs and avoid backlash.
Uncertainty over the impact of new federal energy laws, combined with reports of shortfalls in DSM program savings, have led some to predict that utilities will soon abandon DSM programs in their efforts to become "low-cost providers." But we think a more likely scenario will see a new round of DSM programs springing up over the next few years. These programs will focus on education, on
capturing the currently unrealized potential in existing DSM programs, and on building a strong relationship with customers.
The first wave of DSM programs focused on technology. They brought compact fluorescent bulbs, low-flow showerheads, programmable thermostats, and
weatherization materials. The second wave, education, can teach consumers how to use all that equipment. Utilities riding this wave will improve relations with customers and boost their long-term results from DSM. As education takes hold, the market will reflect a change in consumer behavior.
A study performed in 1991 for the Edison Electric Institute (EEI) revealed that although Americans still want economic growth, a rising standard of living, and reliable and affordable electricity, by a margin of over two to one they would sacrifice economic growth to protect the environment.4 The report recommended three steps for electric utilities seeking to earn customer satisfaction in the 1990s: 1) Identify with environmental protection as a core American value, 2) Define the environmental benefits of electricity, and 3) Make superior environmental performance a defining attribute of the electric utility industry. As this study indicates, consumers are motivated by financial incentives, but also by ideals. People aspire to learn in a context where learning makes sense.
Utilities that have invested in DSM programs to date, but without stressing consumer education, will discover that a shift in focus can boost actual load-shifting and energy savings to meet targeted goals. Meanwhile, those that have already embraced consumer education are seeing an upturn in customer satisfaction ratings.
Education is more than a marketing strategy. It involves
considerably more than simply providing customers with some information on energy use, dollars saved, and theoretical benefits. Education is a process that opens doors to new ways of understanding. A strong educational program motivates individuals to learn (em to ask questions, to find answers (em and to act continually on the basis of what they have learned. By providing an educational context, utilities can improve DSM program effectiveness, build a strong and lasting partnership with their customers, and keep DSM viable as a resource
Renz Jennings is chairman of the Arizona Corporation Commission. Martin Pasqualetti is a professor of geography and Community Fellow for Natural Resources and the Environment at Arizona State University and a national consultant on energy issues. Merrilee Harrigan is senior program manager at the Alliance to Save Energy and has conducted research on the impact of education on consumer energy use. Robert Boscamp is President of EcoGroup, Inc., Tempe, AZ, and developer of the In Concert With The Environment(r) program. The authors wish to thank David A. Wilson, vice president, educational services, EcoGroup, Inc. for his assistance in integrating and editing this article.
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