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Demand Growth and the New Normal

Five forces are putting the squeeze on electricity consumption.

Fortnightly Magazine - December 2012

on dynamic pricing in the next few years. In the Southwest, the recession hit hard and the housing market collapsed. Declining population growth there also might lead to decreased demand growth. In the Tennessee Valley, consumers are responding to the buzz about efficiency by taking actions to save money and conserve.

And then there’s Texas, where the mass market is primed for demand response. Perhaps nothing better illustrates the potential for demand response in Texas than comparing two Wednesday evenings in different seasons of the year. Figure 6 shows the ERCOT loads in Texas for Weds., March 9, 2011 and Weds., Aug. 3, 2011. On March 9 at 5:15 p.m., when the temperature in Dallas was 64 degrees F, the ERCOT load was 31,262 MW. Residential demand was approximately 8,500 MW, contributing to 27.4 percent of total demand. At 5:00 p.m. on the summer evening of August 3, the ERCOT load more than doubled that of March 9 at 68,416 MW. The temperature in Dallas at the time was 109 degrees F, prompting many customers to pump up air conditioning units. The residential class contributed 51.2 percent of demand (35,000 MW), about four times the amount it contributed on March 9.

As DSM expands in the coming decades, the gap in electric demand in Dallas and other hot areas across the country should narrow.

Redefining ‘Normal’

When all is said and done, the drop in electricity demand growth seems to be permanent, not transitory. It would be a mistake to attribute this drop solely to the recession and assume that it will go away once normal economic activity resumes. As seen in Figure 1, the drop is consistent with the historical trend of demand growth. The new normal might be demand growth at about half of the pre-recession value, in the 0.7 percent to 0.9 percent annual range.

For utilities and regulators, survival in this sub 1-percent growth world calls for new thinking, such as initiatives in many states to decouple a utility’s earnings from its sales volume. As Peter Fox-Penner argues in Smart Power , utilities should consider becoming smart wires companies or integrated energy service companies. However, for this all to happen, enlightened regulators will have to rewrite the rules of the game—in a way that works both for utilities and their ever-changing customers.

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