Ahmad Faruqui

Charting the DSM Sales Slump

Demand side management has a growing effect on energy sales. Utilities are applying five methods to account for DSM in sales forecasts. A Brattle Group survey reveals those methods and their characteristics.
Demand side management has a growing effect on energy sales. Utilities are applying five methods to account for DSM in sales forecasts. A Brattle Group survey reveals those methods and their characteristics.

Rate Design by Objective

A purposeful approach to setting energy prices.

Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to cross-subsidies, inequitable outcomes, and perverse incentives. An objective-based approach can better communicate costs to customers in a way that better serves operations and policy goals.

Maximizing Customer Benefits

Performance measurement and action steps for smart grid investments.

Regulators and customers are holding utilities’ feet to the fire, when it comes to investing in advanced metering and smart grid systems—and rightly so. Making the most of investments requires a systematic approach to establishing standards and monitoring performance. But it also requires policy frameworks and cost recovery regimes that provide the right incentives.

Energy Efficiency: 15 percent by 2020?

A new survey of energy industry experts reveals a surprising consensus on the size of the energy efficiency resource. Overall, energy efficiency is expected to lower electricity consumption by 5 to 15 percent, and natural gas consumption by 5 to 10 percent. These results debunk the notion that conservation is a fad. On the contrary, they herald a new beginning for energy efficiency.

Efficiency pessimists contend that energy efficiency (inclusive of demand response) is unlikely to make much of a dent on energy consumption and peak demand in the year 2020 since all the low-hanging fruit has been harvested. Ergo, the solution to meeting the nation’s future energy needs in a carbon-constrained future is to build more power plants (preferably those that don’t burn coal), transmission lines and distribution systems.

Gas Demand Response

As more natural gas is used for power generation, more volatility can be expected in gas markets. Demand response might provide a tool for managing that volatility, but is it technically feasible? And will gas customers accept it?

In general, demand response refers to the ability of consumers to respond to a supply shortage by curtailing demand, thereby improving economic efficiency. Since the California energy crisis, demand response has been widely used in electricity markets throughout the United States and Canada.1 Recent developments in the natural gas sector suggest that the time may have come to also introduce demand response in that sector.

Better Data, New Conclusions

The authors respond to Roycroft’s reality check.

Experience with time-of-use pricing programs shows that a large majority of low-income customers will benefit from dynamic prices. In fact, not making such prices available to these customers might be harmful. In the most efficient system, all customers will face the same prices—and policy makers can provide direct relief to ease the burden for low-income customers.

Low-Income Reality Check

Evaluating the impact of dynamic pricing.

Are residential time-of-use prices only effective for middle class households, or do low-income customers benefit too—as authors Lisa Wood and Ahmad Faruqui asserted in their October 2010 article? Data from pilot programs show that low-income customers exhibit a reduced ability to benefit from dynamic pricing. Demand response programs should accommodate the realities of low-income customers’ consumption patterns.

C&I Customers Get Smart

Technology creates new opportunities for demand- side management

Customer value is a key factor in any smart grid business case. But not all customers are created equal. In particular, commercial and industrial (C&I) customers have greatly different needs, considerations and sensitivities, compared to residential customers. As a result, demand response and efficiency programs won’t produce the same results across customer classes. Getting the most from the C&I market will depend on integrating smart grid with smart building technologies.

DR Distortion

Are subsidies the best way to achieve smart grid goals?

FERC has proposed that wholesale energy markets should subsidize load reductions with full LMP (locational marginal price), without deducting the customers’ retail savings. Such a policy could distort the market, and other solutions might achieve the same objectives more efficiently.

Rethinking Prices

The changing architecture of demand response in America.

Pilot projects are demonstrating the potential of smart metering and smart rates to make the most of supply and demand resources. But as empirical studies show, not all pricing designs are equally suited to every region.