The Impacts of Utility-Sponsored Demand-Side Management Programs on Industrial Electricity Consumers

Abstract

One of the most pressing issues in electric utility regulation today is the extent to which demand-side management (DSM) programs should be promoted by utilities. DSM refers to energy-efficiency or conservation measures, such as insulation, more efficient motors and lights, etc. On one side are those who argue that, because of the way electric utilities earn profits under standard regulatory procedures, the incentives facing these utilities are weighted against DSM. On the other side are those who argue that utility incentives are not essential determinants of the success or failure of DSM in the U.S. economy. This paper summarizes the views of the two sides. Two important measures promoted by DSM-advocates to "level the playing field" are described. Counter-arguments are also presented. The conclusion is that efforts by utilities and their regulators to promote DSM often result in the implementation of inequitable and economically inefficient programs. While many of the criticisms presented in this paper of the arguments and recommendations of DSM-advocates are general, particular attention is paid to the potentially damaging effects of these proposals on large commercial and industrial customers.