Background

Demand-side management (DSM) programs consist of the planning, implementing, and monitoring activities of electric utilities which are designed to encourage consumers to modify their level and pattern of electricity usage.

In the past, the primary objective of most DSM programs was to provide cost-effective energy and capacity resources to help defer the need for new sources of power, including generating facilities, power purchases, and transmission and distribution capacity additions. However, due to changes that are occurring within the industry, electric utilities are also using DSM as a way to enhance customer service. DSM refers to only energy and load-shape modifying activities that are undertaken in response to utility-administered programs. It does not refer to energy and load-shape changes arising from the normal operation of the marketplace or from government-mandated energy-efficiency standards.

Current Status

In 1997, 971 electric utilities reported having DSM programs. Of these, 561 are classified as large and 410 are classified as small utilities. The 561 large utilities account for 89.5 percent of the total retail sales of electricity in the United States.⁽¹⁾

Energy savings for the 561 large electric utilities decreased to 56,406 million kilowatthours (kWh), 5,436 million kWh less than in 1996. These energy savings represent 1.8 percent of annual electric sales of 3,140 billion kWh to ultimate consumers in 1997.

Actual peak load reductions, the goal of the DSM program, for large utilities was 15.4 percent lower in 1997, at 25,284 megawatts, than in 1996. Potential peak load reductions were 14.7 percent lower in 1997 than in 1996.

DSM costs continued to decrease from $1.9 billion in 1996 to $1.6 billion in 1997.⁽²⁾ This is the fourth consecutive year that DSM costs have decreased from a high of $2.7 billion in 1993.

For 1997, incremental energy savings for large utilities were 4,832 million kilowatthours, and incremental actual peak load reductions were 2,326 megawatts.

1. Large utilities are those reporting sales to ultimate consumers or sales for resale greater than or equal to 120,000 megawatthours. Small utilities with sales to ultimate consumers and sales for resale of less than 120,000 megawatthours are only required to report incremental energy savings and peak load reduction, and total utility and total DSM costs for the reporting year and for the first forecast year.

2. It is tempting, but misleading, to compare DSM costs to supply-side investments on an unadjusted cost-per-kilowatthours or cost-per-kilowatt basis. The calculation of appropriate measures for economic comparisons of DSM and supply-side investments requires that consideration of the life-cycle cost of the options being compared be addressed on an integrated basis (i.e., the interaction of the change in end-use patterns with the production function of the utility must be considered over the expected life of the various options being compared). In addition, the rate impacts of each alternative must be compared because alternative DSM/supply-side combinations may result in differing patterns of revenue requirements over time. The data presented are not sufficient to allow for such comparison.