How competition might affect electric-utility DSM programs

Abstract

This paper discusses competition in the electricity industry and how it might affect utility DSM programs. The roles that state regulatory commissions could play to affect retail competition and DSM programs are examined. Commissions could set exit or reentry fees for customers who want to buy electricity from an entity other than the local utility. Or they could ‘tax’ the use of the local distribution system to discourage uneconomic wheeling and to pay for DSM programs. The effects of DSM programs on retail electricity prices and how utilities might redesign their DSM programs for a more competitive environment are considered. In the future, utility DSM programs may 1. (1) focus more on customer service and less on system-resource benefits, 2. (2) emphasize capacity reductions more and energy savings less as utilities seek to minimize the lost revenues associated with DSM, 3. (3) become more cost-effective as utilities identify better ways to deliver DSM services at lower cost, and 4. (4) involve fewer inter- and intraclass transfers as utilities increasingly have individual customers pay for their own DSM services. While DSM programs in the future may be different from what they are today, they will continue to be important to utilities as powerful marketing tools and to society because of their environmental and economic-productivity benefits.