End-user Electric Demand Management Should be a National Policy Objective
Abstract
An effective national energy policy must include a broad array of
approaches to meeting the nation’s energy needs. The more energy ar-
rows in the quiver, so to speak, the better we may meet the challenge.
As it has evolved over the past 25 years, our energy policy has reflected
mounting awareness that we must address both the need to increase
energy supply and the need to curb the growth in energy demand. Yet
the application of attention and resources to these complementary ef-
forts has been uneven. Energy supply issues are often at the forefront of
political discourse and public awareness, and supply-side initiatives
tend to generate the lion’s share of funding. As to the various techniques
of demand-side management (DSM), however, the pronouncements of
policymakers have not always kept pace with technological advance-
ments that stand to vastly improve the effectiveness of such techniques.
Time-of-use energy pricing, in particular, could become a far more po-
tent DSM tool as a result of innovations in metering technology. Despite
the past relative neglect of such matters, there are encouraging signs in
proposed federal legislation and ongoing federal and state regulatory
initiatives that DSM in general, and time-of-use energy metering and
pricing in particular, may finally have their day
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References
Typical ISO markets include both day-ahead markets and spot markets. ISOs also
handle a significant amount of power sold under bilateral contracts.
The dangers of having insufficient price signals to end users were vividly illustrated
in California. When drought reduced the supply of electric energy in the northwest
and natural gas prices increased, prohibitions against long-term utility purchase
contracts and a certain amount of admitted market manipulation significantly in-
creased the cost of electric energy to the utilities. However, the utilities were obli-
gated by prior arrangements to charge customers artificially low prices that did not
reflect the high prices the utilities paid for power. As a result, customers did not
reduce their demand for electricity and experienced shortages. One can view such
a problem as being a result of insufficient supply, i.e., with sufficient supply; the
price of wholesale electricity would have been more stable. Inadequate supply was
also exacerbated by the fact that California has resisted the construction of new
power plants and the use of back-up generators for environmental reasons. A more
fundamental reason for the shortages, however, is that California’s deregulation, in
violation of fundamental economic principles, did not require customers to pay
prices that reflected the cost of purchased power. This unquestionably resulted in
greater overall usage, including during peak periods, than if the end-use customers
had been required to pay “full freight” based rates. Ideally, if the customers had had
“smart” meters and been charged time-of-use rates, a presumed, resulting signifi-
cant diminution of peak demand might well have alleviated the situation. Thus far
the governmental focus has appeared to be predominantly upon an aspect of the
supply issue (i.e., the extent to which there was market manipulation—for example,
see the “Final Report on Price Manipulation in Western Markets” in Docket No. PA
-02-000 issued by FERC on March 26, 2003) rather than giving equal emphasis to
an evaluation of how providing economic signals and incentives to consumers to
reduce consumption during peak periods could have resulted in reduced demand
and more stable markets. In creating and operating markets, it is vital to consider
the value of the carrot as well as the stick.
16 USC §2621.
There have been instances of electric utilities adopting time-of-use rates with the
encouragement of state agencies, but such rates are the exception rather than the
rule.
42 USC §8201.
See 42 USC §8353.
A number of utilities, with state agency encouragement, have provided significant
incentives for electric customers to install energy conservation measures.
Section 7061 of the proposed EPA would also amend Section 115 of PURPA (16 USC
§2625) to provide that, in a state that permits third-party marketers to sell electric
energy to retail electric consumers, the electric consumer shall be entitled to receive
the same real-time (or time-of-use) metering and communication service as a direct
retail electric consumer of the electric utility.
Energy Investment Systems, Inc. is implementing a model in these buildings based
upon information derived from several years of participation in NYSERDA-sup ported programs. One of EIS’ projects includes: (i) advanced interval meters and
equipment that can measure usage in time intervals and can read meters automati-
cally; (ii) telephonic interconnects with Con Edison; (iii) automatic curtailment con-
trol devices (with overrides to meet resident approval); (iv) individual apartment
display devices that provide energy-related information; (v) the purchase of electric
power at the RTP rate or other time-sensitive arrangement and (vi) the development
of an internal time-sensitive apartment rate schedule that mirrors the RTP rate cat-
egories and thereby reflects peak demand periods.
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