July 2, 2008
Utilities are now in the heat of battle. While they would like to maximize their sales, they must now persuade their customers to save energy. It's a quest that will help defer investments in expensive and contentious infrastructure and in doing so, prevent the release of some harmful emissions.
Instead of investing millions in power plants to meet the 100 or so hours a year when energy demand is highest, utilities are turning to their customers to reduce energy usage during these peak hours. Demand response is giving commercial and industrial concerns more insight into the energy that their facilities consume. By knowing this, they can consume power during those times that are most favorable to the utilities' rate structure.
"We are trying to change the mindset," says Kevin Burke, chief executive of Consolidated Edison in New York City, at the Edison Electric Institute's annual conference in Toronto. "We have delivered a record amount of electricity and clearly, energy efficiency has to rise to the top of what we do. There is an economic benefit to get customers to defer usage."
Changes in consumption patterns could have a huge affect on the electric utility industry, which takes in annually about $224 billion. But forward looking utilities with sound balance sheets are motivated to control peak load -- a force that controls their generating capacity as well as the cost of their power generation. According to the Rand Corp., the utility industry could save between $50 billion and $100 billion over the next two decades if the technology and laws are implemented to give customers a reason to watch their daily energy consumption.
Utilities are open to the idea and many of the larger ones have taken it on. And, further, many independent system operators and regional transmission organizations that dispatch available generation over the grid are encouraging such energy shifting and saving techniques as demand response. That's because strained networks inhibit commerce and cause expensive transformers and power lines to erode at a faster rate.
Tampa Electric Co., for instance, allows customers to adjust their electricity usage by using a programmable thermostat. On the hottest days when power is at a premium, the company can reach inside those homes and automatically change the temperature. The company says that it has taken a bite out of peak energy usage. It's all part of a statewide program to require utilities there to promote conservation to the fullest before any power plants could be built. At the same time, regulators allow some prudent operating costs and capital expenditures to be passed through to ratepayers.
"Customers will change," says Dennis Wrasse, chief executive of Pepco Holdings in Washington, D.C., whose company will start rolling out smart meters. "If they can save 20 percent by being on time-of-use rates, their consumption patterns will change."
Assertive Role
To be sure, cost pressures still stand in the way of implementation. The old utility mindset reasoned that anything that cut consumption would hurt profits. But through a combination of regulatory moves and community pressures, they have come to realize that they, too, can save money by avoiding expensive and time-consuming build-outs.
The California Energy Commission, for instance, credits demand response for avoiding the need to build 15,000 megawatts of new power plants since 1975. Similarly, ISO New England says that demand response programs would relieve congestion. Specifically, it said that the reduction of 50 megawatts in a congested zone would improve reliability by 30 percent. The threat of rolling blackouts would therefore diminish.
Many utilities therefore are working with their state utility commissions to quantify the value of that benefit. The companies would like to pass through much of the cost of energy efficiency plans in the same manner they do other capital expenditures such as power plant and transmission development. While they understand such programs do not obviate the need for new infrastructure, the utilities reason that efficiency programs are far less costly and are effective tools by which they can meet environmental standards.
"If energy efficiency is a production option, then we ought to be compensated," says Jim Rogers, CEO of Duke Energy. "It's dramatically cheaper than renewables."
Some state regulators are supportive of the idea. The Colorado Public Utilities Commission has approved a demand-side management program that will be offered by Xcel Energy. It's expected to cost anywhere from $700 million to $1.8 billion and be implemented over 12 years. Under the plan, if the utility's costs are reasonable, it could get incentives for up to 20 percent of that outlay.
The measure dovetails with a state law signed in 2007 to encourage utilities to execute energy efficiency programs. The goal is to reduce peak load by 5 percent before 2018. In California, all regulated utilities there have been required since 2004 to start cutting their peak load by 5 percent. The public utility commission there says that that the policy will result in $2.7 billion in energy savings as well take a slice out of carbon dioxide emissions, all by the end of this year.
Environmental awareness and high energy costs have combined to provide utilities and customers alike the incentive to cut consumption. It's been a long time coming. But if the movement is to accelerate, regulators must become more assertive so as to hasten the use of new energy saving technologies.
More information is available from Energy Central:
Correction Note:
Monday's story on transmission referred to Southern California Edison, which should have said that it will dedicate $2.1 million to renewable-related transmission projects.
Respond to the editor.
Ken Silverstein EnergyBiz Insider Editor-in-Chief
Read Ken's Blog
