In these challenging economic times, every electric utility or energy company wants to cut costs, save money and improve efficiency. Exactly how to do that, though, is not always clear-cut.

One approach is to attack the supply side of the equation. Utilities can create more efficient transmission and distribution grids, negotiate lower-cost fuel supply agreements, and diversify fuel sources or coordinate power-sharing agreements in an attempt to reduce the cost of providing power. They can participate in state or regional programs to garner tax credits or take other incentives based on reductions in the amount of fuel used or pollution produced. Many states have stepped up so-called “public benefits” programs, inviting utilities to participate in energy-conservation efforts created and managed by a state energy office or nonprofit group.

Another approach looks at the demand side. Demand-side management (DSM) programs include lower electric rates or rebates offered for the use of energy-efficient appliances, lower rates for use of electricity during off-peak periods, voluntary cutback or load reduction programs, and remote monitoring or remote control of thermostats via the Internet. Even the simplest or most basic steps are included, such as energy audits or general consumer information on how to reduce energy use in the home or office.

The latest numbers show that while DSM programs declined dramatically in the mid-1990s, DSM has staged something of a comeback. On the supply side, economic conditions have battered some utility programs, but key states, such as California, New York, Massachusetts, Rhode Island, Vermont and Wisconsin, are stepping up public benefits programs in the face of industry deregulation.

The American Council for an Energy Efficient Economy (ACEEE) reports that DSM program spending fell from a high of US$1.6 billion in 1993 to about $900 million in 1997. That number crept up over the next three years, topping $1 billion again by 2000 (the latest year for aggregate figures). The U.S. Department of Energy's Energy Information Administration (EIA) counted 992 electric utilities with DSM programs in place in 2000 — an increase of 114 utilities over 1999. DSM-based energy savings among just the 516 largest of these utilities, EIA reported, amounted to more than 3.1 billion kWh per year.

ACEEE also reports that state and utility funding for energy-efficiency programs is growing. Total state and utility funding for energy-efficiency programs in 2003 will be about $1.45 billion, an increase of 32% over the $1.1 billion spent in 2000.

Supply and Demand

Steve Rosenstock, manager of energy solutions for the Edison Electric Institute, says the supply side is getting most of the attention today. “That is where people think they can make a real difference right now,” Rosenstock says. “Some of it depends on what role the ISO is playing in a region, but throughout the country, more managers are focused on supply.” Key supply-side strategies Rosenstock sees include: a move to long-term energy-supply contracts at favorable prices; diversification of fuel sources; the addition of green or renewable power; and the use of advanced technology to promote transmission line and substation efficiency.

Another supply-side initiative is “zonal pricing,” where transmission rates are specific to one part of the grid, rather than set on a regional or grid-wide basis. In the Northeast, for instance, prices may be higher to get power to Boston or certain parts of Connecticut based on grid congestion and demand. Zonal pricing, Rosenstock says, may lead to significant improvements in transmission systems in an attempt to bring costs down at particular trouble spots.

George Owens, a principal at Energy and Engineering Solutions Inc. (Columbia, Maryland, U.S.), expects to see a shift away from supply-side management and back to DSM programs. Regulated rates are largely becoming market rates, Owens says, taking away one of the most powerful supply-side tools: lower contract rates for long-term supply agreements.

“Supply side got everyone excited, but when the numbers came in, they were not as great as people had hoped,” Owens says. “It is starting to look again like the demand side may be the way to reduce costs.”

Examples of DSM include a Sacramento Municipal Utility District initiative to pick up and recycle old refrigerators. Started in late 2001, the program has already disposed of nearly 9000 old refrigerators, saving customers 13.7 million kWh of electricity per year and reducing summer peak load by 1.9 MW.

The California Energy Commission has teamed up with the state's three largest utilities — Pacific Gas & Electric, Sempra and Southern California Edison — offering cash incentives to cities that replace incandescent bulbs in traffic signals with light-emitting diode signals. Started in 2000, the program has already saved an estimated 40 million kWh of electricity statewide. Peak demand in the summer months has been reduced by 4610 kW.

Further up the coast, Seattle City Light has been preaching the gospel of energy conservation for 25 years. Energy efficiency projects completed in 2001, the utility says, shaved 86,915 MWh from its load — more than half of those savings accrued to commercial customers.

A Balancing Act

Scott Rouse, managing partner of Utility 3+ (Ontario, Canada), a real-time Web-based utility monitoring system, worked on both supply-side and demand-side management programs in his former role as a manager at Ontario Hydro. Rouse is also chairman of the Canadian Industry Program for Energy Conservation (CIPEC) Energy Manager Network and is encouraged by national efforts to bring energy managers together to share best practices in energy efficiency. This past spring, the organization held its inaugural national conference, attracting 90 energy managers from around the country. Rouse hopes to boost that number to 500 or 600 in coming years.

Rouse has also studied barriers to energy-efficiency efforts within utilities and says the key challenges include getting attention for the programs, building awareness, providing accountability and providing appropriate rewards for doing the job right.

“Make sure that if they work right, people get rewarded for the programs,” Rouse says. Energy conservation, he argues, offers a “triple bottom line” benefit. Utilities and consumers benefit economically, and everyone benefits environmentally. The third benefit is that the utility is seen as socially responsible. “This is not just green power fluff,” Rouse says. “After the Enron and WorldCom kind of stuff, people are starting to see how valuable it is to do things right.”

Bill Moye, president of strategic planning firm Star LLC (Albuquerque, New Mexico, U.S.), tells another tale of energy-efficiency measures benefiting both utilities and the communities they serve. Prior to his work with Star, Moye was a manager at Public Service Company of New Mexico (PNM; Albuquerque).

In late 2001 and early 2002, PNM took what Moye calls a unique approach to getting customer involvement in system planning. The utility convened 40 community and business leaders for a two-day conference at a local hotel. It presented the need for new power lines and asked for community input on how and where to build them. The end result of that meeting was not only approval for the new lines, but the start of DSM programs that continue to this day.

One example is an energy-conservation push in New Mexico schools. Students are taught how to cut energy costs, and the school is given the cash equivalent of half of all energy savings realized. “Kids are not only looking for opportunities to turn off the lights or close refrigerator doors,” Moye says. “They are bringing those lessons home with them too.”

On the supply side, review of the new high-voltage line request prompted two New Mexico hospitals to install microturbines to produce their own emergency and peaking power. PNM is studying this as a way to share load and rebalance its power distribution.

“You have to think of supply and demand side in some sort of balance,” says Owens. “You have to look at both sides because one affects the other. If you do demand side and change the load, then you have to go back and look at how that can improve or deteriorate your ability to procure power at a favorable rate. Hardly ever have I combined the two, but I always look at both of them as much as possible.”

James R. Dukart is a freelance writer based in Minneapolis, Minnesota, U.S.