The past, present, and future of U.S. utility demand-side management programs

Demand-side management or DSM refers to active efforts by electric and gas utilities to modify customers` energy use patterns. The experience in the US shows that utilities, when provided with appropriate incentives, can provide a powerful stimulus to energy efficiency in the private sector. This paper describes the range and history of DSM programs offered by US electric utilities, with a focus on the political, economic, and regulatory events that have shaped their evolution. It also describes the changes these programs are undergoing as a result of US electricity industry restructuring. DSM programs began modestly in the 1970s in response to growing concerns about dependence on foreign sources of oil and environmental consequences of electricity generation, especially nuclear power. The foundation for the unique US partnership between government and utility interests can be traced first to the private-ownership structure of the vertically integrated electricity industry and second to the monopoly franchise granted by state regulators. Electricity industry restructuring calls into question both of these basic conditions, and thus the future of utility DSM programs for the public interest. Future policies guiding ratepayer-funded energy-efficiency DSM programs will need to pay close attention to the specific market objectives of the programs and to the balance between public and private interests.