NCPA - National Center for Policy Analysis

DEMAND-RESPONSE PROGRAMS SAVE CUSTOMERS MILLIONS

September 15, 2004

Recent studies show that electricity demand-response programs have saved customers millions of dollars and could save billions more. The federal government's General Services Administration (GSA), for example, saved $1.9 million over five years.

The programs use price incentives to encourage consumers to use less power at times of peak demand, thereby increasing the reliability of the power grid. While benefits from demand-response are potentially large, three main barriers limit their introduction and expansion:

  • State regulations that shield consumers from price fluctuations
  • A lack of equipment at customer's locations to monitor and reduce power consumption as needed
  • Customers' limited awareness about the programs and their benefits.

Gulf Power, a regulated utility in the Florida panhandle, was able to effectively overcome these barriers.

  • A rate impact test allowed state regulators to review and approve the program proposed by the utility because of its benefits to both participants and nonparticipants.
  • Gulf Power also overcame the barrier of inadequate equipment by installing new technologies, including a computerized controller, called a "gateway," that integrates the metering, communication and switches to control demand.
  • The Florida utility used mass marketing techniques to make customers aware of the program and to provide basic information about the advantages to participants.

The GAO reported three important lessons for such programs to succeed. First, programs must have sufficient incentives to make customer's participation worthwhile. Second, programs are more likely to succeed if state regulators and market participants are receptive to potential benefits of demand-response programs in their areas. Finally, to achieve these benefits, the design of programs should consider appropriate outreach, the introduction of necessary equipment, and the ease with which customers can participate.

Source: "Consumers Could Benefit from Demand-Response Programs, but Challenges Remain," United States Government Accountability Office, August, 2004.

For text http://www.gao.gov/new.items/d04844.pdf

 

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