load management programs

Energy Vol. 13, No. 1, pp. 33-44, 1988 Printed in Great Britain

CREATING

0360-5442/88 $3.00 + 0.00 Pergamon Journals Ltd

VIABLE UTILITY CONSERVATION/LOAD MANAGEMENT PROGRAMS ERIC

HIRST

Energy Division, Oak Ridge National Laboratory, Oak Ridge, TN 37831, U.S.A. (Received 26 February 1987) Ah&a&-An electric utility can determine the value of demand-side programs (conservation and load management) in its service territory by following a procedure that involves several steps. The first

three are general in nature: (1) identify potential markets and end-use technologies to serve these markets, (2) estimate technical potential, (3) estimate cost-effective potential. The other eight are program-specific: (4) develop program options that deliver end-use improvements to customers, (5) estimate program participation, energy-use effects, and costs over time, (6) project electricity use with and without the program, (7) analyze program economics (benefits and costs), (8) test the concept, (9) implement a pilot program, (10) implement a full-scale (systemwide) program, (11) evaluate the program. 1. INTRODUCTION

Innumerable regulatory proceedings throughout the U.S. have been plagued by debates among PUC staff, electric utilities, environmental groups, and other intervenors. These debates focus on the appropriate roles that utilities should play in helping their customers achieve cost-effective electric-efficiency improvements and on treating end-use efficiency options as viable electric power resources comparable to new generation, purchased power, or transmission and distribution (T & D) options. To a large extent, disagreement in these debates is fueled by limited knowledge concerning the actual performance of utility demand-side programs. Too little attention has been devoted in the past to the design, implementation and use of pilot programs to develop such empirical information. The purpose of this paper is to discuss how an electric utility can determine the extent of the energy-conservation resource in its service territory and how much of that resource can be realized at what cost and over what time period. There are substantial, cost-effective energy-efficiency resources available to U.S. electric utilities. Utilities should vigorously identify and implement these resources in their systems for several reasons. First, obtaining these resources is often less expensive per kWhr and per kW than constructing new power plants and occasionally less expensive than operating existing ones. Second, efficiency resources, because of their small size and short leadtimes, can reduce uncertainties associated with utility planning. Third, these resources greatly expand the range of options available to utilities to meet their customers’ future energy-service needs. Finally, energy-efficiency programs are generally popular with customers and regulators and often offer additional (nonutility) benefits such as improved comfort in energy-efficient buildings, greater productivity in industrial facilities, and reduced environmental impacts of electricity production. The primary ingredients for successful efficiency programs are utility commitment to making such programs work well and Public Utility Commission (PVC) support of these activities. Energy-efficiency programs can be designed to meet different objectives: reduce overall electricity use; modify annual, seasonal, or daily load shape; obtain cost-effective energy resources; delay need for additional generation or T & D investments; improve relations with customers; promote economic development; respond to regulatory requirements; respond to activities undertaken by competitors (e.g. natural gas utilities); reduce uncertainty about future load growth; and/or reduce the adverse environmental effects of electricity production. Program planning, analysis, and evaluation are essential to achieving these objectives. The practicality of these suggestions is illustrated with three examples. The Hood River Conservation Project was a $21 million residential retrofit experiment in Oregon.’ The Project met its objective of determining the reasonable upper limits (program participation, installation 33

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of retrofit measures, and actual reductions in electricity use) of residential retrofits as an electric power resource. Similarly, Niagara Mohawk Power is implementing a variety of pilot programs and experiments to test the costs and effectiveness of conservation programs in upstate New York, in response to a 1984 Public Service Commission order.’ Here, too, careful attention to research design and data collection will pay off handsomely with improved information to reduce the noise level of debates and, more importantly, with effective demand-side programs. Finally, Northeast Utilities implicitly follows many of the steps suggested here in their assessment of demand-side options, as part of their Integrated Demand/Supply Planning process.3 2. OVERVIEW

OF STEPS

TO ANALYZE

DEMAND

OPTIONS

Developing alternatives for conservation and load management programs at an electric utility involves several steps. The first three steps are general in nature (Section 3), while the remaining eight are program-specific (Section 4). Although we treat these activities sequentially, program development is a complicated process that involves substantial iteration. For example, estimates of program participation might be modified on the basis of surveys conducted during the concept-testing phase. Also, our knowledge about the performance and costs (both installation and operation) of energy-efficient technologies and systems is limited, especially for the commercial and industrial sectors. Our understanding of human behavior and the factors that influence customer decisions to install energy-efficient systems is even more limited. This is not surprising, given that the electric utility industry has been operating energy-efficiency programs for only a few years now. This lack of data, therefore, leads to substantial uncertainty in estimates of participation in customer programs, the cost of operating such programs, and the effects of these programs on electricity use.7 As a consequence, the activities discussed below involve substantial judgment, reliance on scanty data, use of small-scale experiments to develop relevant data, and extensive sensitivity analysis to determine the robustness of results to various assumptions. The lack of data argues strongly for collection of additional empirical evidence about electricity uses, conservation potentials, and utility mechanisms for influencing electricity-use levels and load shapes. For example, Sierra Pacific initiated an ambitious Energy Information Project to obtain detailed end-use load research data and related demographic information on participants and non-participants in their pilot demand-side programs.4 In addition to establishment of special data collection projects, utilities can learn a great deal about their customers from evaluations of existing utility conservation programs. 3. GENERAL

STEPS

TO ANALYZE

DEMAND

OPTIONS

Identify potential marketi This first step involves selection of key customer class/end use combinations to address. Selection of key markets requires a clear understanding of the objectives of demand-side programs (see Introduction). For example, residential electric space heating is a major load in the Pacific Northwest, because more than half the homes have electric space-heating equipment; residential air conditioning is a trivial load because most homes do not have air conditioning equipment. The reverse is true for utilities in the mid-Atlantic region. Lighting in commercial buildings is an important load in all regions, both in its own right and because of its effects on heating and air conditioning loads. Identification of potential markets for which to develop efficiency-improvement programs tThere are substantial uncertainties associated with traditional and emerging supply resources also. Long leadtimes, high capital cost, large unit size, environmental and regulatory constraints, and public opposition are uncertainties associated with large central-station power plants. Emerging options such as combined-cycle combustion turbines are subject to other uncertainties such as cost, performance, and reliability of the units. Demand-side resources are subject to uncertainties about the amount that can be acquired, how quickly, and at what cost.

Creating viable utility conservation/load

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35

will rely heavily on data and analyses from the utility’s market research, load research, and forecasting departments. Market research, for example, conducts surveys among customer classes to identify existing stocks of electricity-using equipment, their efficiency levels, and how they are used. Such surveys also examine customer preferences for the utility’s existing and new programs. Load research data are used to identify those end uses that contribute most to system and class peak loads. Forecasts are used to identify end uses that are likely to grow rapidly and therefore present major opportunities for load modification in the future. Data from the U.S. Bureau of the Census (especially the decennial census of population and housing) and from other government agencies can help determine the economic and demographic characteristics of customers and their capital stocks. Estimate potential Technical and economic potential are considered together. Technical potential is the maximum energy efficiency (at unlimited cost) that could be achieved by modifying the engineering efficiency with which a particular end use is served. The economic potential is the cost-effective portion of the technical potential; beyond the cost-effective limit, it is cheaper for society to obtain electricity from a generation resource than to reduce consumption. Both technical and economic potentials change over time as new devices and systems are developed, as their costs are reduced, and as marginal fuel and capacity costs change. Rapid technological advances are occurring in many areas; for example, new lamps, ballasts, and fixtures are introduced frequently.5 The primary sources of information on alternative electricity end-use technologies are the Electric Power Research Institute, the U.S. Department of Energy, DOE’s national laboratories (especially Lawrence Berkeley and Oak Ridge), university energy institutes (e.g. Princeton and Texas), the American Council for an Energy-efficient Economy, private research organizations (e.g. Rocky Mountain Institute), and, of course, the utility’s market research and customer programs departments. External data sources are likely to be especially helpful in the early stages of new-program development. Much of the data from these organizations may not be directly relevant to the utility’s service area because of differences in climate, fuel prices (both electricity and its competitors), regulatory practices, and industrial mix. Utility inhouse data sources are likely to be most useful in assessing modifications to existing programs. For example, the customer programs department might have substantial data from their commercial program on measured potentials in different types of buildings. Their data base also might provide information on the dynamics of program delivery (typical times to conduct audits and to install retrofits), electricity use pre- and post-retrofit, and the costs and cost-effectiveness of different types of retrofits. Similar data are likely to be available for the residential retrofit program (e.g. the federal Residential Conservation Service) and other programs. The key outputs from a review of conservation potentials include estimates of: the number of customers eligible for a particular technology, estimated energy effects (both energy and load shape, kWhr and kW), lifetime of measure, effects on operation and maintenance (0 & M) costs, and installed cost (materials plus labor). Qualitative indicators to consider in a description of the technology include side effects (e.g. potential indoor air quality problems, increased comfort due to reduction in drafts), availability of suppliers and installers, reliability of the technology, competitive aspects (e.g. the extent to which other fuels can serve the particular end-use/market segment), and regulatory and political issues. Conservation supply curves provide a great deal of data concerning technical potentials and the direct costs (labor and materials) of efficiency improvements (Fig. 1). In addition, the curves represent efficiency improvements in a form that permits easy comparison with supply resources (i.e. tradeoffs between the amount of the resource that is available and the cost of securing the resource). Unfortunately, supply curves are often relied on for information they don’t contain. For example, supply curves say nothing about program implementation costs (administration, marketing, quality control, etc); nor do they contain information on the dynamics of efficiency improvements (the speed with which improvements can or will be made). Finally, supply curves generally deal with individual measures, installed in order of

ERIC HIRST

36

Averoqe cost of electrlc~ty

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Fig. 1. Conservation supply curve for existing homes heated with electricity (Ref. 6). The curve shows the conservation available in the year 2000.

decreasing cost effectiveness; utility programs often promote packages of measures customers install measures on the basis of factors other than cost effectiveness. SPECIFIC

4.

STEPS

TO ANALYZE

DEMAND

and

OPTIONS

Develop program options to deliver technologies

Designing customer programs involves a match among end-use technologies, customer segments, and program-delivery mechanisms. These programs are intended to overcome various barriers, which differ by customer class and market segment, that inhibit customer adoption of these technologies (Table 1). Individual technologies may be marketed individually or in packages. For example, promotion of high efficiency ballasts for fluorescent fixtures in commercial buildings might be promoted through a lighting efficiency program. Alternatively, Table 1. Common barriers to energy-efficiency improvements buildings (Ref. 7).

in commercial

Capital in increasing efficiency of facility are low priority. Regulatory and political costs of borrowing are too high to justify using debt capital (public and non-profit organizations). Organization does not have access to internal or external capital sufficient to cover project costs.

Investments

Risks Buildings owners are skeptical of performance claims for efficient technologies. Buildings owners cannot make independent judgments of performance claims. Building owners and occupants are concerned that efficiency improvements will lower worker productivity and have other negative side effects. Hanagement Building owners believe they cannot afford time to plan and implement such projects. Staff need to be trained to adequately maintain and operate new energy-efficient technologies. Building owners pass through operating costs to tenants. Buildings are centrally metered and tenants are prevented from making modifications.

Creatingviable utility conservation/loadmanagementprograms

37

these ballasts might be part of a broader energy audit/grant program that includes a variety of methods to improve efficiency in commercial buildings. In addition, various types of programs can improve energy-efficiency: information and education, on-site engineering analyses, financial incentives (grants, loans) for installation of efficient technologies, direct installation, support of government efficiency standards, alternative pricing (electricity price levels and rate structures), capital-recovery fees to offset costs of meeting inefficient new loads, and cooperation with trade allies. These options differ in terms of program implementation cost, participation rates, reduction of customer uncertainty about the benefits of specific efficiency improvements, and ultimate energy effects. For example, preparation and distribution of brochures (information and education) are inexpensive. However, the number of customers taking action because of brochures is likely to be much smaller than the number responding to a grant offer.? When considering financial incentives, the utility must estimate the tradeoff between participation and the incentive’s cost. If conservation is viewed as a resource to be acquired (comparable to a power plant), the utility might pay for all of the energy-efficiency investment. A marketoriented approach, on the other hand, would lead the utility to share costs with participating customers. For example, Southern California Edison pays for about 20% of the capital cost of efficiency improvements in its commercial/industrial rebate program. Pricing options represent a special class of program option. Alternative rate levels and structures can encourage installation of particular end-use devices. For example, a special promotional rate could be offered to residential customers who install high-efficiency heat pumps. In addition, alternative rate designs represent a demand option in their own right. For example, prices for different customer classes could be based in part on value and price elasticity (i.e. to reflect the extent to which alternative fuels compete with electricity). This is an alternative to the present system, in which prices are set primarily in an accounting context, to achieve parity between cost-of-service for, and revenues from, each customer class. Development of program options should recognize differences among customers in their receptivity to various program approaches and technologies. Market segmentation can help match program designs to customer groups that will likely be most responsive to that approach, thereby improving program cost-effectiveness. Analysis of market-segmentation data can be used to both predict and manage participation. Developing useful program options is as much an art as a science. Analysts charged with program design can rely on past experience with similar programs at other utilities. Utilities that might be contacted during this phase of program development include the Bonneville Power Administration, Seattle City Light, Pacific Gas and Electric, Southern California Edison, Tennessee Valley Authority, Florida Power and Light, Northern States Power, and Northeast Utilities.’ Focus group interviews, customer surveys, and discussions with relevant trade allies (e.g. bankers, homebuilders, manufacturers, vendors) are other sources of information concerning promising program concepts.9,‘0 Finally, journals (energy, marketing, sociology, and psychology) and proceedings from energy conferences (e.g. the biennial conference sponsored by the American Council for an Energy-Efficient Economy” and the biennial conference on evaluation of energy conservation programs’*) should be reviewed for data and ideas. The end result of this phase is an initial program design that meets customer preferences. Note that the “market” potential for a program is less than the economic potential, which in turn is less than the technical potential (Fig. 2). Estimate program impacts As noted earlier, customer programs are designed for different purposes related to changes in electricity use levels and load shapes, provision of customer service, and achievement of broader economic, environmental, or regulatory goals. Therefore, estimation of program impacts must begin with a clear statement of the program’s objectives. tThis example suggests that utilities can manage participation in their programs. That is, different program design and delivery options will have large effects on participation rates. The primary considerations then are the tradeoffs between the costs of different program options and the pace and extent of participation.

ERIC HIRST

38 6000

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potential

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&nrsrvotion in regional plan

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cost (1980 c/kWhr)

Fig. 2. Electricity conservation supply curve for residential and commercial buildings in the Pacific Northwest (Ref. 13). The 3300 MWa included in the plan representsa 20% savingin the year 2002. The key factors to consider for programs that affect customer electricity use are: programs costs, participation, adoption of recommended actions, and electricity impacts of participation. The “worth” of such programs is roughly equal to the ratio of the fourth factor to the first factor (electricity impacts/costs). The second and third factors (participation and adoption) explain the process that leads to program benefits, changes in customer electricity-use levels and patterns. Programs that provide improved services to customers and/or meet competition may have different objectives, perhaps independent of electricity-use changes. For example, programs aimed at competition from the gas utility may focus on maintaining market share (e.g. in space heating for new homes). Data needed to estimate program effects come from a variety of sources. Market-research surveys yield estimates of customer response to different types of program offerings (e.g. the likely number of customers who will participate in different programs). These surveys can also uncover the relationships between participation levels and dynamics on one hand and program attributes (e.g. level and type of financial incentive) on the other hand. Evaluations of existing DSM programs can identify the contributions of different program elements to program success and can measure total and net (program-induced) changes in electricity use. Small-scale experiments and pilot programs can also provide much of this information at little cost and quickly. Finally, the experience gained by other utilities can be drawn on (through conversations and literature reviews) to develop estimates of likely program impacts. The results of this phase are likely to be highly uncertain for many program options. Feedback from small-scale experiments, pilot programs and systemwide programs (discussed later) should be used to replace initial judgments with data. The outputs from this set of activities should include estimates of program costs broken down into at least three categories: startup, fixed, and variable. These cost components can be used to assess the cost-effectiveness of the program under different assumptions about participation rates. In addition, estimates of likely participation as a function of time, and estimates of total and net electricity savings are needed at this point. Screening models (e.g. Bencost 2 and DSPlanner14) can be helpful analytical aids in this phase of program development. These microcomputer programs permit quick assessment of the economics of different program options and phasings (e.g. acceleration or delay of a program, expansion or contraction of a program).

Project program impacts on electricity use

End-use models are helpful in making consistent projections of future electricity impacts, both with and without the utility programs being assessed. These models break sectoral (i.e. residential, commercial, industrial) energy use into its components.‘5~‘6 For example, r&dential energy use is disaggregated by building type and end-use. Modifying inputs to these models permits one to project the likely effects of different customer programs into the future. The models endogenously adjust program impacts for several factors (Fig. 3). These factors include

Creating viable utility conservation/load CONSERVATION PROGRAMS

DEMOGRAPHIC AND ECONOMIC CHANGES

OVERALL CHANGE IN ENERGY USE

TURNOVER OF APPLIANCES, HVAC EQUIPMENT, BUILDINGS

39

management programs

-

RESPONSE TO ENERGY PRICES

\ REGULATIONS

Fig. 3. Several factors affect changes in electricity use. End-use models can help quantify influence of different factors to isolate the net effects of utility DSM programs.

the

changes in economic activity, household formation, fuel prices (both electricity and its competitors), and equipment usage (e.g. changes in thermostat settings in response to retrofit measures that increase efficiency of space heating). A key contribution of these models is their ability to help separate total from net electricity impacts. Total saving refers to the reduction in annual electricity use experienced by program participants after their participation in the utility program. Net saving refers to the incremental saving, that portion of the total that can be attributed to the program. The net saving is the difference between total saving and what participants would have achieved on their own had there been no utility program. The inclusion within the end-use models of price-elasticity effects should help in separating the effects of market forces on electricity use from those induced by the program.7 (Ultimately, such estimates should be obtained from evaluations of pilot and systemwide programs; until such results are available, end-use models provide the best estimates of program energy effects.) Information contagion is a potential threat to these definitions of total and net savings. If a utility conservation program is effective in stimulating action among non-participants, these actions should be credited to the program; current definitions debit these savings against the program. Unfortunately, it is difficult to measure program-induced actions among (nominal) non-participants. These projections of changes in energy use need to be based on reasonable estimates of program participation (year-by-year and cumulative). These participation estimates, in turn, must be supported by estimates of the effectiveness of marketing efforts and financial incentives, i.e. program costs. Such costs should include those borne by both the utility and participating customers. The results of this phase of demand-option development are often crucial inputs to the utility’s integrated resource planning process (Fig. 4). Estimates of program costs, participation, and electricity effects over time will be input to the corporate and integrated resource planning models (e.g. LMSTM, l8 MIDAS UPLAN) used by corporate planning departments at several utilities. These models assess the benefits and costs of different resource strategies (combinations of demand, supply, rates, and T & D options). Analyze program economics

The data and estimates assembled in the preceding tasks can be used to assess the economic worth of the proposed program. Such an analysis should consider the differing perspectives of program participants, non-participating ratepayers, the utility system, and society as a whole. The California Energy and Public Utilities Commissions, l9 Florida Public Service Commission, and Illinois Commerce Commission developed methods to assess the economics of utility conservation programs. The benefits and costs differ among these perspectives, which often leads to different conclusions concerning the attractiveness of particular program options. The benefits of a conservation program to participants are equal to the product of average retail electricity prices TThese estimates depend, of course, on the accuracy of the model coefficients (price elasticities), which are often uncertain. Careful evaluations of program performance (discussed later) provide a more direct way to measure total and net electricity savings. Also, utility programs are intended, in a sense, to modify customer price elasticities, thereby invalidating the model results.

ERIC HIRST

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I

1

ELECTRICITY

PRODUCTION

(thousand

MW)

Fig. 4. Least-cost utility planning identifies the optimal mix of generation and conservation resources for a given level of energy services (Ref. 17). and total electricity savings. In addition, 0 & M costs to participants might change. For example, installation of long-lived high-efficiency lamps in an office building will reduce costs of subsequent lamp replacement. The benefits for non-participants are based on changes in average electricity prices (essentially the difference between marginal costs and average prices). The overall system (all-ratepayer) benefits are equal to the product of marginal electricity costs and net electricity savings. Participant costs are their investments in energy-efficient systems. Non-participant costs are those borne by the utility in delivering program services. Systemwide costs include the non-participant costs and the lost revenues associated with decreased electricity use (which is a benefit to participants). Regulatory commissions often add a fourth perspective to the calculations, that of society as a whole. The social perspective ignores lost revenues and includes both utility and participant costs. This perspective may include externalities such as changes in environmental quality and the region’s economy. Debates often occur over the emphasis placed on the all-ratepayer test vs the non-participant (called the “no-losers”) test. The all-ratepayer perspective is equivalent to the utility’s perspective in judging alternative resources. In this “resource” test, supply and demand resources can be compared in terms of their effects on the present worth of utility revenue requirements. This test computes benefits on the basis of the utility’s marginal supply costs. The non-participant test computes benefits on the basis of the difference between marginal and average costs. An important issue is the consistency with which utility investments in supply and demand resources are treated. Proponents of the no-losers test are effectively claiming that utility bills (the product of electricity rates and consumption) are less important than rates.20 Opponents point out that consumers are interested in energy services, not in electricity per se; therefore, the cost of energy services, rather than the price of a kWhr, is the key criterion to use in choosing among alternatives.*l.** One way out of the conflict between the no-losers test and a broader social test is for the utility to offer a variety of conservation programs so that virtually all customers are eligible for participation in at least one program. Woychik recently proposed a Rate Impact Measure as an alternative to the no-losers test; the RIM shows the effect of demand-side programs on rates (in cents/kWhr), which makes it easier to compare the results of the different economic tests.23

Test concept

If a new program option looks promising after the above analyses and reviews, it might be worthwhile to test the program concept with targeted customers. Such testing can be done with surveys and/or focus groups. The primary purpose of such testing is to gain a quick and inexpensive response from the targeted market segments concerning their interest in the program. Customer responses should provide an indication of the likelihood that they will

Creating viable utility conservation/load

management programs

41

% OF HOUSEHOLDS

25

,

- .._. .__. t7’7IINTFRFST

204

I

I

COUNTY

PARTICIPATION

SENTINEL

Fig. 5. A shared-savings program was offered to eligible households in two different ways. Household responses to offers from the county government were three times higher than to offers from the shared-savings company; both offers were identical in all respects except for the letterhead on which they were written. This example demonstrates the value of small experiments to determine the effectiveness of different program-marketing stategies. The example also shows the importance of attention to detail in operation of successful programs.

participate in such a program. A well-designed study can elicit useful suggestions on ways to change the program’s design to increase participation and lower program costs. Small experiments are especially useful to determine the effects of different marketing approaches such as bill stuffer vs special letters or different formats for a particular message (Fig. 5). Multivariate analysis of such survey data can improve understanding of market segments and their preference for different program delivery methods. Trade allies are a valuable source of advice on design of feasible and effective programs. should include discussions with those groups involved with Concept testing, therefore, implementation of the particular program (manufacturers, dealers, contractors, banks, and inhouse program-delivery staff). Implement pilot program The eight steps discussed above are primarily low cost and analytical. The next step is implementation of a pilot program (Fig. 6). Conducting a pilot program includes three major

AIR CONDITIONER EFFICIENCY STANDARDS

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WHICH ONES TO CHOOSE??

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Fig. 6. Pilot programs provide valuable data on ways to improve energy efficiency with conservation programs. Each box includes a different program alternative. The unboxed list in the center gives criteria that could be used to judge the performance of these programs, singly and in combination.

42

ERICHIRST

and evaluation. If the pilot program is well steps: design of the pilot, implementation, and evaluated, it can serve two important purposes: (1) assess designed, implemented, operational issues (staffing, training, materials, program costs, dynamics of program delivery and customer response), and (2) assess program effects (participation and electricity-use changes). Unfortunately, most pilot programs focus on implementation and provide little information on program effects, generally because insufficient attention was paid during the design step to the purpose of the pilot program. Thus, the net result of many pilot programs is a clear understanding of program delivery issues and only limited information on the determinants of program participation, differences between program participants and non-participants, electricity savings due to the program, and program cost-effectiveness. However, information on program effects can generally be obtained from a pilot program with little expense or delay. Generally, inputs from social scientists are required to ensure that the pilot is set up to collect and analyze data related to program effects as well as program operations. This may involve, for example, random assignment of eligible customers to treatment and control groups. It may involve surveys to identify how customers (both participants and non-participants) view the program and to measure participant satisfaction with the program. Implement systemwideprogram The ultimate step is to develop and operate the program systemwide, based on the experience gained during the pilot program. The emphasis now shifts strongly to the customer programs department, the people responsible for delivering the program to customers. However, monitoring and evaluation are important elements of an ongoing program. Monitoring refers to the collection, organization, and documentation of program operations records (e.g. program costs, number of participants each month, measures recommended, measures installed, estimated electricity savings). These data include those generally collected as part of program operation. Well-designed programs will typically take two to three years to reach a mature, steady-state operation. Time is required to work out problems associated with logistics and supplies (of both materials and labor) and to identify effective marketing methods.24 Concept testing and pilot programs can be used to reduce these implementation delays. Evaluate program Evaluation is listed separately, although it was mentioned previously, to emphasize its importance to development and implementation of effective programs. Careful planning for evaluation, before the program undergoes pilot testing, is critical to ensure that these implementation experiments yield useful information. Evaluation involves assessment of program operation and effects. Examination of program operation relies primarily on observations of program delivery and interviews with program staff and participants. Analysis of program effects generally requires collection of data from and about participants and eligible nonparticipants (e.g. electricity consumption before and after participation, demographic and structure characteristics of customers). Evaluations can be used to improve program performance by suggesting operational changes to increase participation, improve services, and/or lower costs. In addition, evaluation results improve estimates of future program participation and effects. Thus, there are several iterative loops in the process described here. For example, the Bonneville Power Administration commissioned process and outcomes evaluations of its Residential Weatherization Program and used these results to modify the program’s design.25,26 Evaluation data can also be useful in other ways, beyond the particular program being evaluated. For example, comparison of actual and predicted electricity savings can improve energy audit procedures and their engineering algorithms. Information on customer response to different types of marketing efforts can improve planning models and the utility’s ability to offer programs that effectively appeal to different market segments.

Creating viable utility conservation/load

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5. CONCLUSIONS

Developing the analytical processes to design improved demand-side programs is a major undertaking. These activities require a great deal of data, several types of analytical tools, and sufficient professional staff. Clearly, it takes time to develop fully these capabilities within a utility. Initial efforts at program design and evaluation will rely heavily on judgments. Sensitivity analysis will identify the critical assumptions, which will suggest issues to emphasize in the design of surveys, focus groups, small-scale experiments, and pilot programs. As the program development staff gain experience and the data and analytical tools are improved, the quality of information will also improve. Utilities can gain much relevant data on the costs and performance of their programs, at very low cost, by using the initial (startup) phases of these programs as social-science experiments. That is, utilities should conduct small-scale experiments to determine customer response to different types of program marketing, financial incentives, end-use technologies, and other attributes of their programs. Uncertainty about the design and effects of customer programs should not lead to indecision and delay. Because customer programs can and should be started small, the cost of the inevitable errors will be correspondingly minimal. Also, the speed with which small programs can be tested ensures that sufficient feedback can be obtained quickly to modify programs and improve their performance. FinalIy, some technologies and programs are quite simple and/or have been adequately tested to warrant immediate implementation. For example, programs that wrap water heaters, promote efficient appliances, delamp and upgrade lighting systems in commercial buildings, and promote installation of high-efficiency motors can be started concurrently with analyses of these options. Utilities have a much wider array of “resource” options than they thought they had 10yrs ago, options that allow them to manage future loads rather than just meet loads. Utilities should fully explore and use these newly discovered options to provide better customer service and to reduce the cost of energy services. Public Utility Commissions should encourage utilities to experiment with different types of demand-side programs and should develop regulatory procedures that distribute the benefits of demand-side programs among investors and customers. Commissions must accept responsibility for rate increase requests based on lost revenue and costs of conservation programs, perhaps by using a mechanism similar to the fuel adjustment clause. Essentially, PUCs must ensure that all resources are assessed consistently, in a way that prevents bias towards one type of resource. This involves test of economic efficiency and equity, selection of discount rates and time periods over which to examine alternatives, the inclusion of non-energy effects. and explicit consideration of the effects of uncertainty on different resource options. It is important to resolve controversies concerning utility roles in promoting improved energy efficiency. Demand-side resources are large and can play an important part in providing low-cost energy services to customers; these resources will be fully deployed, however, only if we reduce uncertainty about their costs and performance and improve the regulatory process that decides on their implementation. Acknowledgements-L. Berry, R. Cavanagh, S. Curkendall, P. Galen, .I. Gallagher, M. Haas, V. Jensen, K. Kcating, C. Knutsen, A. Lovins, P. Markowitz, B. Netschert, P. Spinney, S. Swanson. N. Treadway. R. Watson, and E. Woychik provided helpful comments on a draft of this paper. REFERENCES 1. T. Oliver, H. G. Peach, D. Quinn, and .I. French, Demand side experience in the Hood River conservation project. Productivity Through Energy Innovation, Proceedings of the Third Great PC & E Energy Expo, Pergamon Press, Elmsford, New York (April 1986). 2. Niagara Mohawk Power Corp., 1987 Conservation Assessment Plan, Syracuse, New York (January 1987). 3. Northeast Utilities, Screening of Demand-Side Management Options, Methodology and Assumptions, Hartford, Conn. (October 1986). 4. R. Caldwell, Sierra’s approach to demand side planning-an overview. Productivity Through Energy Innovation, Proceedings of the Third Great PC & E Energy Expo, Pergamon Press, Elmsford, New York (May 1986). 5. A. B. Lovins, The State of the Art: Lighting. Rocky Mountain Institute, Old Snowmass, Colo. (August 1986).

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6. Solar Energy Research Institute, A New Prosperity: Building a Sustainable Energy Future. Brickhouse Publishing, Andover, Mass. (1981). 7. New York State Energy Research and Development Authority, A Business Guide to Energy Performance Contracting, Report 84-11, Albany, New York (May 1981). 8. J. H. Broehl, D. E. Jones, L. E. Lewis, D. E. Lenerz, and J. C. Skelton, The Demand-Side Management Information Directory, Prepared by Battelle-Columbus Division for the Electric Power Research Institute, EPRI EM-4326, Palo Alto, Calif. (December 1985). 9. P. C. Stern, E. Aronson, J. M. Darley, D. H. Hill, E. Hirst, W. Kempton, and T. J. Wilbanks, Energy Eficiency In Buildings: Behauioral Issues. National Research Council, National Academy Press, Washington, D.C. (1985). 10. P. C. Stern and E. Aronson, Energy _- Use, The Human Dimension. W. H. Freeman and Company, New York (1984). 11. American Council for an Energy-Efficient Economy, Proceedings from the ACEEE 1986 Summer Study on Energy Efficiency in Buildings, Washington, D.C. (August 1986). 12. Argonne National Laboratory, Energy Conservation Program Evaluation: Practical Methods, Useful Results. Argonne, Ill. (August 1985). _ -_ 13, Northwest Power Planning Council, Regional Conservation and Electric Power Plan. Portland, Oreg. (April 1983). (See also their 1986 plan.) 14. Barakat, Howard, and Chamberlin, Inc., Demand-Side Management Programs Volume 2: User’s Guide for DSPlanner: A Cost-Effectiveness Model. Berkeley, Cahf. (1984). 15. D. Hamblin et al., The ORNL Residential Reference House Energy Demand Model (ORNL-RRHED): Volume 1, Overview and Report Summary. Oak Ridge National Laboratory, ORNL/CON-177, Oak Ridge, Tenn. (February 1986). 16. R. B. Lann et al., An Implementation Guide for the EPRI Commercial Sector End-Use Energy Demand Forecasting Model: COMMEND, Volume 1, Model Structure and Data Development. Prepared for the Electric Power Research Institute, EPRI EA-4049, Palo Alto, Calif. (June 1985). 17. E. Hirst, J. Clinton, H. Geller, and W. Kroner, Energy Eficiency in Buildings: Progress and Promise. American Council for an Energy-Efficient Economy, Washington, D.C. (1986). 18. Decision Focus, Inc., User’s Guide to the Load Management Strategy Testing Model. Prepared for the Electric Power Research Institute, EPRI EA-3653CCM, Palo Alto, Calif. (August 1984). 19. California Energy and Public Utilities Commissions, Standard Practice for Cost-Benefit Analysis of Conservation and Load Management Programs. Sacramento and San Francisco, Calif. (February 1983). 20. M. Berkman, C. J. Cicchetti, S. Curkendall, and H. S. Parmesand, Conservation and Cogeneration: The Utilities’ Friends or Foes? National Economic Research Associates, Cambridge, Mass. (February 1986). 21. R. C. Cavanagh, Least cost planning imperatives for electric utilities and their regulators. The Harvard Environ. Law Rev. 10(2), (1986). 22. A. B. Lovins, Negawatts:

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A Practical Remedy for Megagoofs. Presented at the 97th annual convention of the National Association of Regulatory Utility Commissioners, Rocky Mountain Institute, Old Snowmass, Colo. (November 1985). E. Woychik, Least-Cost Resource Plan Integration Under Uncertainty: A Standard Practice Approach. California Public Utilities Commission, Draft, San Francisco, Calif. (September 1986). M. Philips, S. French, D. Quinn, and H. G. Peach, Field Weatherization Logistics, the Hood River Conservation Project. Pacific Power & Light Company, Portland, Oreg. (August 1986). E. Hirst, R. Goeltz, D. White, B. Bronfman, D. Lerman, and K. Keating, Evaluation of the BPA Residential Weatherization Program, Oak Ridge National Laboratory. ORNL/CON-180, Oak Ridge, Tenn. (June 1985). D. Lerman and B. Bronfman, Process Evaluation of the Bonneville Power Administration Interim Residential Weatherization Program. Oak Ridge National Laboratory, ORNL/CON-158, Oak Ridge, Tenn. (August 1984).