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The Importance of Technology and Fuel Choice in the Analysis of Utility-Sponsored Conservation Strategies for Residential Water Heating

Raymond S. Hartman

Year: 1984
Volume: Volume 5
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-7
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Abstract:
State-of-the-art residential energy demand models explicitly address consumer choices concerning fuels and fuel-using equipment (Arthur D. Little, Inc., 1981; Cambridge Systematics, Inc., 1981; Hartman, 1979, 1982a, b; Hartman and Wallace, 1982; Hausman, 1979; Hirst and Carney, 1978). However, these residential models have focused primarily on the measurement of conditional fuel demand and the analysis of fuel choice. One of their weaknesses is the incomplete treatment of technology choice.



The Economics of Utility Residential Energy Conservation Programs: A Pacific Northwest Example

Eric Hirst and Richard Goeltz

Year: 1984
Volume: Volume 5
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-11
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Abstract:
The bottom line for any utility conservation program is its overall worth: whether program costs are justified by the value of the electricity savings. That is, are these programs worthwhile investments to utility customers that participate in the programs, customers that do not participate, the utility system, and society as a whole? How sensitive are estimates of program worth to the input parameters (program-induced energy savings, discount rates, future average and marginal electricity prices)?This paper discusses our assessment of program benefits and costs for the Bonneville Power Administration (BPA) Residential Weatherization Pilot Program. Unlike other assessments, the present work is based on a detailed empirical evaluation of the program. We collected enough data from both program participants and nonparticipants to analyze the actual energy savings that could be attributed to the BPA program. We also obtained information on actual program costs. This information was used to compute the Net Present Worth (NPW) of the program from the perspectives of program participants, the BPA power system, and the Pacific Northwest region as a whole.



End-Use R&D: Technology Development Strategy for an Integrated Market

Clark W. Gellings and Jerome P. Harper

Year: 1989
Volume: Volume 10
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No3-2
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Abstract:
This article provides a value maximization strategy for end-use R&D planning which meets both supply-side and demand-side R&D objectives. The strategy is compatible with conventional econometric market analysis, power system demand-side management or least-cost planning methods, and operations research approaches common to manufacturing. The strategy permits incorporation of supply and demand uncertainties into the R&D planning process. It also provides a methodology for determining the optimal set of R&D investments. These R&D investments will result in products that increase the value of electrical service, promote the efficient operation of electric power systems, and ensure the productivity of manufacturing operations.



Flexibility Benefits of Demand-Side Programsin Electric Utility Planning

Eric Hirst

Year: 1990
Volume: Volume 11
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No1-13
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Abstract:
Electric utilities face a variety of uncertainties that complicate their long-term resource planning and acquisition. Many utilities deal with these uncertainties by pursuing flexible strategies that allow changes to be made incrementally with little difficulty and at low cost. Thus, utilities today avoid construction of large, baseload power plants because of their long construction times and high capital costs. On the other hand, utilities view combustion turbines as flexible because they have small unit sizes, take only a few years to build, are inexpensive, and can later be converted to combined-cycle units (to increase capacity and improve performance). Energy-efficiency and load-management programs, because of their inherently small unit size and opportunities to adjust participation over time, are attractive for the same reasons.



The "Most Value" Test: Economic Evaluation of Electricity Demand-Side Management Considering Customer Value

Benjamin F. Hobbs

Year: 1991
Volume: Volume 12
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No2-5
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Abstract:
What measure of economic efficiency is appropriate for evaluating demand-side management (DSM) programs sponsored by electric utilities? Most regulatory commissions in the United States require that utilities assess the efficiency of alternative programs as part of their planning process. A criterion based upon maximization of consumer surplus is proposed. This, the "most value" test not only counts the avoided supply cost and environmental benefits of such programs, but also the changes in customer value that result from rebound/takeback and changes in electric rates. The test can be viewed as an extension of the "least cost" test, which many commissions now require utilities to use. Among the "most value" test's practical implications is the fact that the net benefits of DSM will often be decreased if free riders are present or if electric rates must increase to fund the program. The "least cost" test wrongly assumesthese effects to be merely matters of income transfer. Consequently, some programs that are desirable from a "least cost" standpoint will not be beneficialfrom a most value"point of view. However, if rebound effects are large enough, the opposite can happen: some DSM programs which are apparently too costlywill actually have positive net benefits. These conclusions apply not only to programs for conserving electricity, but also to water and natural gas conservationefforts and programs that promote energy use.



What Does a Negawatt Really Cost? Evidence from Utility Conservation Programs

Paul L. Joskow and Donald B. Marron

Year: 1992
Volume: Volume 13
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No4-3
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Abstract:
We use information reported by ten utilities about their electricity conservation programs to calculate the life-cycle cost per kWh saved - the cost of a "negawatt " -- associated with these programs. These computations indicate that the cost associated with utilities "purchasing" negawatthours is substantially higher than implied by standard sources such as Amory Lovins (Rocky Mountain Institute) and EPRI. The costs calculated for residential programs, in particular, are much higher than conservation advocates have suggested. However, 80% of the expected savings from these programs are attributed to commercial and industrial customers rather than residential customers. We find substantial variation in costs between utilities for similar programs as well as significant intra-utility variation in the cost associated with various sub-programs. We proceed to examine whether or not there are any systematic biases in the reporting of costs and energy savings by the utilities in our sample. In many cases, utilities fail to report all relevant costs, rely on engineering projections of savings rather than applying methods to measure savings based on actual experience, and fail to make appropriate adjustments for free riders. Further biases may result firorn adopting measure lives that are too long. As a result, on average the cost of a negawatthour computed from utility reports significantly underestimates the true societal cost of conservation achieved this way. Mile it is difficult to compute the underestimate with any precision, the evidence that we have suggests that computations based on utility expectations could be underestimating the actual societal cost by a factor of two or more on average. Better utility cost accounting procedures and the application of more sophisticated methods to estimate actual energy savings achieved are clearly necessary before large sums of money can be expended wisely on these programs.



Price and Cost Impacts of Utility DSM Programs

Eric Hirst

Year: 1992
Volume: Volume 13
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No4-4
View Abstract

Abstract:
More U.S. utilities are running more and larger demand-side management (DSM) programs. Assessing the cost effectiveness of these programs raises difficult questions for utilities and their regulators. In particular, should these programs aim to minimize the total cost of providing electric-energy services or should they minimize the price ofelectricity?Most of the debates about the appropriate economic tests to use in assessing utility programs do not address the magnitude of the impacts. As a result, questions remain about the relationships among utility DSM programs and acquisition of supply resources and the effects of these choices on electricity prices and costs. This study offersquantitative estimates on the tradeoffs between total costs and electricity prices. A dynamic model is used to assess the effects of energy-efficiency programs on utility revenues, total resource costs, electricity prices, and electricityconsumption for the period 1990 to 2010. These DSM programs are assessed under alternative scenarios for three utilities: a "base" that is typical of U.S. utilities; a "surplus" utility that has excess capacity, few planned retirements, and slow growth in fossil-fuel prices and incomes; and a "deficit" utility that has little excess capacity, many planned retirements, and rapid growth infossil-fuel prices and incomes. Model results show that DSM programs generally reduce electricity costs and increase electricity prices. However, the percentage reduction in costs is usually greaterthan the percentage increase in prices. On the other hand, most of the cost benefits of DSM programs can be obtained without raising electricity prices.



Three Biases in Cost-Efficiency Tests of Utility Energy Efficiency Programs

Steven Braithwait and Douglas Caves

Year: 1994
Volume: Volume15
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No1-6
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Abstract:
Electric utilities in a number of American states devote significant portions of their resources to demand-side management (DSM) programs designed to reduce their customers' electricity consumption. As other jurisdictions consider similar programs, the public policy cost-efficiency criteria for determining how much utilities should pay for DSM remain controversial. This paper develops the appropriate measure of the economic benefits and costs of DSM, using a conventional economic welfare framework, and compares it to the standard cost-effectiveness tests used in most jurisdictions today. The standard tests are found to be incomplete, suffering from three potential biases. Modifications to the standard tests are suggested to address each of the biases. A numerical example is used to illustrate the nature and potential magnitude of the bias in the current tests.



Weighting Nonrandom Samples in Voluntary Energy Conservation Program Evaluation

Michael T. Ozog and Donald M. Waldman

Year: 1994
Volume: Volume15
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No1-8
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Abstract:
In this paper we examine the endogenous stratification problem in the evaluation of DSM programs and determine the appropriate weighting necessary for consistent estimation. Both the complexity and number of alternative DSM programs create the need for a careful statement of the problems and solutions. We examine two commonly occurring evaluation situations: pure participation models and models of net conservation. A hypothetical numerical example is presented to help elucidate the concepts, and data from a DSM program sponsored by a large U. S. utility is used to examine the effect of weighting. In both hypothetical and actual DSM programs, severe biases resulted when unweighted data was used.



Income Distribution Effects of Electric Utility DSM Programs

Ronald J. Sutherland

Year: 1994
Volume: Volume15
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No4-5
View Abstract

Abstract:
This paper uses the Residential Energy Consumption Survey undertaken by the Energy Information Administration in 1990 to estimate the statistical association between household income and participation in electric utility energy conservation programs and the association between participation and the electricity consumption. The results indicate that utility rebates, energy audits, load management programs and other conservation measures tend to be undertaken at greater frequency by high income households than by low income households. Participants in conservation programs tend to occupy relatively new and energy efficient residences and undertake conservation measures other than utility programs, which suggests that utility sponsored programs are substitutes for other conservation investments. Electricity consumption during 1990 is not significantly less for households participating in utility programs than for nonparticipants, which also implies that utility conservation programs are displacing other conservation investments. Apparently, utility programs are not avoiding the costs of new construction and instead are transferring wealth, particularly to high income participating households.




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