What Kind of Future for Energy Efficiency?

Since the late 197Os, more and more electric utilities have been running demand-side management (DSM) programs. By 1994, utility DSM programs cut potential summer peak demand by seven percent and annual electricity use by two percent nationwide. Much has changed since utility DSM programs were first proposed. Looking to the future, these changes will affect (1) the amounts of energy and demand reductions that are cost-effective; (2) the types of DSM programs that utilities will operate in the late 1990s; and (3) decisions by state public utility commissions (PUCs) to have utilities use ratepayer funds to operate them. This paper speculates on the future of ratepayer-funded DSM programs. We focus initially on the original rationales for utility energy efficiency programs.' We review six distinct rationales: (1) to defer construction of new, large, expensive, and polluting power plants; (2) to reduce dependence on foreign oil; (3) to compensate for distortions in electricity prices; (4) to acquire a least- cost resource; (5) to reduce the adverse environmental effects of electricity production and transmission; and (6) to compensate for the absence of government programs and standards intended to improve the efficiency of electricity use. Based on our review, we then describe current issues that will influence the future role of utilities in delivering energy efficiency.