Demand Side Management Research Paper

Demand Side Management (DSM)

Define DSM (Demand Side Management)-Who are the participants and why?

‘Demand Side Management’ is the term that was coined to denote the efforts by the electric and gas suppliers to control and restrict the customers’ energy use patterns. In the United States, this is being done by adopting better energy saving technology and consumer practices. The ‘Demand Side Management’ programs that are approved are not coercive unlike other laws and statutes and such programs in the service markets, and for customer it is a coercive way to promote energy efficiency. (Eto, 1996)

The demand for energy grows exponentially and this is caused by an increased consumption of energy and coupled with the problems of the rise of cost in oil reserves the demand for energy has posed a problem. There are variations in the price of energy based upon the region and the resources that are available in the region. It also depends on the specific country’s economic growth rates. Demand also is a function of the major regional economic activity that often creates different energy requirements based on the industry structures thus influencing energy demand. The increase in the national income and consumption of the populace also lead to a demand for consumer goods and bring about changes in lifestyle that would bring about domestic consumption of energy at a higher level. These alternately bring about changes in the price levels, and this prompts an analysis of the demand, and pricing policies based on the demand-side of energy consumption. The energy demand is thus the basis not only of pricing but also for setting the general energy and environmental trends. (Haugland; et al., 1998)

The ‘Demand Side Management’ thus was a concept that evolved out of the need that was felt by the government, utility providers, consumers and other groups to restrain energy consumption by economic means that were not coercive but was participatory. However the analysis of the history of the concept would show that it began with some stringent environmental and energy laws that were passed by the Federal Government.

2)(a)Specific examples and time periods on what strategies

There was a lot of concern for the changes in the environment that was brought about by the pollution and other issues that brought generation of power also in focus. The unmitigated consumption of oil that was being imported into the United States caused the birth of the concept. The history of these efforts began in the 1970s in response to the oil crisis and the increasing dependence on outside sources of oil and the need to conserve power on account of the environmental effects of electricity generation, the questionable method being nuclear power. By the 1980s many states began providing incentives to follow the “least-cost or integrated resource planning principles. Electric utility DSM programs reached their largest size in 1993, accounting for $2.7 billion of utility spending or about one percent of U.S. utility revenues.” (Eto, 1996)

Thereafter the spending has peeked off owing to the changing business interest and the industry being restructured. The changes being made in the adoption of new technology and the concern for the environmental protection in the process of electricity generation is current and the U.S. electric utility DSM programs are the result of and probably also are the cause of the electricity industry restructuring. (Eto, 1996) These changes also created a lot of changes in technology and the quest for alternate sources of energy. The demand side analysis was also a tool that this crisis shaped.

(b)Were the technologies successful and why or why not were they accepted by the consumers

The customers are not from the same strata of society and hence the program did not become acceptable to all. ‘Demand Side Management’ program design is based on sophisticated research methods that is used to pinpoint the energy savings potential of a given market segment, and that would affect the persons with low-income, and particularly those who are elderly because these segments may not be the beneficiaries of programs like the energy federal fuel assistance programs. A case study in Nevada showed that the methods of evaluation have not been fair and there are limits to the evolution of the policies and in evaluation of public sector programs. The study also showed that there are other technical aspects that are not looked up which include technical things like home temperatures, and other consumer-based technical points. Thus the question of the program especially for the low-income programs with a different set of norms for the evaluation for the demand-side management ought to be created. There must be a very systematic objective evaluation of demand-side management programs which is necessary for finding out the costs and benefits associated with ‘Demand Side Management.’ (Walsh; Heilman, 1994)

(c)Where did DSM originate and how it evolved over the years

In the U.S. utility DSM programs are the result of government and private players’ actions during the past twenty years. In the beginning large cities were served by public services and usually the municipal utilities governed by a city council. Later on it came to be that over eighty percent of all U.S. energy was produced by privately owned, “vertically integrated utility companies” and the regulation of these companies by the public utility commissions usually audit the services and such concerns about high electricity bills and the utility operations came under their purview. (Eto, 1996) Beginning of the 1960s brought in environment concerns with many laws for electricity generation which raised the cost of building new power plants. The federal government changed the electric utility first with the Public Utilities Regulatory Policies Act of 1978 — PURPA, which removed the hitherto principle of economies of scale underlying the natural monopoly in electricity generation followed by the National Energy Conservation Policy Act of 1978 — NECP which brought in the on-site energy audits to residential customers. This act was the beginning of the modern utility demand side programs. (Eto, 1996)

3) (a)Describe some of the strategies employed by & #8230;

The program associated with the ‘Demand Side Management’ was based on attaining the goal of conserving energy by primarily increasing customer awareness of energy use, consolidation of technical information and conducting energy audits, and providing financial assistance for using and procuring the energy-efficient technologies. Added to this there were moves to incorporate the free installation of energy-efficient technologies; and some negative ones like load control and load shifting, power cuts and changing of tariff for energy consumption levels. (Eto, 1996)

Some of the strategies revolved around energy efficiency measures like simple implement upgrades, like air conditioning, systematic repair, recycling, and providing subsidies for some new technology gadgets that would be unaffordable and conducting frequent energy information appraisal and audits and special incentive for industries and low income house holds to conserve energy. There were also a lot of other strategies that were used to see that energy consumption remained low. However it is questionable if all of them were effective.

(b)What two strategies would you choose and why do you believe they would work best

DSM leads to inefficient outcomes. It increases rates for all ratepayers, but only benefits a few of the ratepayers. Because history shows that DSM programs do not typically lead to the demand reductions claimed, they do not lead to lower electricity rates overall. It was so argued by Daniel R. Simmons, Director of State Affairs for the American Energy Alliance in the testimony of certification of Georgia Power’s Application for Certification of Demand Side Management Programs. (Simmons, 2010)

Some strategies involved a change in the pricing regime for each customer class and with a profit motive that is based on cost-effective energy along with the analysis of the Financial Impacts and the problems that occur with customer relationships. (Edge, 2009) This is a tricky issue because Simmons (2010) says that such DSM Programs will increase electricity rates. There is injustice done to the ratepayers through higher rates. Some others will benefit by the subsidized energy efficient products such as light bulbs, refrigerators, consultation services, and to cap it is argued that a utility service provider is in no position to fix the benefits as much as the customers and since it depends on many individuals and therefore the energy efficiency and the interest rates and the price of electricity are all subjective.

Thus the allowing of corporations to fleece the customer on their interpretation of the Demand analysis is wrong because the Corporations often attempt to have a very high rate exceeding 12% for capital Such irreversible investments would often require a rate of return of over twenty percent that makes the service affordable only for the very upper class leaving the rest in darkness. Since the investment cannot be reversed, there is a risk of the whole project failing and leading to a total loss and waste. (Simmons, 2010)

To improve the scenario two alternates can be suggested: one would be emphasizing smaller units — like house holds producing power from solar energy panels and then sending it up the grid, after their own use, and the second would be seeking to implement perennial sources of energy like windmills, and other non-polluting methods of energy creation. To be sure the demand for energy will rise in future and the only possibility lies in making the consumer a part producer. Give back energy if you consume is a good motto.


Haugland, Torleif; et al. (1998) “Energy Structures and Environmental Futures.” Oxford

University: New York.

Edge, Chris. (2009) “Demand Side Management Progress Energy Overview”

Retrieved 4 March, 2012 from

Eto, Joseph. (1996) “The Past, Present, and Future of U.S. Utility Demand-Side Management

Programs” Retrieved 4 March, 2012 from

Simmons, Daniel. (2010) “Demand-Side Management: Government Planning, Not Market

Conservation” Testimony of Dan Simmons Before the Georgia Public Service Commission. Retrieved 4 March, 2012 from

Walsh, Roberta W; Heilman, John G. (1994) “Energizing the Energy Policy Process: The

Impact of Evaluation.” Quorum Books: Westport, CT.

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