Effects of Electric Utility DSM Programs

A common effect of utility DSM program implementation is that long-term revenue requirements are decreased, while actual rates may increase. In theory, these rates may not increase as much as they would without DSM in the long-term. The loss of revenues, resulting from load reducing DSM programs, means a loss of

Fig. 20-2 Representative Load Shape Objectives from Utility IRP. Source: GRI

contribution to fixed costs, or utility overhead. If this loss (and all other related utility DSM expenditures) is not fully compensated by the decrease in fixed cost requirements, rates must be increased to generate sufficient revenues to cover these costs.

Rates increase more from DSM than supply options whenever: 1) the marginal cost of supply is lower than average cost; or 2) the marginal cost of supply is greater than the average cost, but the cost of DSM is greater than the difference between the marginal cost of supply and the average cost. With the unbundling of industries and competition in the commodity sales market, the price elasticity for utilitygenerated power is expected to increase significantly.

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