The Role of Evaluation When Electric Utilities Get Financial Incentives for Their Dsm Programs

Abstract

Electric utility demand-side management (DSM) programs affect the efficiency and timing of customer electricity use. As the number and cost of these programs increase, evaluations will become increasingly important. A key challenge is the role of evaluation in determining the amount of financial incentive that a utility earns for its DSM programs. Most regulatory incen tives for DSM programs depend on the net benefits provided by these programs. The total benefit is the reductions in electricity use and demand multiplied by the appropriate avoided costs (energy or capacity). The net benefit is the difference between total benefit and program cost. Evaluations determine the total benefits of DSM programs. This article presents a hypothetical example of problems that might arise when evaluations are subject to litigation, a likely occurrence when utility earnings depend on evaluation results. A hypothetical illustration is used because such incentives are so new that they have yet to be tested in regulatory proceedings. Possible resolutions to the problems raised by the hypothetical example are discussed.

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