Alberta Utilities Demand Side Management Decision

The Case

In December 2011 the Alberta Utilities Commission  (AUC)  issued  a  decision   in the ATCO Gas 2010-2012 General Rate Application, Phase I, regarding ATCO’s proposal to include a new demand side management (DSM) program in their rate base.1 Strong arguments against this application were made by the Alberta Consumer Advocate and Climate Change Central, and in the end the AUC denied the application. Given the potential pivotal role of DSM in energy system management, it is worth reviewing that decision and the implications for future proposals and the integration of applied load management for system operators throughout Canada.

The AUC denied ATCO Gas’ request to include all costs associated with the current (test period) and proposed DSM program in their revenue requirement. The test program consisted of a school education program, a pilot for energy consumption advice for consumers, a residential assessment program (with cost recovery), a renewable energy technology program and a research component. The AUC directed that all DSM related costs, both capital and operating, be removed from rate base and revenue requirement for so-called “test years”. Further, the AUC directed that any associated capital expenditures incurred during the period 2008 to 2010 would be excluded from the opening rate base calculations.

At the heart of the decision, the AUC found that the proposed DSM programs for a gas utility do not relate to building, upgrading and improving the gas distribution system for the purpose of providing safe reliable and economic delivery of gas to customers and concluded that DSM was not intended by the legislature to be among the functions of a gas distributor. The AUC refrained from taking the strategic step of discussing future integration of DSM as a management tool for the entire energy system.

Demand Side Management

DSM programs are the result of a historically continuous series of debates about load management, future planning, congestion relief and ultimately consumer behavior. The range of topics included by the term DSM is very broad, including information flows, technology deployed for monitoring or load management, rewards and charges as well as the interactive role of the regulator and utility providing services. Goals for setting up DSM programs are broadly similar between most jurisdictions, but differ in practice, enforcement and the cost benefit calculations that underlie their creation.

Broadly, the belief and use of demand side management is grounded in  the  aphorism of value in capturing efficiently and cost effectively, the so-called low-hanging fruit of energy conservation. However, consumers are notably recidivist in their behavior in the face of these benefits, and the tendency to revert to higher use patterns in spite of incentives, disincentives, fines and public exhortation are legion.

The opportunities and potential gains, however, in terms of what Amory Lovins referred to as negawatts are attractive and represent real savings over time both in avoided capacity additions and  fuel  costs.2  Consequently there remains a considerable, if periodic and inconsistent, public attraction for creating the DSM programs where easily integrated technology or management techniques can be adopted by consumers and form the basis of long term shifts or diminishment of demand.

Such program design and implementation may include consumer behavior information, incentives or subsidies for upgrading appliances and technology and clearer signals via meters, internet connections and media systems to reduce load. All this is important, especially in terms of flattening peak demand, but also in terms of rational planning and investment for new capacity based on seasonal and variable demand characteristics. Of course, there is also the obvious benefit to consumers of lower bills in a future world of variance in time of day pricing.

The Outcome

However, in the case of DSM, gas supply is generally of second-order importance. In general, most systems operators anticipate more dependence on natural gas as a fuel source, as its availability and access increases and costs decrease. Using gas as a primary fuel is attractive for water and space heating, but these are broad demands that are difficult for consumers to control generally. The upshot is that they don’t lend themselves to point-of-use DSM, i.e., by consumers.  By contrast, in the case of electric water heating, an important option for system operators is to be able to shut down electric demand for water heaters and buy back the storage value almost instantaneously. This is not useful for gas heating in either category.

In the case of the application by ATCO Gas, the AUC made the right decision, although some of the proposed program elements such as public education and whole house or business energy audits are valuable no matter where they originate. In the case of Alberta, peak demands are predictable and not dramatic; however, they are primarily visible in demands for electricity generation which in turn will spill over to the gas supply market. DSM can play an important role for managing grid operations and overall costs, although the benefit to consumers will be difficult to prove or justify until better meters and use-data is available in a form that leads to appropriate changes in behavior.

So why not acknowledge  that  there  should be a DSM role for gas  utilities?  I  suggest there should be. Not by themselves, though, and certainly not in  competition, confusion or overlap with the broader energy system, specifically the electricity sector. And, there is a good reason why all of these changes and expected utility benefits uniquely describe electricity whether it is driven by coal, natural gas, renewables, nuclear fission or hydro. Our overall use increases all the time, for core as well as marginal demand. It is the power source that will be transformational for developing societies in the future.

The Lessons

I have no reason not to believe ATCO Gas’s assertion that implementing and charging for DSM would improve service and offer a benefit to consumers as well as the company. While the AUC did not cite reasons, other than the technical and legal interpretation of the role of a gas-only utility, we can use the ruling to make several observations about the nature of this decision and the role of DSM in the future.

First, we have to acknowledge that DSM has a somewhat checkered history. For regulated utilities, there has been an opportunity to visit both sides of the ledger – meeting a perceived public policy goal of providing the incentives for intelligent load management by consumers and second, an opportunity to recover revenue lost from lower consumption. This is an obvious range of conflict that the utilities are unlikely to solve without direction from the regulator.

Additionally, these programs are dynamic and time sensitive; they have a limited shelf life for behavioral modification and have fixed benefits that don’t expand for installed technologies such as appliances. If we want to take advantage of the long term benefits of DSM, we will need a comprehensive and strategic approach that pulls everyone together instead of piecemeal adoption of good intentioned ideas.

This highlights the difficulty the consumer, literally the customer of both the AUC and the utility, faces in trying to understand, support, refuse or stand neutral in the face of such a program. The low-hanging fruit are still in sight, but it will take a coordinated strategy to get at them. We will need continuing education programs built on expanding consumer energy literacy. We will need new installed technological systems, but they must incorporate flexibility into their design that will allow upgrades and, most of all, will be transparent enough to convey benefits to the consumer.

At the end of the day we will need comprehensive leadership by the regulator. Denying an incomplete or inappropriate application is only half the battle. We need to respond to a call for this generation of energy management tools and integrate them into the energy system of the future.

* Michal Moore is a Professor of Energy Economics at the University of Calgary School of Public Policy and at Cornell University. He is a former Commissioner of the California Energy Commission and Chief Economist at the US National Renewable Energy Laboratory.

1 ATCO Gas (a Division of ATCO Gas and Pipelines Ltd.) 2011-2012 General Rate Application Phase I, (5 December 2011), 2011-450, online: AUC <>.

2   Armory B. Lovins, “The Negawatt Revolution”, The Conference Board Magazine (Across the Board), XXVII:9 (September 1990) 18, 21-22.

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