Determinants and Impacts of Demand-side Management Program Investment of Electric Utilities

• Main Author: Degens, Philipp
• Format: Others
• Published: PDXScholar 1996
• Subjects: Demand-side management (Electric utilities)
• Online Access: https://pdxscholar.library.pdx.edu/open_access_etds/1173; https://pdxscholar.library.pdx.edu/cgi/viewcontent.cgi?article=2172&context=open_access_etds

From the late seventies through the early 1990's electric utilities were facing many different forces that caused them to invest into demand-side management programs (DSM). Roots of the growth of DSM can be found in the high inflation and energy price shocks of the late seventies and early eighties, spiraling building costs of generation, safety and environmental concerns, increased costs of new capacity with possible exhaustion of scale economies, unexpected high elasticity in the demand for electricity, and public utility commissions that sought alternatives to the resulting high rate increases. This study develops and estimates four equations that look at the more aggregate utility level impacts of DSM. The goal of two equations is to determine what factors influence utility investments in DSM and if stock market investment in utilities is affected by DSM. Two additional equations are developed to determine system level impacts of DSM on cost of and quantity demanded of electricity. To estimate these models four years of annual data were collected for 81 utilities spanning 1990-1993. These utilities have sold over 60% of all the electricity in the US and were responsible for over 80% the national spending in DSM. The DSM investment model indicated that of the major variance in DSM investment is due to the utility's regulatory environment. Both an above average regulatory climate and least-cost planning requirements had major impacts on the level of DSM investment. The cost of equity capital equation revealed that DSM expenditures had a positive impact on the valuation of utility's stock. Cost and quantity equations were estimated both individually and simultaneously. DSM expenditures seemed to have a negative impact on both average cost and quantity demanded. Although these relationships were statistically significant, the impacts were quite small. To summarize; the regulatory environment seems to have the strongest impact on the level of DSM investment; DSM spending was associated with an increased stock valuation; as expected DSM investments were found to have a negative relationship with quantity demanded; and finally DSM investment appeared to reduce the average cost.