Supporters of so-called Demand-Side Management (DSM) say it’s an economic development tool. That’s not true. DSM is a misguided, harmful transfer payment from low income ratepayers with no choice to a preferred group of ratepayers, often commercial and industrial.
No one makes this argument better than former Colorado PUC Chairman Ray Gifford, now a partner at Wilkinnson Barker Knauer LLP, did in his 2000 DSM minority dissent in Public Service Company’s (Xcel Energy) 1999 Integrated Resource Plan.
The entire dissent is worth the read, but key passages are highlighted below:
The record illustrates that DSM is wasteful, always falls short of expectations, and imposes costs upon the body of ratepayers as a whole to benefit a few, usually large commercial and industrial customers. DSM should have been rejected, and other alternatives explored.
One of the DSM fallacies is that it saves ratepayers money. DSM is actually the transfer of wealth from one group of ratepayers to another, usually from low income residential to commercial and industrial:
DSM money is not spent on providing any resources or services for the ratepayer. It is a transfer payment from one ratepayer to another. There is no relation to the cost of service or the value of service.
DSM programs are funded through a rate-rider paid by all ratepayers. The resulting pool of money from this rate-rider is then apportioned out to benefit a ‘deserving’ subset of ratepayers….Therefore, the DSM rate is clearly preferential; everyone pays the same amount while some benefit and others do not (or at least far less so). The stipulation favors those ratepayers that are participants in DSM projects at the expense of those who can not or do not participate.
Some may argue that all ratepayers benefit to some extent and therefore it’s not a preferential or discriminatory program. That’s not true for three reasons:
First, “regardless of the potential overall cost benefit analysis to the general ratepayer, some consumers still receive disproportionately large benefits.” This is especially true of commercial and industrial ratepayers. All ratepayers pay, but large C and I ratepayers get the most financial benefit, which explains roofing giant John Mansville‘s zealous protection of DSM at the expense of low income Colorado ratepayers.
Proponents also argue that all ratepayers have an opportunity to participate. That’s not true because the PUC puts a cap on the program so benefits cannot possibly be shared equally.
Second, there is reason to question the economic cost-benefit analysis. Besides no verifiable independent analysis as I documented previously, Chairman Gifford wrote:
Furthermore, economic analysis has inherent problems. All of the DSM cost benefit tests involve basic assumptions, i.e. inflation rate, reserve margins, demand charges, etc. each of which represents a potential for error. In addition, the number of factors which affect the cost-effectiveness of a particular action are potentially infinite, no single test can take into account each and every possible factor. Furthermore, quantifying many of the factors involved in these particular tests is difficult at best. In fact, actual Benefit-Cost Ratios scores for DSM programs are historically lower than projected economic analysis. See Haines DSM hearing testimony. Therefore, the actual cost effectiveness of DSM is chronically dubious.
There is no reason to trust DSM supporters’ assertion that for every dollar spent, ratepayers save $1.77 because we can’t trust the underlying economic assumptions, and there is no independent verification.
Third, much of the theoretical cost effectiveness of DSM programs relies on the subsequent reduction of supply-side requirements. However, the present stipulation has no direct supply-side savings.
Fast forward to 2017, neither the PUC nor Xcel Energy addresses the supply-side requirements. Both acknowledge that we have surplus generation capacity. One would think that with excess supply, rates would be dropping instead of skyrocketing. Furthermore, the PUC just authorized Xcel to build even more capacity in the form of the $1 billion plus Rush Creek Wind Project that will be charged to ratepayers who don’t need it and can’t afford it.
Bottom line, DSM is a terrible, harmful solution in search of a supply-side problem that Colorado does not have. It’s social engineering electricity use that fails to recognize personal circumstance and hurts the least among us.
If commercial and industrial users find it beneficial to use energy more efficiently, they are free to do so and probably will because it’s profitable, but that behavior shouldn’t be incentivized through forced transfer payments from low income ratepayers who have no choice.