The Arizona Corporation Commission (ACC) has approved rules that require public electric utilities to design Demand Side Management (DSM) programs which ACC claims are cost effective and promote energy efficiency, load management, or demand response. “Arizona’s public utilities will be required to achieve annual energy savings of at least 22%, measured in kWh, by 2020, with the savings to increase incrementally as a percent of retail energy sales in each prior calendar year to reach that goal,” says the ACC press release. One of the stated reasons for this program is to mitigate the need to build more generation and transmission infrastructure. But as population grows, we will have to do that anyway.

I am all for voluntary conservation. In fact, I have a time-of-use meter on my house which allows me to choose when to run certain appliances to get lower electric rates in off-peak periods. However, the ACC program is a Big Brother command-and-control program that may allow utilities to decide when and how much electricity you can use . An Arizona Republic story says “APS (Arizona Public Service Company) is planning to test a demand-response program in which the utility will control homes’ air-conditioners, raising the thermostat a notch or cycling the unit on and off to minimize peak demand.” This so-called “smart grid” system is subject to attack by hackers who could wreak havoc with air conditioning systems in large buildings or neighborhoods, for instance. In a March 9 interview with U.S. News & World Report, Obama advisor Carol Browner said that with the smart grid, “Eventually, we can get to a system when an electric company will be able to hold back some of the power so that maybe your air conditioner won’t operate at its peak.” And strangely enough, Fannie Mae, the biggest U.S. mortgage finance company, holds Patent No. 6,904,336, for a “System and Method for Residential Emissions Trading,” which is the meter that would be attached to your house. reports this is a potential $22 billion dollar market. Maybe that’s why governments are creating a market to sell you something you don’t need.

Demand Side Management programs have been around for a long time and they are found wanting. A well-referenced MasterResource article details the many pitfalls of such programs. They say that “DSM programs are fundamentally unfair. The program punishes all ratepayers through higher rates. Meanwhile, it favors a few ratepayers that receive preferential treatment through the program by receiving subsidized energy efficient products such as light bulbs, refrigerators, consultation services, just to name a few.” “Demand side management presumes that a utility understands their customers’ wants and needs better than the customers themselves.” History shows that DSM programs do not live up to their purported goals. For instance, a Rand Corporation study of 324 utilities found that DSM programs did lower electricity sales, but the cost was far higher than utilities estimated. In fact, the study found that the cost of the DSM programs was roughly two to three times as expensive, on average, as the energy the programs were attempting to conserve. Also, utilities may have a disincentive to lower demand because that reduces sales. For the consumer, having more efficient appliances may just make them use the appliances more. This is a well-known and long understood outcome known as the rebound effect or the Jevons Paradox.

Encouraging electric utilities to provide incentives for customers to reduce their energy usage is fine if it is all voluntary. I wonder, though, where the Arizona Corporation Commission gets the authority to tell utility companies how much electricity they can or cannot produce. I’ve looked through the Arizona Constitution and Arizona Revised Statutes, but could not find any mention of such authority.

The next session of the Arizona legislature should take up this issue and rein in the ACC. While they are at it, the legislature should vacate the ACC mandate that 15% of electricity be produced from renewable resources, which are much more expensive and unreliable than fossil fuels or nuclear generation. I could not find any ACC constitutional authority for that either. The ACC has unconstitutionally seized authority that is properly in the realm of the state legislature. The ACC has fundamentally changed from a government body of limited authority to one with the presumptive authority to dictate energy policy in Arizona. The basic constitutional question is one of separation of powers. For additional information of this power grab, see an article from the Goldwater Institute: Returning to the Original Purpose of the Arizona Corporation Commission.

I suppose members of the ACC want to appear “green,” but they seem ignorant of the fact that your carbon footprint doesn’t matter. DMS programs increase bureaucracy and make the business of power generation less efficient.

Do you want the electric company or bureaucrats to control your air conditioner? Be careful who you elect to the corporation commission.

UPDATE: From Arizona Republic: APS officials are hopeful state regulators eventually will allow the utility to charge higher rates to recover the lost profits from their energy-efficiency programs.

This entry was posted on Monday, August 2nd, 2010 at 8:38 am and is filed under Energy, Politics. Tags for this post: Arizona, Corporation Commission, Demand Side Management, electricity, Smart grid. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.