Assessing the Rate Impact of Conservation and Demand Management: A New Mathematical Model

While numerous studies examine the causal relationships of electricity rates on conservation and of conservation on variable costs, little work has been done on the missing links of conservation on fixed costs and on overall electricity rates. This article presents a new model to scientifically quantify these two gaps and complete the economic picture of conservation. This knowledge can equip government policymakers and conservation program designers at utilities to create more efficient and effective programs. New mathematical models of the full system-level rate impact of different forms of conservation are presented. Four common forms of conservation were analyzed for their impacts on total fixed and variable costs and rates: peak shaving (S1), off-peak reduction (S2), peak shifting (S3), and time-independent conservation (S4). These were all measured against the base case without conservation (S5). A test system based on the electricity system in Ontario, Canada, was created and analyzed over a 21-year period. The results show that different forms of conservation have different impacts on fixed and variable costs and rates, and the most useful metric for the economic impact of conservation is the change in utility rates, inclusive of fixed and variable components. For conservation programs to lower rates, they must decrease the peak demand, which will lower fixed costs by deferring capital investments, and increase utilization, which will lower rates by increasing consumption during off-peak times.