Partnerships: A Path for the Design of Utility/Industrial Energy Efficiency Programs

R. Neal Elliott, Miriam Pye, and Steven Nadel

Executive Summary

The utility industry is currently in flux, facing increased competition and other changes in regulation and structure. Much of this flux has been driven by large customers who are seeking service at a lower cost and are threatening to either relocate, self generate, or turn to alternative electricity service providers. While retail competition is not yet here, many utilities perceive the threat of losing their large customers, predominately industrial, as very real. Large industrial customers represent a substantial customer base for most utilities, and the loss of many of these customers could have devastating financial consequences.

The customer energy-efficiency programs we have come to call demand-side management (DSM) are also undergoing changes. A recent ORNL/ACEEE study reports on the changes that are occuring in these programs. DSM programs have traditionally been used by electric utilities to assist customers in reducing their energy use and/or demand. The prime motivation for these programs has been to reduce the investment needed for new power generation, transmission, and distribution facilities. Impetus for implementing these programs frequently came from regulators, and costs for these programs are generally recovered from rate payers. However, in a more competitive utility market, experience in countries where retail competition is allowed indicates that price becomes paramount, and many utilities and large industrial customers view DSM programs as a cost they are unwilling to pay.

In some cases, utilities see other competition-related reasons to offer industrial customers DSM programs, including customer retention, economic development, and new business opportunities. Some of these new programs offer innovative examples of how efficiency can be good business for both utility and customer.

The programs featured in this paper demonstrate that successful models do exist for utility industrial energy-efficiency programs. This report builds upon two previous reports ( Jordan and Nadel 1993 and Nadel and Jordan 1994) prepared jointly by ACEEE's Utility and Industry programs that looked at the design and performance of industrial DSM programs. This report explores the evolution of some traditional programs and describes some of the newest ideas that are emerging. An important aspect of both traditional and new programs is the role of partnerships. Partnerships can take different forms; they may be between the utility and the customer, or in many cases also include other parties such as vendors, distributors, engineers, educators and government. Although these partnerships take many forms, they have certain elements that qualify them as partnerships: the deal is made by working one-on-one with the customer; the utility meets a customer's specific needs; the benefits to customers extend beyond energy efficiency and energy supply security; the participant, in return, offers something tangible to the utility (e.g., ten-year power contract as opposed to just taking incentive money); in other words, risk-reward sharing for mutual benefit and survival; and the program is not designed with standard operating procedures. Partnership can play an important role in the development of successful industrial programs, be they more traditional resource acquisition programs or newer-style customer-service and retention programs. The lessons learned from these programs provide a foundation upon which successful programs can be designed. From the programs featured in this paper we deduce several characteristics that are embodied in successful programs: understanding the customer providing flexibility in all aspects of the program building a long term relationship and trust establishing personal contact bundling value-added services constructively engaging trade allies having patience and persistence Within the utility restructuring debate, the motivations for industrial programs may change, but the need for utilities to offer valuable services to their industrial customers may actually increase. A significant potential for energy savings from utility industrial programs clearly exists. In many cases the potential for bill reductions from energy-efficiency investments may exceed the potential for bill reductions from utility restructuring. Partnerships will need to play an increasingly important role in the design of utility industrial programs to be successful. The definition of success is now changing due to changes in the utility business. Success must not only consider energy savings, but also address opportunities for cost savings and efficiency improvements of all types (e.g., process improvements) within manufacturing facilities.

With the move towards a more competitive utility industry, costly industrial DSM programs in which utilities pay high incentives for energy or demand savings are disappearing. However, as some of the programs featured here demonstrate, it is possible to operate utility industrial DSM programs for utility costs of around $0.01 per kWh saved by working in partnership with customers, negotiating incentives on a customer-specific basis, and addressing energy efficiency as part of a package that also addresses other issues of concern to industrial customers. Such programs can provide valuable services beyond energy cost savings to customers and can be an important component in customer retention strategies. While utilities must reduce program costs to prepare for a more competitive environment, many utilities may overreact, and too quickly alter their industrial DSM programs, risking loss of customer loyalty. In many cases, refinements that reduce costs but retain judicious use of incentives may be a preferable option. These "enhanced" programs have the potential to interest and serve more customers, while limiting the impact on rates and cost to all customers. A loyal customer base can provide an important foundation upon which new energy service ventures can be built.

When utilities and industries act as partners, they can work to develop win-win programs that meet everyone's needs. Replicating successful utility/industry partnerships that result in part in energy savings could contribute to the competitiveness and strength of both industries and utilities in the future.

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50 pp., 1996, $14.00, U961

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