Branko Terzic is former commissioner at FERC and the Wisconsin PSC, former CEO of Yankee Energy System, Inc., and presently managing director of Berkeley Research Group LLC.
Demand-side management programs are not new to the electric utility industry.
Arguably the most effective peak management tool was the invention of commercial and industrial interruptible service and tariff offerings. Electric utilities introduced effective residential peak shaving programs in the 1970’s as well.
I know. I had direct experience with one when I was a young and new public service commissioner in Wisconsin in the early 1980’s.
One very hot August afternoon, I was at the state offices in Madison. My telephone rang with a rare long distance call from my wife Judy at home in Milwaukee.
The call went something like this:
“Hi honey, what’s up?”
“I’ve got a problem with the hot water heater. What’s the name of our plumber?”
“It’s Fritz the Plumber. I think they’re all called Fritz.”
“That’s not funny. I’ve got a load of diapers piling up and the water heater stopped working.”
At the time, we had two kids in diapers, and one on the way. So she was in no mood for humor.
“Wait Judy. I just remembered something. The electric company probably turned off the electricity to the water heater.”
“Geez, honey. You’re the PSC commissioner and you forgot to pay the bill. How’s that going to look?”
“No, no. When we moved in a few years ago, I signed up for the interruptible water heater service. That’s probably what happened. It’s the hottest day of the year and they needed the electricity elsewhere on the system.”
“What do we get for the inconvenience?”
“Oh, we get ten bucks,” I answered proudly.
“Good. Give me the ten bucks when you get home, cause I’m the one with the smelly pile of diapers.”
The next day she called again.
“Hey, they turned the hot water off again.”
“Yeah, It’s gonna be hot for a few days.”
“Well, I’ll take that ten bucks tonight too.”
“Sorry honey. That’s ten bucks a month. Not every time they disconnect the water heater!”
“Well then, it’s not worth it,” I recall her saying as she hung up the telephone.
The lessons? It’s about elasticity of demand and valuation.
We had been living in that house, up to that time, for about six years. Most of that time, both of us were working and not noticing any interruptions in electric service.
Then, with one parent home with two babies, our consumption patterns changed. And so did our valuation of the interruption.
Ten dollars a month was fine at one time. But now Judy wanted more for the inconvenience. So we went off the program.
Looking back, I don’t know how that kind of signal would have been interpreted by the utility or the regulator. Today, most would agree that markets do a better job anyway.
