A Welfare Analysis Framework for Assessing DSM Cost-Effectiveness 1
Steven D. Braithwait and Douglas W. Caves
Editors' Note. This chapter brings into view the breadth and scope of energy program design, implementation, and evaluation by employing a welfare analysis framework for assessing cost-effectiveness. This test is similar in some ways to the value test proposed by Herman and Chamberlin in the preceding chapter. The discussion of quantifying the potential societal benefits of regulated utility energy programs brings into play a theme mentioned in Chapter 1. In the period of energy-policy "hiatus" in the legislative arena in the 1980s, actors in other institutional arenas took on at least some of the roles that are a part of policy design. The focus here is on the normative frameworks that regulatory agencies can draw on to assess utility programs. The authors define customer and the concept of customer value and develop an analytic framework for using it to examine the cost-effectiveness of demand-side management programs. The evaluation tests they propose provide a technical mechanism that supports the active participation of utility commissions in this policy area.
The role that demand-side management (DSM) will play in electric utility resource plans largely depends on the market forces faced by utilities and the incentives provided by regulatory agencies. A key factor in determining how much utilities should pay for DSM measures is