The Evaluation of Electricity Conservation

within the Industrial Sector of the Pacific Northwest

Thomas H. Jaenicke

Conservation began in the Northwest after the Washington Public Power Supply System crisis resulted in huge rate increases and ratepayer revolt. The region's utilities first used residential conservation programs as a way to reach out to a large number of their customers. The Bonneville Power Administration initiated the first significant industrial sector conservation programs in the late 1980s when they started the Conservation/Modernization program for the region's aluminum smelters and the multi-purpose industrial Energy $avings Plan. Recognizing Bonneville's success, utilities began to offer their own programs in the early 1990s.

The industrial sector poses unique challenges to conservation programs. Industrial firms feel they have little financial incentive to conserve because electricity costs average only three to five percent of production costs. Industrial firms typically are conservative when making process change in their facilities. Unfortunately, it is those process changes that have the greatest energy savings potential.

Most industrial programs use financial incentives to overcome industry's reluctance to pursue conservation. Incentive payments of up to 70 percent of a project's cost are offered to industries for achieving verifiable savings from equipment or process improvements. Industrial programs have proved to be cost-effective; Bonneville obtained conservation savings during the first four years of the Energy $avings Plan at a cost of only l.5 cents per kilowatt/hour.

The electric utility industry is currently undergoing a restructuring that is threatening conservation programs. Near-term rates are becoming the primary focus as intermediate-to long-term benefits lose importance. The utilities and Bonneville are in the process of dramatically reducing their conservation spending. Utilities are even beginning to question whether they should be the entities responsible for providing conservation programs. Unless conservation advocates take bold steps to shape and mobilize public opinion, conservation will cease to provide a significant resource acquisition function, and will continue to function only in a smaller, customer service role.