Applying Cost Allocation Principles to Demand-Side Resources: A Case Study of Industrial Opt-Out Proposals

In 1993, the New York Public Service Commission approved a Niagara Mohawk subscription service offering which allows industrial and large commercial customers, who remain eligible for a shared savings program, to elect to be ineligible for rebate programs and to avoid being allocated some costs for the utility’s DSM resource programs. This decision was hailed by industrial customers who have been critical of utility rebate programs. The case raised fundamental policy questions: How should the cost of DSM resource programs be allocated? How should rate impacts on non-participating customers who are paying rates in excess of marginal costs and exhibit significant price elasticity be addressed? How will DSM survive in competitive power markets?