"Demand response will be an important part of meeting energy needs for any utility anywhere, particularly for peaking periods," says Jeff Shields, director of utility systems for the South San Joaquin Irrigation District in Manteca, California.

Changes in consumption patterns could have a huge affect on the electric utility industry, which takes in annually about $224 billion. But forward looking utilities with sound balance sheets are motivated to control peak load -- a force that controls their generating capacity as well as the cost of their power generation. According to the Rand Corp., the utility industry could save between $50 billion and $100 billion over the next two decades if demand response becomes the norm.

Utilities are open to the idea and many of the larger ones such as Houston-based CenterPoint Energy have implemented some variation of it. And, further, many independent system operators and regional transmission organizations that dispatch available generation over the grid are encouraging demand response.

In the case of San Joaquin, it has enrolled 1,000 households in a program to save money on their electric bill and to help the environment. Under that plan, the utility works with a third party to install devices on customers' air conditioners. Sensors then automatically raise air temperatures and reduce electricity consumption. In the final analysis, the utility calculated that it is much easier to install new technologies than to eventually build new power plants.

Many systems are overburdened. California recently faced several prolonged periods of unbearably hot weather, causing power grid stress and subsequent power outages. New York City, meanwhile, experienced a nearly one hour brownout in late June. Con Edison reported that 135,000 customers, or 385,000 people, were affected. It all comes atop a request by the utility to increase power rates and general concerns that it is not doing enough to upgrade its transmission system in light of increased demands.

Encouraging Results

Strained networks cause lost economic opportunities. They also cause wear-and- tear on expensive transformers and power lines. Through demand response programs, though, some customers are able to cut high energy bills while utilities are able to cut loads and prevent having to buy power on expensive spot markets.

"Demand response is getting traction," says Mark Rupnik, senior vice president for BPL Global North America. "But utilities want to be certain that the technology is rock solid and that their organization will get results. It needs to all be utility-grade."

Pittsburgh-based BPL Global is working with San Joaquin on its demand response programs. The district is voluntarily taking part in a California initiative, which was enacted in 2004 and which mandates that all regulated utilities be able to curb at least 5 percent of their system peak loads by 2007. It says that it is on target to meet that goal.

Other major utilities there, however, are struggling to comply. Recognizing that, the California Public Utility Commission recently adopted a policy that rewards those companies that exceed their targets over three years and penalizes those that don't. Most groups praised those efforts. Others, though, disagreed with them, saying that utilities should not have to be "bribed" to do what they are required.

For its part, the public utility commission predicts that the policy will result in $2.7 billion in energy savings and that it will cut 3.4 million tons of carbon dioxide emissions from the state's air, all by 2008. Commission President Michael Peevey said that the state can ill-afford to allow conservation to continue to play "second fiddle" to other energy options, adding that the recent "decision fundamentally alters that paradigm."

Indeed, the use of innovative technologies, combined with dynamic pricing that subject consumers in some measure to markets, will work to conserve energy. In California, for example, peak usage fell 13 percent from 2003-2006 among the 2,500 customers who participated in a study, writes Ahmad Faruqui, principle with the Brattle Group. He adds that the results are even more encouraging for those commercial and industrial groups that are using demand response software.

To be sure, cost pressures still stand in the way of implementation. The old utility mindset reasoned that anything that cut consumption would hurt profits. But, through a combination of regulatory moves and community pressures, they have come to realize that they, too, can save money by avoiding expensive and time-consuming build-outs. Returns on investments vary, however, depending on the size of service territories and the amount of equipment needed to help restrain electricity usage.

"Consumers need to understand their consumption habits to better control their costs," says Glenn Pritchard, with Exelon's meter reading technologies unit in Philadelphia. "Regulators should create programs that incent consumers to participate in demand response programs. Likewise, there needs to be mechanisms and/or processes for the utility or supplier to recover the cost of the demand response program."