AN ABSTRACT OF THE DISSERTATION OF

Anna Karmazina for the degree of Doctor of Philosophy in Public Policy presented on
May 29, 2020.

Title: Barriers and Facilitators of Demand Response in the U.S. Electricity Sector: A
Mixed-Method Study.

Abstract approved:
______________________________________________________
Brent S. Steel

Renewable energy is on the rise in the U.S. Additional efforts will be required

to integrate intermittent and decentralized sources of energy into the electrical grid.

Given that storing large amounts of electricity is not yet available at a reasonable

cost, electric grid operators must match supply and demand at every moment. Thus,

the time at which electricity is used becomes ever-more important. Demand response

(DR) allows shifts in customer load profiles and thus creates the potential for

reductions in peak load demand through changes in electricity consumption by energy

end-users at specific times reflecting the system needs. These shifts increase the

reliability of the electric power grid, reduce transmission constraints, lower price

volatility in wholesale electricity markets, help integrate renewable and distributed

energy sources, and reduce CO2 emissions.

Although DR is of great importance to the functioning of the electrical grid, it

remains an insignificant player in the U.S. electricity sector. The objective of this

dissertation is to employ a convergent parallel mixed methods design approach that

combines quantitative and qualitative data to examine both barriers to and facilitators

of demand response development by U.S. investor-owned electric utilities. First, I

conduct a comparative case-study analysis based on interviews with a panel of

stakeholders and the examination of relevant regulatory documents. Second, I employ

an Ordinary Least Squares estimator to analyze data in 49 states between 2010 and

2018 (Nebraska was excluded because no investor-owned utilities operate in the

state). This study utilizes a unique data set assembled with the help of publicly

available information from a variety of sources, including the Energy Information

Administration and the Federal Energy Regulatory Commission.

Both qualitative and quantitative data show that state-level policy decisions

appear to be a crucial determinant of higher levels of demand response development.

The dissertation concludes with some insight for future research and provides several

policy recommendations for mitigating barriers and increasing the potential for

expanding demand response programs.

©Copyright by Anna Karmazina
May 29, 2020
All Rights Reserved
Barriers and Facilitators of Demand Response in the U.S. Electricity Sector: A
Mixed-Method Study

by
Anna Karmazina

A DISSERTATION

submitted to

Oregon State University

in partial fulfillment of
the requirements for the
degree of

Doctor of Philosophy

Presented May 29, 2020

Commencement June 2020
Doctor of Philosophy dissertation of Anna Karmazina presented on May 29, 2020

APPROVED:

Major Professor, representing Public Policy

Director of the School of Public Policy

Dean of the Graduate School

I understand that my dissertation will become part of the permanent collection of

Oregon State University libraries. My signature below authorizes release of my
dissertation to any reader upon request.

Anna Karmazina, Author

 ACKNOWLEDGEMENTS

I would like to acknowledge the faculty and staff of the School of Public
Policy for supporting my coursework and training throughout my PhD program. I
owe special acknowledgement to my chair and mentor Professor Brent S. Steel for his
guidance and encouragement. Without his persistent help, my PhD journey would not
reach this point. I am lucky to have such an adviser.

I am very grateful to my committee that included Professors Amy Below,

David Bernell, Alison Johnston, and Graduate Council Representative Sharyn Clough
for their suggestions for improving my research design, for their support during the
writing process, and for their careful review of my dissertation. My sincere
appreciation goes to the interview participants who were willing to spend their time
and share their knowledge with me. I am also grateful to the writing consultant in the
School of Public Policy Daniel Schaffer for helping me become a better writer
throughout my PhD program.

I would like to extend my thanks to my family for their unconditional love.

Many thanks to my friends, and the community of graduate students in the School of
Public Policy who taught me a great deal and who encouraged me throughout my
PhD journey. Finally, I would like to thank Alan Devenish, my loving and supportive
partner. He always keeps me going on and encourages me to pursue my dreams.
 TABLE OF CONTENTS

Page

1. Introduction …………………………………………………………………………1

2. Literature Review…………………………………………………………………...9

2.1. Literature on Regulatory, Social, and Technological Aspects of Demand

Response in the Electricity Sector ……………………………………………9

2.1.1. Regulatory Aspects of Demand Response…………...…………….10

2.1.2. Social Aspects of Demand Response …………..……………….…18

2.1.3. Technological Aspects of Demand Response………………..….…23

2.2. Literature on Socio-technical Transitions…………………………….…26

2.2.1. Multi-level Perspective on Sustainability Transitions……………...28

2.3. Literature on Innovation Adoption…………………………………...…31

2.3.1. Technology-Organization-Environment Framework to Adoption of

Innovation…………………………………………………………………33

2.4. Integrating Theoretical Insight…………………………………………..37

3. Qualitative Approach……………………………………………………………...40

3.1. Case Selection…………………………………………………………...40

3.2. Data Collection

42…………………………………………………..……42

3.3. Data Analysis ………………………………………………………..44

3.4. Historical Perspective on the Development and Structure of the Pacific

Northwest’s Hydroelectric System ………………………………………..48

3.5. Results: Dynamics of Demand Response Development in the Pacific

Northwest ………………………………………………………………..53

3.6. Results: Idaho ………………………………………………………..60

3.7. Results: Oregon ………………………………………………………..69

 TABLE OF CONTENTS (Continued)

Page

3.8. Results: Washington ………………………………………………..76

3.9. Results: Comparative Analysis ………………………………………..80

4. Quantitative Approach ………………………………………………………..96

4.1. Hypothesis Development ………………………………………….…….96

4.2. Data Sources ………………………………………………………..98

4.3. Data Analysis ………………………………………………………100

4.4. Results ………………………………………………………………102

5. Discussion ………………………………………………………………………105

5.1. Environmental Factors ………………………………………………105

5.1.1. State-level Policy Actions ………………………………………105

5.1.2. Societal Values and Shared Beliefs ………………………………109

5.1.3. Electricity Prices and Organized Electricity Markets…………….111

5.2. Technological Factors ………………………………………………112

5.2.1. Advanced Metering Infrastructure and Other Technological

Devices…………………………………………...………………...……112

5.2.2. Integration of Renewable Energy into the Electricity Grid ………116

5.3. Organizational Factors ………………………………………………117

5.4. Summary of the Quantitative and Qualitative Results…………………119

6. Policy Implications ………………………………………………………………122

7. Study Limitations and Future Research ………………………………………131

8. Conclusion…………………………………………………………………….…139
 TABLE OF CONTENTS (Continued)

Page

References ………………………………………………………………………142

Appendices ………………………………………………………………………154
 LIST OF FIGURES

Figure Page

Figure 1.1. Demand Response Development by U.S. Investor-Owned Electric

Utilities………………………………………………………………………………...5

Figure 1.2. Potential Peak Demand Savings in Megawatts for Investor-Owned

Utilities Across the U.S. States………………………………………………………..6

Figure 2.1. Placard Distributed to Participants of a Pilot Demand Response Program.

Source: Herter (2009)…………………………………………………………..……22

Figure 3.1. 2018 Enrolled Demand Response Capacity (MW). Source: Smart Electric
Power Alliance (2019)……………………………………………………..………...42

Figure 3.2. Peak Demand-Reduction Capacity and Demand Response Expenses,

2004–2018 (MW and Millions [$]). Source: Idaho Power Company (2019)………..62

Figure 5.1. Transformation Pathway. Source: Geels, F. W., & Schot, J. (2007)…...107

Figure 5.2. Reconfiguration Pathway. Source: Geels, F. W., & Schot, J. (2007)..…108
 LIST OF TABLES

Table Page

Table 2.1. Factors Influencing Demand Response Development by U.S. Investor-

Owned Electric Utilities……………………………………………………………...38
Table 3.1. Independent Variables Across Cases……………………………………..41
Table 3.2. A list of Interview Participants…………………………………………...43
Table 3.3. Qualitative Codebook…………………………………………………….44
Table 4.1. Description of Variables and Sources…………………………...………..98

Table 4.2. Descriptive Statistics of the Panel Data…………………………………100

Table 4.3. Estimated Coefficients…………………………………………………..103

Table 5.1. Summary of the Quantitative and Qualitative Results……………..……119

 LIST OF APPENDICES
Appendix Page

Appendix A. List of Interview Questions…………………………………..154

Appendix B. Estimated coefficients (Fixed Effects Model)………………..155

 1

1. Introduction

According to the Energy Information Administration (EIA) (2019), electric

power net generation in the U.S. totaled about 4,207,616 thousand megawatt-hours in

2018. It was structured as follows: 63.1% fossil fuels (coal, natural gas, and

petroleum), 19.1% nuclear electric power, 10.5% renewable energy (wind, solar,

biomass, and geothermal), 7% hydroelectric power, and 0.3% other energy sources.

In 2008, electric power net generation consisted of 71% fossil fuels (coal, natural gas,

and petroleum), 19.5% nuclear electric power, 6.2% hydroelectric power, 3%

renewable energy (wind, solar, biomass, and geothermal), and 0.3% other energy

sources. Thus, compared to 2008, fossil fuels showed a 11.13% decrease, renewable

energy production showed a 250% increase, while nuclear power and hydroelectric

power remained relatively stable.

The rapid rise of renewable energy in the U.S. can be explained by steep

declines in the price of renewables and growing environmental and energy concerns

associated with the nation’s reliance on fossil fuels. Growing renewable energy helps

diversify available energy sources and procure electricity in a more sustainable way.

At the same time, the intermittent nature of such energy sources poses challenges for

the electric grid as energy supplies must match energy demand in real time.

As a result, additional efforts will be needed to integrate intermittent and

decentralized sources of renewable energy into the electrical grid. Under such

conditions, the time of day at which electricity is used becomes ever-more important.

For instance, increasing the amount of solar energy creates a so-called "duck curve":
 2

a significant drop in energy demand at midday that coincides with high solar activity

and an increase in the overall customer demand at night when solar energy decreases

(Denholm et al., 2015). Similarly, charging of electric vehicles can be burdensome

for the grid if the vehicles are charged during on-peak hours; conversely, they can

become a distributed storage source that absorbs power during off-peak hours (Scott,

2014; Shao et al., 2012), which can help integrate intermittent energy sources into the

system.

Given that electricity should be generated and utilized at the same time,

electric utilities must match supply and demand in real time to keep the power grid

balanced and avoid power outages. To do so, electric utilities have adjusted the

supply-side, not the demand-side of the electric system, and thus have underutilized

the potential of customer responses (Spees and Lave, 2007). Generating electricity

that is used in anticipation of peak times is both expensive and requires a large

amount of resources (Muratori et al., 2014), and power plants used to meet peak

demand are usually not the most efficient units.

In contrast, demand response programs allow electric utilities to shift

customer load profiles and reduce peak load demand (Logenthiran et al., 2012). With

advances in technical solutions, demand response can also provide necessary

ancillary services to the electrical grid and make the system more flexible. Demand

response allows for the fast dispatch of resources; provides locational value due to

distributed nature of smaller resources. In addition, the aggregation of smaller

resources ensures statistical reliability (Cappers et al., 2013).

 3

Overall, demand response serves several goals: It leads to greater grid

reliability (Albadi and El-Saadany, 2007; Greening, 2010); reduces transmission

constraints (Greening, 2010); lowers price volatility in wholesale electricity markets;

curbs electricity prices for end-users (Albadi and El-Saadany, 2007; Greening, 2010);

helps integrate renewable and distributed energy sources (Barton et al., 2013;

Vardakas et al., 2015; Paterakis et al., 2017); and reduces CO2 emissions (Vardakas

et al., 2015). Given the projections of increased peak electricity demand in North

America, there is increasing attention to efforts that intend to shift or shed peak load

(Newsham and Bowker, 2010).

The Federal Energy Regulatory Commission (FERC) defines demand

response as follows: "Changes in electric usage by demand-side resources from their

normal consumption patterns in response to changes in the price of electricity over

time, or to incentive payments designed to induce lower electricity use at times of

high wholesale market prices or when system reliability is jeopardized" (FERC, 2019,

para. 2). Traditionally, demand response efforts have focused on large industrial

customers because it was easier to achieve big load reductions with the participation

of a few large customers. However, more utilities have begun to engage residential

customers in such programs as well (Gyamfi et al., 2013).

Several major strategies have guided efforts to implement demand response

programs. Among other approaches, utilities can use time-differentiated rate

structures and charge higher prices during peak demand periods, and they can directly

control electricity demand by curtailing certain loads when the electric grid is under

pressure (Newsham and Bowker, 2010). Electric utilities often offer consumers
 4

incentives in exchange for their willingness to adjust the timing of their electricity

usage (Muratori and Rizzoni, 2016).

There are several time-differentiated rate structures. Critical Peak Pricing

enables power suppliers to raise retail electricity prices when wholesale prices exceed

a predetermined threshold (Centolella, 2010). Peak Day Rebates (also known as Peak

Time Rebates or Critical Peak Rebate) provide customers with a rebate for load

reductions to levels below their baseline load levels during a period of high electricity

demand (Vardakas et al., 2015). In Real-Time Pricing, suppliers announce changes in

electricity prices on very short notice, often right before the time period starts

(Vardakas et al., 2015). Real-Time Pricing has become an increasingly common rate

structure feature for large customers, but it could also be extended to other consumer

segments (Centolella, 2010). Yoon et al. (2014) assert that demand-response

programs based on time-differentiated electricity prices are essential for improving

the efficiency of the electrical grid because they reduce peak demand. Walawalkar et

al. (2010) emphasize that most demand response programs not only serve reliability

objectives but also help utilities integrate variable energy sources into the electric

system.

Despite the fact that demand response resources are of great importance to the

functioning of the electrical grid, they are still insignificant players in the U.S.

electricity sector (Cappers et al., 2013). Figure 1 demonstrates the trend in demand

response development by U.S. investor-owned electric utilities between 2010 and

2018. Map 1 illustrates the variation in demand response deployment by investor-

owned utilities across the U.S. states.

 5

Figure 1.1. Demand Response Development by U.S. Investor-Owned Electric

Utilities
 6

Figure 1.2. Potential Peak Demand Savings in Megawatts for Investor-Owned

Utilities Across the U.S. States

Existing research has predominantly examined wholesale demand response

programs in organized markets (e.g., Cappers et al., 2010; Hurley et al., 2013). The

dynamics of retail demand response programs tend to receive less scholarly attention

(i.e., programs implemented by investor-owned utilities and not by Independent

System Operators/Regional Transmission Organizations). Retail demand response

 7

programs are implemented by investor-owned utilities, municipal utilities, and co-

ops. This dissertation focuses on investor-owned utilities. They supply about 70% of

electricity in the U.S., and, thus, are important for investigation. In addition, one of

the main points of interest in this research is the impact of public utility commissions’

(PUCs) decisions on demand response results. Investor-owned utilities are subject to

PUC regulation, while co-ops and municipal utilities are not. Scholars tend to

overlook the importance of PUCs in shaping state level energy policies (Boyd and

Carlson, 2016). Instead, researchers tend to focus on policies adopted by state

legislative bodies and state governors. This research aims to understand the role

PUCs play in the process of demand response development by investor-owned

electric utilities.

In terms of methodology, this dissertation examines the determinants of and

variation in demand response development by investor-owned electric utilities

utilizing a convergent parallel mixed methods design that allows for combining

quantitative and qualitative data. It contains a comparative case study analysis of

demand response development in three Pacific Northwest’s states (Idaho, Oregon,

and Washington), as well as panel data analysis of 49 U.S. states (excluding Nebraska

because there are no investor-owned utilities operating in the state) between 2010 and

2018. This research utilizes a combination of qualitative and quantitative methods to

examine the same phenomenon (Tarrow, 1995). Use of different methodologies and

different data sources to examine the same phenomenon helps to achieve

triangulation. Jick exemplifies this point, "Given basic principles of geometry,

multiple viewpoints allow for greater accuracy" (1979, p. 602). Using more than one
 8

method of research helps to ensure that what the researcher is observing reflects the

attribute of the phenomenon, which brings greater confidence in the research

findings.

The research draws on several bodies of literature to better explain the

phenomenon: Literature on regulatory, social, and technological aspects of demand

response in the electricity sector; literature on socio-technical transitions; and

literature on the adoption of innovation. Based on the synthesized overview of

relevant scholarship, I differentiate several factors that influence demand response

development in the U.S. electricity sector to guide my analysis.

I pose the following research questions:

What factors advance or impede the adoption of demand response

practices by U.S. investor-owned electric utilities?

Why and how do investor-owned electric utilities adopt demand response

practices?

This dissertation consists of: 1) a literature review; 2) a qualitative study; 3) a

quantitative study; 4) discussion of the results; 5) study limitations and suggestions

for future research; 6) conclusions and policy implications for mitigating barriers and

increasing the potential for expanding demand response programs that policymakers,

industry leaders, consumer advocates, and other interested groups may find useful.
 9

2. Literature Review

In this section, I provide an overview of the scholarship relevant for

understanding catalysts for demand response initiatives in the electricity sector.

Topics and themes identified in this literature review were utilized during the

conceptualization processes of this research. Specifically, the main provisions of the

literature review informed qualitative data collection and analysis (e.g., development

of a list of questions for semi-structured interviews and development of a codebook)

as well as in hypothesis development and variable selection for the quantitative

analysis.

The literature review consists of three sections: literature on regulatory, social,

and technological aspects of demand response in the electricity sector; literature on

socio-technical transitions; and literature on adoption of innovation. Integrating

different strands of the literature helps to refine the relevant concepts and specify

more precisely the relationships among them (e.g., Giordono et al., 2018). Such a

holistic approach is necessary for answering the study’s key research questions and

advancing critical knowledge related to the research problems.

2.1. Literature on Regulatory, Social, and Technological Aspects of

Demand Response in the Electricity Sector
Maturation of technologies, including demand response technologies, requires

the adoption of new rules that help integrate these technologies into existing

regulatory and market structures. In addition, end user customers are becoming the

key players for the successful implementation of demand response programs, a factor
 10

that elevates the social component of the electricity system. The following section of

the literature review discusses the influence of regulatory, social, and technological

aspects of demand response in the U.S. electricity sector.

2.1.1. Regulatory Aspects of Demand Response

In 1882, Thomas Edison introduced not only the incandescent light bulb but

also an innovative system for power generation and distribution that would enable

light bulbs to function. Within a decade, Edison’s inventions had largely replaced

gas-powered lighting. According to Hargadon and Douglas, "Edison's system of

electric lighting was transformed from a mere innovation into an institution, with its

network of electric utilities companies, manufacturers and suppliers, investors, and

customers" (2001, p. 482).

Simon and Bernell (2016) maintain that modern energy systems in the United

States have a major responsibility to ensure energy security. Broadly stated, energy

security guarantees the abundance, reliability, affordability, and sustainability of

energy resources. The importance of each element of energy security changes over

time. For example, in the early 20th century, the main goal of the U.S. electricity

sector was to provide widespread access to electricity at affordable prices. To pursue

this goal, electric companies relied on a business model focused on achieving

economies of scale by building large power plants and thus reducing costs of

electricity output per megawatt-hour (Tuttle et al., 2016).

The nation’s energy security priorities changed in the 1970s (following the

Organization of Arab Petroleum Exporting Countries’ oil embargoes). Fearing the

 11

loss of energy independence, energy diversification became a primary consideration.

The Arab oil embargo was a disruptive force for a global economy deeply – and

increasingly – dependent on oil. As Rosa et al. noted, "The embargo also sparked a

fundamental shift in the definition of energy supply, from a solely technological

problem to a bundle of social ones" (1988, p. 164). Concerns over unimpeded access

to energy sources, and issues pertaining to the finite nature of fossil fuels, led to

policies aimed at diversifying energy production.

In response to the energy crisis fueled by the oil embargoes, the U.S. Congress

passed the National Energy Act of 1978. The Act’s goal was to reduce the country’s

dependency on fossil fuels by supporting the development of alternative fuel sources

and promoting energy efficiency and conservation. One of the most important

sections of the law was the Public Utility Regulatory Policies Act (PURPA), which

brought significant changes to the governing mechanisms of the U.S. electricity

sector. Most notably, PURPA created a regulatory framework granting qualifying

non-utility power producers the right to sell energy to local utilities. The local utility

was mandated to buy energy at a price that represented avoided costs – that is, costs

that a utility would have to pay to produce the same amount of power (Public Law

95-617). Overall, PURPA’s main success was to demonstrate that small power

producers could be efficient and cost-effective. That, in turn, cast doubt on the idea

that electricity should be procured by large utilities that are regulated as natural

monopolies (Bakke, 2016).

Demand response in the U.S. dates back to the 1970s when electric utilities

offered their large customers interruptible/curtailable tariffs. Customers who agreed

 12

to these tariffs received monetary payments in exchange for allowing the utility to

curtail power at the times of peak electricity demand. In addition, utilities started

implementing direct load control programs by installing remote control technologies

on residential customers’ air conditioners and water heaters (Cappers et al., 2010;

Hurley et al., 2013).

In the late 1970s, utilities also started developing integrated resource plans

"for meeting forecasted annual peak and energy demand, plus some established

reserve margin, through a combination of supply-side and demand-side resources

over a specified future period" (Wilson and Biewald, 2013, p. 2). Integrated resource

planning illustrated the importance of demand response as a resource since utilities

could precisely identify system cost impacts associated with meeting peak demand

(Cappers et al., 2010).

An extended period of declining oil prices in the early 1980s was followed by

several price spikes in the late 1980s and early 1990s. The Iraqi invasion of Kuwait

and the Persian Gulf War of 1990-1991 exacerbated the region’s tense geopolitical

situation, further destabilizing oil production. This situation provided even more

reasons to promote domestic production of alternative fuel sources and enhance

energy efficiency. To advance these goals, the U.S. Congress passed the Energy

Policy Act of 1992. Among other things, the act introduced regulatory changes that

set the state for the deregulation of the energy sector. For example, exempt wholesale

generators – a new category of non-utility power producers that included independent

power producers and marketers – would not be constrained by PURPA provisions to

sell electricity exclusively to the local utility. In exchange for being able to operate
 13

freely, the exempt wholesale generators would not be guaranteed predetermined

payments for their electricity outputs (unlike qualifying facilities that were guaranteed

a certain amount of money under PURPA). This regulatory change stimulated

wholesale energy trading and transmission over long distances (Shively and Ferrare,

2008).

Actors at different policy levels shape the U.S. electricity sector. At the

federal level, there are the U.S. Congress and President, Supreme Court, Federal

Energy Regulatory Commission, U.S. Department of Energy, North American

Electric Reliability Corporation, and National Association of Regulatory Utility

Commissioners. At the regional level, there are the Independent System Operators

and regional entities responsible for reliability such as the Western Electricity

Coordinating Council. At the state level, there are investor-owned utilities, state-level

public utility commissions, state legislature, state executive agencies, consumer

advocates, environmental and industry groups.

There are several ways to specify the interests and motives of each

stakeholder group. One of the potential ways to characterize these interests is as

follows: Electric utilities ultimately want to retain their customers and collect the

largest amount of revenue possible in order to maximize profits for their shareholders.

Consumers, in contrast, seek the cheapest tariffs, reliability of the electricity supply,

and, in some contexts, the most sustainable way of procuring electricity.

Environmental organizations also desire the most sustainable way of procuring

electricity, and elected officials want to satisfy the interests of their constituency.
 14

Because demand response significantly differs from traditional energy

production and distribution strategies, regulators must modify existing operational

and market rules (e.g., required performance attributes for an energy resource) so that

demand response has an equal chance to compete with other generators (Cappers et

al., 2013). Underestimation of demand response as an energy source by energy

players could lead to improper market incentives and hinder potential for demand

response growth (Strbac, 2008).

In addition to regulatory provisions at the state level, existing wholesale

market structures affect advancements in demand response resources. To promote

wholesale competition, FERC passed Order 888 in 1996. The order created open

access to transmission services for all energy market players. Owners of transmission

networks were mandated to provide non-discriminatory access to any market player, a

measure that eased wholesale transactions (Shively and Ferrare, 2008). The order also

urged utilities to establish Independent System Operators (ISOs) to ensure energy

systems functioned properly in light of the new challenges resulting from

restructuring efforts. To further elevate unbiased independent energy system

arbitrators, FERC issued Order 2000 that encouraged the creation of Regional

Transmission Operators (RTOs).

Along with provisions related to wholesale energy trading (transactions that

do not involve end-use customers) and long-distance power transmission, U.S. states

were allowed to introduce competition at the retail level. In theory, competition

would benefit customers by leading to lower electricity prices. However, not all states

with restructured energy markets ended up with lower electricity prices for end-users.
 15

The California electricity crisis of 2000-2001 caused a dramatic increase in electricity

prices across the Western states. Other challenges in restructured electricity markets

(e.g., price volatility and reliability concerns during peaks in electricity demand)

turned policymakers’ attention from supply-side to demand-side resources, a trend

that also impacted demand response efforts (Cappers et al., 2010).

The measures introduced by the federal government underscored the

importance of demand response. Section 1252 of the Energy Policy Act of 2005 states

that "each electric utility shall offer each of its customer classes, and provide

individual customers upon customer request, a time-based rate schedule under which

the rate charged by the electric utility varies during different time periods and reflects

the variance, if any, in the utility’s costs of generating and purchasing electricity at

the wholesale level. The time-based rate schedule shall enable the electric consumer

to manage energy use and cost through advanced metering and communications

technology" (Public Law 109-58). Section 1304 of the Independence and Security

Act of 2007 states that "the Secretary, in consultation with the Federal Energy

Regulatory Commission and other appropriate agencies, electric utilities, the States,

and other stakeholders, shall carry out a program … to develop advanced techniques

for measuring peak load reductions and energy efficiency savings from smart

metering, demand response, distributed generation, and electricity storage systems…"

(Public Law 110-140).

State governments have also supported the adoption of demand response

practices. For example, in May 2001 the Idaho Public Utilities Commission issued

Order No. 28722, which, among other provisions, prescribed Idaho Power to develop
 16

a comprehensive demand-side management (DSM) plan to promote energy efficiency

and conservation and reduce peak electricity consumption (Idaho Public Utilities

Commission, 2001). California is currently the national leader in terms of the number

of adopted policies promoting demand response by investor-owned electric utilities.

The regulatory structure plays the most significant role in the electricity sector

by providing clear incentives for specific policy goals. Some states have initiated

significant changes in the traditional regulatory structure to enhance innovations.

When promoting demand-side management (i.e., energy efficiency and demand

response), decoupling mechanisms aim to remove the so-called throughput incentive

or, according to Sullivan et al., "the incentive of a utility to increase sales of energy

between rate-setting processes, beyond the amount of sales assumed when rates were

set" (2011, p. 57).

Policymakers try to promote demand response programs in any number of

ways. However, the traditional regulatory structure often discourages electric utilities

from implementing demand response programs. That is because selling less energy

could become financially detrimental for electric utilities due a direct correlation

between utility revenues and the amount of electricity sold (Sullivan et al., 2011;

Sousa et al., 2013). Historically, the task of providing universal access to electricity

in the U.S. resulted in the creation of a certain type of regulatory structure: the cost-

of-service rate model. In this model, utilities earn more revenues if they include

capital investments in the rate base, which is then multiplied by the rate of return

approved by the regulators. This model encourages utilities to sell more electricity

and build more electric power plants, thus increasing their capital investments.
 17

Therefore, demand-side management programs (energy efficiency and demand

response) are not profitable for the utilities under the traditional rate structure.

Inconsistencies in policy goals and the traditional regulatory structure can be

resolved if regulatory authorities seek to introduce mechanisms that incentivize

electric utilities "to sell least-cost energy services, not larger amounts of kilowatt-

hours" (Fox-Penner, 2014, p. 7). For example, the mechanism of decoupling removes

regulatory inconsistencies by breaking "the link between the utility’s revenue and the

amount of energy it sells" (Sullivan et al., 2011, p. 56). In other words, if a utility sold

more electricity, its revenues would not increase, which negates the disincentive to

invest in energy efficiency. Such considerations exemplify that advancements in

energy efficiency require appropriate regulatory structures. By decoupling increases

in overall revenues from increases in energy sales, this strategy has effectively

spurred energy efficiency (Nissen and Williams, 2016).

However, scholars also note that decoupling policies bring about only a

"compliance mindset"; that is, utilities are not interested in trying to advance energy

efficiency more aggressively because they won’t be allowed to earn additional

revenues (Fox-Penner, 2014). Indeed, Brennan (2013) accentuates the drawbacks

inherent in regulatory modeling that discourages efforts for greater energy efficiency.

Along these lines, Lovins argues that "decoupling doesn’t go far enough on its own,

though, because it doesn’t reward the utility for buying cheap energy efficiency

instead of building costlier new generation" (2011, p. 220).

 18

2.1.2. Social Aspects of Demand Response

Birol offers a pertinent quote of the ancient Chinese philosopher Confucius:

"He who merely knows right principles is not equal to him who loves them" (2007, p.

6). This quote implies that customers’ mere familiarity with available techniques for

demand response practices does not automatically lead to changes in behavior.

Additional efforts are needed to help customers engage in demand response practices

(for example, by automating the process of optimization of electricity consumption,

providing access to energy-use data, and helping low-income households invest in

necessary equipment).

The most recent assessment of demand response and advanced metering in the

U.S., conducted by FERC in November 2018, emphasizes that "understanding the

needs and degree of engagement of different consumer segments may be important to

the success of demand response and time-based rate programs that leverage data from

advanced meters" (FERC, 2018, p. 34). Goulden et al. underscore that the end user

becomes the key element for implementing demand response practices; however, they

note that "how the end user is enrolled to play this part is the key uncertainty" (2018,

p. 176).

Smale et al. emphasize that "solar and wind are intermittent and inflexible

power sources, whereas domestic electricity demand is highly synchronized around

the work-day, work-week, and the seasons" (2017, p. 133). Changes in the patterns of

energy usage help integrate renewable energy into the electrical grid by facilitating

the match of supply and demand in real time. Along these lines, Grunewald and
 19

Diakonova point out that "a return to more sustainable societies may therefore

necessitate among other things a re-appreciation of the rhythms, seasonality and

availability of local resources" (2018, p. 58).

Smale et al. maintain that demand-side flexibility is achieved with help of

"flexibility instruments," by "aligning domestic energy use with new system

objectives" (2017, p. 134). Flexibility instruments are realized through various

approaches. In this regard, Goulden et al. (2018) differentiate three types of demand

response: real-time response enabled by automation, near real-time response ensured

by sending users a signal, and prospective demand response facilitated by time-of-use

rates with higher prices during peak hours.

Social practice theory can be useful in understanding patterns of energy usage

behavior. According to Smale et al. "practice theory is employed to analyze energy

practices as the shared, routinized types of behaviours" (2017, p. 132). One of the

approaches to examine social practices is to analyze teleoaffective structures

associated with those practices. Schatzki defines teleoaffective structure as "an array

of ends projects, uses (of things), and even emotions that are acceptable or prescribed

for participants in the practice" (2005, p. 472). Additionally, Van Vliet et al. (2012)

differentiate five main teleoaffectivities of energy consumption: comfort, economy,

autonomy, sustainability, and safety (of supply). Smale et al. (2017) note that

different types of users have different portfolios of primary teleoaffectivities, which

can explain why certain users carry out certain practices and not the others and

identify the extent of potential demand-side flexibility that customers can provide.
 20

Goulden et al. (2018) distinguish three user types: Resource Man, Energy

Citizen, and Indifferent Customer. Resource Man is an individual who "responds

rationally to price signals and makes informed decisions based on up-to-date and

detailed data provided about the costs, resource units (kilowatt hours), and impacts

(greenhouse gas emissions) of his consumption" (Strengers, 2014, p. 26). Muratori

and Rizzoni (2016) visualize a Resource Man who changes his electricity

consumption patterns by means of the automation of activities requiring energy use

according with time-differentiated rate structures. This synchronization at the

individual level leads to overall decreases in aggregate peak demand. Along with

automated technologies, Resource Man uses feedback and advice regarding his

energy use to better understand how to shift electricity consumption to off-peak

hours. While there is no consensus about which strategy is more effective, some

scholars contend that seamless technology employed in demand response

management (i.e., based on automation and invisible to customers) is preferable to

"technologies and methods that provide feedback and increase consumers’ awareness

of their energy consumption" (Parag & Butbul, 2018, p. 187).

McKenna et al. (2017) present a three-dimensional demand response model

that could be used to analyze actions of Resource Man. The model suggests that three

modes of change contribute to successful demand response programs. First,

technological devices, such as smart meters and smart home devices, should be

available to customers. Second, customer service expectations can be altered to

accommodate the needs of energy systems (e.g., customers’ level of thermal

comfort). Third, customers might implement activity changes (e.g., doing laundry
 21

during off-peak hours). Each mode of change contributes to greater demand response

potential.

The second user type is Energy Citizen whose practices are determined by

collective practices and culture. In a similar vein, Devine-Wright introduces the

concept of "energy citizenship" in respect to individual perceptions of existing energy

systems:

A view of the public that emphasizes awareness of responsibility for climate

change, equity and justice in relation to siting controversies as well as fuel
poverty and, finally, the potential for (collective) energy actions, including
acts of consumption and the setting up of community renewable energy
projects such as energy co-operatives (2007, p. 72).

Citizens become involved in shaping energy systems in many ways. In eight U.S.

states, Community Choice Aggregation programs allow communities to create a

locally controlled public agency and procure electricity through independent power

producers and not through the default investor-owned utility operating in the area

(Gunther and Bernell, 2019). In addition, some customers pay premiums to help their

utility invest in renewable energy.

Along those lines, Smale et al. underscore that householders’ decision-making

process regarding their energy usage "is not the result of rational, information- and

cost- driven considerations" but that "the performance of (sustainable) energy

practices can be inherently emotionally rewarding to (some) householders" (i.e.,

"performance or non-performance of certain energy practices to some extent reflects

the normative objectives of energy use held by householder-practitioners, and their

emotional experiences of performing those practices" (2017, pp. 133-134). In that

regard, Brown et al. (2018) stress that it is important to consider the role of consumer
 22

trust, social norms, and habit formation for understanding energy usage behavior.

Figure 3 displays a brochure, adapted from Herter (2009), which was distributed to

participants of a pilot demand response program. The brochure conveys the influence

of social norms on energy usage by small commercial customers.

Figure 2.1. Placard Distributed to Participants of a Pilot Demand Response

Program. Source: Herter (2009).
The third user type, defined by Goulden et al. (2018, p. 183), is Indifferent

Customer – a disengaged customer, "the ghost of energy grids past." Better

understanding of this type of casual energy user might reveal potential reasons for his

or her disengagement. Changes in energy use behavior that embrace flexibility

require resource investments. Certain population groups might find such measures

difficult to adopt (these groups include, for example, low-income households and

older individuals). Thus, equity issues are important (Gyamfi et al., 2013) in the sense

that some customer segments might be hurt by new rate structures that aim to

promote residential demand response. In addition, some practices can be more time-

critical than others (Smale et al. 2017, p. 135). For example, Parag and Butbul (2018)
 23

conducted an online survey of Israeli households and found that dishwashing

displayed maximum flexibility and refrigerating showed minimum flexibility.

Ultimately, understanding the needs of the end user is the key element to

successfully implement demand response programs. Smale et al. (2017, p. 134)

conceptualize demand-side flexibility instruments "as social practice elements which

are initially designed by the system actors of the techno-epistemic network, and

subsequently appropriated in unpredictable ways in everyday practice by

householders." Nevertheless, Goulden et al. (2018, p. 177) contend that there is "little

empirical evidence on how system builders within industry and policymaking

perceive the role of demand side response users."

2.1.3. Technological Aspects of Demand Response

Brown et al. (2017) defines three stages in the evolution of demand response

initiatives (Demand Response 1.0, 2.0, and 3.0). The earliest programs (Demand

Response 1.0) date back to the 1970s when electric utilities offered their large

customers interruptible tariffs and implemented direct load control enabled by one-

way communication technologies installed on residential customers’ air conditioners

and water heaters. The purpose of this type of demand response was to offer energy

and capacity services in the event of high wholesale prices, generation interruptions,

or transmission congestion. Utilities manually sent their customers notifications either

hours or a day ahead before an upcoming demand response event. Neither utilities nor

customers could see an immediate impact of customer performance during the event.
 24

According to Brown et al. (2017), more recent efforts (Demand Response 2.0)

offer near-instantaneous ancillary services (e.g., voltage support) in addition to

energy and capacity services. This type of demand response is often enabled by

Advanced Metering Infrastructure (AMI) with a capacity for two-way communication

between the utility and its customers. Increased measurement precision allowed

utilities and customers to see a near real time impact of customer performance during

the demand response event.

Finally, Demand Response 3.0, a projection into the future, is capable of

providing a broader range of services both to utilities and customers (e.g., renewable

energy integration). Two-way communication devices, enabled by Wi-Fi and likely

automated, initiate demand response and instantaneously notify the utility and its

customers about customer performance. This type of demand response becomes

"visible" in the utility control room. That, in turn, makes the services provided by this

resource more trusted and reliable.

In demand response programs enabled by digital technologies, two issues

become important: 1) collecting high-frequency data on customer electricity usage

and enabling two-way communication between the utility and its customers; and 2)

utilizing the data to enhance innovation in demand response and energy efficiency

programs. Zarnikau (2010) argues that the rollout of AMI (more broadly known as

smart meters) will provide unprecedented opportunities for greater demand response

by smaller customers. Specifically, energy providers will be able to engage small

commercial and residential customers who have installed AMI in time-differentiated

retail rate structures that correspond to electricity wholesale prices (Centolella, 2010).
 25

Similarly, Wang et al. (2015) argue that a real-time marginal price will encourage

customers to dispatch their controllable energy sources during periods of high

wholesale prices.

Herter and Wayland (2010) use an example of a case of experimental time-

differentiated rates in California to emphasize that load reduction was two to three

times more successful among customers who had access to technologies that

automated their response to critical peak events. Chen et al. (2012) developed an

application connected to smart meters designed to automatically set home appliances

to a regime that can optimize changes in real-time wholesale prices in 5-minute

intervals. Integration of information and communication technologies can help make

electricity load management "smarter" by reflecting marginal prices in the wholesale

markets. Low deployment rates of AMI that allow two-way communication between

a utility and its customers might impede growth of demand response practices.

AMI consists of electric meters that conduct high-frequency measurements of

electricity consumption at 15-minute intervals, communication networks, and a meter

data management system (MDMS).The latter is a system that manages, stores,

converts, and sends the data back to the utility (Mohassel et al., 2014). One main

advantage of AMI is that it ensures two-way communication between the utility and

its customers. In 2009, as part of the American Recovery and Reinvestment Act

(ARRA), the U.S. Department of Energy (DOE) provided $3.4 billion dollars through

the Smart Grid Investment Grant (SGIG) program to modernize the U.S. electric grid.

The industry more than matched the government’s investment with $4.5 billion. Out

of the total investment, $4.4 billion went to the AMI installation efforts (DOE, 2015).
 26

As of 2018 (the latest available data), U.S. electric utilities installed about 86.8

million smart meters, amounting to 56% of all installed meters nationwide (EIA,

2019).

2.2. Literature on Socio-technical Transitions

Energy is one of the main components of the societal system. Evolution of

energy systems and societal development are highly intertwined. Major changes in

techniques of using energy have significantly impacted the evolution of human

beings. For example, the domestication of fire, among other things, allowed for food

to be easier to digest. Thus, humans could spend more energy on the mental

challenges. The result was an increase in the size of human brains, which led to

drastic changes in the development of the human species (Crosby, 2006).

Advanced energy systems are often associated with societal progress; yet they

are also responsible for negative environmental consequences too. Climate change, a

consequence of human activities associated with the burning of fossil fuels (coal, oil,

and natural gas) due to carbon dioxide emissions, currently poses an existential threat.

By signing the Paris Accord, the global community agreed that these negative

impacts should be mitigated, in large part by changing the current energy system.

However, the pervasive presence of fossil fuel-based energy in many spheres of

human activities makes changes in the current energy system a challenging process.

This engenders political clashes that slow the process.

The question of how far and how fast societies could proceed in their efforts

to transition to more sustainable energy sources has no easy answers. Smil and Lovins
 27

present opposing views on this matter. Lovins (2012) argues that higher energy

efficiency in transportation, buildings and industry, as well as a dramatic

transformation in the electric system, could potentially bring about significant

reductions in fossil fuel use and carbon emissions. In contrast, Smil (2010)

emphasizes the unlikelihood of a major energy system transformation by citing

numerous technical constraints standing in the way of developing renewable energy

sources on a large scale (e.g., the low energy and power intensity of renewable

sources, unequal distribution of the renewable sources, and their intermittent nature).

These opposing assessments are largely based on differing assumptions regarding the

system components. Energy system actors try to take into account various scenarios

of low or high prices and low or high technical maturation of different energy

sources, as well as various scenarios of policy and regulatory regimes, to project the

future of energy systems.

Several pathways are available to reduce carbon dioxide emissions: 1) policy

measures and regulatory mandates at both the supply-side and demand-side of energy

resource procurement; 2) technological innovations to reduce carbon dioxide

emissions (e.g., carbon capture and storage); 3) voluntary commitments by

corporations to procure cleaner electricity and individual behavior changes of energy

usage. Demand response development is one of the available mechanisms for

transitioning toward more sustainable energy systems. How the electricity system

functions depends on technical, political, economic, and social components.

Therefore, understanding processes related to electricity systems requires a multi-

dimensional framework. Within the literature on socio-technical transitions, the

 28

multi-level perspective (MLP) on sustainability transitions provides a comprehensive

conceptual model that can be used to examine "interactions between technology,

policy/power/politics, economics/business/markets, and culture/discourse/ public

opinion" (Geels, 2011, p. 25).

2.2.1. Multi-level Perspective on Sustainability Transitions

The multi-level perspective (MLP) on sustainability transitions identifies three

levels affecting socio-technical transitions (landscape, regime, and niches). It also

conceptualizes the interactions between the levels (Verbong and Geels, 2007). First,

there is the landscape level that includes "demographical trends, political ideologies,

societal values, and macro-economic patterns" (Geels, 2011, p. 28). This macro level,

despite being an exogenous environment, influences the processes of the socio-

technical regime and the niches level. Specifically, regime and niche actors have no

control over the landscape dynamics in the short run, although they are affected by

them and have a potential to change them in the long run.

Second, there is the socio-technical regime, which characterizes the electricity

system’s existing technological capabilities, institutional arrangements and cultural

practices. Verbong and Geels (2007, p. 1026) identify several components of the

socio-technical regime: (1) incumbent actors with vested interests; (2) formal rules

represented by regulatory statutes and laws, as well as informal rules and norms such

as cognitive routines, value and belief systems, power relations, and consumer

preferences; and (3) existing material infrastructure. At the same time, actors’ vested

interests, dominant institutional arrangements and infrastructure investments also

 29

contribute to the regime stabilization and might result in path dependence and system

lock-in.

Then, there is the third level, which comprises niches – protected spaces

where innovations occur. The technological novelties that emerge from these niches

are not subject to general market selection processes. Rather, they grow under

"greenhouse" conditions that nurture public or private investments and draw special

attention from interested actors. This involvement is necessary because, at the early

development stage, new technologies have a low price/performance ratio (Verbong

and Geels, 2010, p. 1215). The three main processes important for niche development

are vision articulation, the building of networks of actors that expands the resource

base for niche growth, and learning processes regarding key elements such as

technical requirements, customer preferences, policy tools, and organizational

dynamics (Verbong and Geels, 2007, p. 1026; Geels, 2011, pp. 27-28).

Geels and Schot (2007) theorize several pathways for interactions between

niche and regime actors under certain landscape conditions. The authors assert that

these pathways are often ideal and theoretical. In the real world, the authors state that

empirical cases are likely to combine elements from different pathways and even

experience a sequence of multiple transition pathways (Geels and Schot, 2007).

A transformation pathway is triggered by exogenous forces at the landscape

level and unfolds as a gradual incremental alteration of the socio-technical regime. In

this pathway, niche development is still at an early stage, and niches are not capable

of using emerging windows of opportunity to create major changes in the regime.

 30

Consequently, transformation comes primarily from incumbent actors. Changes in

existing rules and norms that guide regime actors are minor. New regimes might

eventually emerge as a consequence of incremental changes in the regime (Verbong

and Geels, 2010, p. 1216). In this pathway, niche practices are adopted by the regime

actors, though frequently with some dilution (Geels, 2011, p. 32).

In the reconfiguration pathway, where niches are more developed, exogenous

forces at the landscape level prompt incumbent actors to adopt innovations developed

in symbiosis with the regime. These novelties tend to supplement the system

components. As a result, significant gradual changes (as opposed to incremental

changes in the transformation pathway) occur in the regime configuration (Verbong

and Geels, 2010, p. 1216; Geels, 2011, p. 32).

Technological substitution is the pathway whereby exogenous forces at the

landscape level create tensions in the regime that serve as windows of opportunity for

the niches to gain momentum and replace the current regime actors. In this pathway,

the niches are not symbiotic to the regime as in the reconfiguration pathway, but

compete with the incumbents (Verbong and Geels, 2010, p. 1216). The niches can

gain momentum not just as a result of exogenous forces but also as a result of internal

processes (e.g., as a result of significant investments, strong consumer preferences, or

political support) (Geels, 2011, p. 32).

Regime de-alignment and re-alignment occur when major exogenous forces at

the landscape level create major "cracks" in the regime. As a result, the incumbent

actors give up, and the regime collapses (regime dealign-ment). This pathway is

characterized by a high level of uncertainty and the presence of several influential

 31

groups within the niches, one of which becomes dominant and ultimately creates a

new regime (regime re-alignment) (Verbong and Geels, 2010, p. 1216; Geels, 2011,

p. 32)

2.3. Literature on Innovation Adoption

Bogers et al. (2018) argue that companies involved in information and

communications technology (ICT) industries demonstrate productivity improvements

compared to non-ICT companies. Indeed, the development of the Internet

technologies has played a significant role in this process. Case (2017) argues that the

evolution of the Internet and digital technologies has unfolded in three waves. In the

first wave, the Internet infrastructure was developed. In the second wave, companies

such as Amazon and Google, identified significant opportunities for utilization of the

Internet infrastructure. In the third wave, the Internet of Things provides new

opportunities for new and incumbent firms in non-ICT industries. Along these lines,

Bogers et al. maintain that, in the third wave, "digital technologies and the Internet

leave the traditional infrastructure and finally move to the highly regulated sectors of

health, energy, transport, or finance" (2018, p. 8).

Giordano and Fulli argue that "the digitalization of the electricity grid opens

the way to bundle value added services to the electricity commodity, and possibly

shift business value to electricity services in line with the notions of efficiency,

conservation and sustainability" (2012, p. 252). The issue of incorporation of digital

technologies into highly regulated markets is important to examine because,

 32

according to Bogers et al. (2018), such symbiosis of physical and digital components

can lead to economic growth.

Electricity is a sector of the economy where digital and physical elements of

the system are becoming more integrated. Several decades ago, a vertically integrated

electric power utility delivered electricity to its customers. Today, the electric grid

looks completely different: It has experienced organizational restructuring; it has

become more decentralized; it has utilized a greater amount of intermittent sources of

energy (i.e., wind and solar); and it has embraced new strategies for production and

distribution, marked by the growing presence of independent power producers and

renewable energy sources. All these changes require energy sector participants to

engage in innovative strategies to adapt to these dramatically altered circumstances as

a pathway for ensuring grid reliability and flexibility.

Programs promoting demand response provide potential solutions that can

help overcome these challenges. The programs can also be seen as opportunities for

improving system performance and reliability. Demand response and energy

efficiency are not new phenomena. However, contemporary challenges (i.e.,

significant growth of intermittent and distributed energy supplies) and the

development of new technologies (e.g., information and communications technology)

alters the way the power sector implements demand response programs, thus creating

great potential for innovation.

Scholars have devoted significant attention to understanding the dynamics of

innovation and technology adoption. Several prominent theoretical models explain

 33

innovation and technology adoption at the organizational level (Rogers, 2010;

Tornatzky and Fleischer, 1990; Grubler, 1991). Most empirical studies on innovation

and technology adoption examine the functioning of regular markets. However,

research on innovation and technology adoption in highly regulated markets is limited

(Dedrick et al., 2015).

Because electric utilities are natural monopolies (each electric utility has a

designated service area, in which it is obligated to provide electricity services to all

customers), regulators closely control electric companies’ business activities. In a

highly regulated market, existing policy regimes play an important role in shaping

firms’ choices on new technology adoption. The context of regulated monopolies, in

which electric utilities operate, can provide additional insights on how innovation and

technology adoption unfold. The technology-organization-environment (TOE)

framework (Tornatzky and Fleischer, 1990) offers a theoretical foundation for

examining factors that influence adoption of demand response practices by electric

utilities operating in a regulated market.

2.3.1. Technology-Organization-Environment Framework to

Adoption of Innovation
The technology-organization-environment framework focuses on three main

groups of factors that influence the adoption of a new technology at an organizational

level: the technological context (the benefits of a new technology adoption should

outweigh the costs of its deployment); the organizational context (size, ownership,

managerial specifics); and the environmental context (regulatory structure,

stakeholder inclinations) (Tornatzky and Fleischer 1990).

 34

Technological context:

To obtain granular data on electricity usage, electric utilities need to install

Advanced Metering Infrastructure (more commonly known as smart meters) at

customer sites. Smart meters collect data on customer electricity usage at 15-minute

intervals and send this information to the utility. Utilities, in turn, send price signals

to the customers designed to alter their patterns of their electricity consumption. The

main costs of smart meter installation include costs associated with the installment of

smart meters and communication costs. To install smart meters, a utility needs to

invest in both infrastructure and appropriate communication services necessary for

smart meter utilization.

Demand response programs, enabled by digital technologies (e.g., smart

thermostat, smart water heater), require high-quality communication services, which

may be less accessible in areas with low population density that tend to have lower

rates of broadband services. Thus, utilities that serve high population density areas

might be more likely to capitalize on available high-quality communication services

than those that serve low population density areas. Additionally, existing research

emphasizes the importance of demand response in integrating intermittent energy

sources. Therefore, states with higher levels of renewable energy will have stronger

rationales to develop demand response programs because some renewable sources

(wind and solar) are intermittent in nature and require additional efforts to be

integrated.
 35

Organizational context:

Researchers have argued that organizational characteristics (e.g., size and

ownership) influence utilities’ decisions on whether to adopt new technologies. One

such characteristic is utility size. Rose and Joskow (1990) contend that utility size

might impact its decision to deploy new technologies. Specifically, smaller utilities

might have less available resources to invest in a new technology. Dedrick et al.

(2015) suggest that prior studies (e.g., Picot and Kaulmann, 1989) indicated that

private firms on average score higher in profitability and productivity measures. This

argument could be used to hypothesize that private utilities would have more

opportunities to invest in the adoption of new technological practices compared to

public utilities.

Environmental context

Bogers et al. (2018) identify several areas in which policymakers can

influence the process of innovation. These include: 1) enhancing collaboration among

research institutions and industry and ensuring access to scientific findings and

datasets to interested parties; 2) providing public funds and stimulating private

investments in pilot projects; and 3) assuring that existing regulatory frameworks

enhance emerging innovations. Specifically, this would mean that policymakers

would "help identify and address perceived legislative barriers more quickly by

providing more clarity or identifying solutions within existing legislation" (Bogers et

al., 2018, p. 11).

Scholars have examined the impact of policy on enhancing innovations

leading to low-carbon energy transitions (Stucki et al., 2018). Previous research

 36

documented the highly significant role of policy incentives in the adoption of smart

meters by electric utilities (Zhou and Matisoff, 2016; Dedrick et al., 2015).

Furthermore, Zhou and Matisoff (2016) cited the importance of a polycentric

governance system for higher smart meter adoption rates at a state level. That is,

federal and state level policies appear to be conjointly supportive. Similarly, policy

incentives are likely to have a positive impact on the development of demand

response.

The electricity regulatory framework in a state (i.e., whether a state has

competitive wholesale and retail markets) impacts the adoption of technologies that

are used at the demand side. Boyd and Carlson (2016, p. 836) maintain that in a

traditional cost-of-service model, most customers continue to pay flat rates, which

reduces the opportunities for demand response. In addition, high per kilowatt-hour

prices might serve as an incentive to reduce costly on-peak demand and utilize

demand response programs.

Polanyi (2001, p. xxiv) contends that "market transactions depend on trust,

mutual understanding, and legal enforcement of contracts" so that economic reality is

embedded in politics, culture, and institutional arrangements. Similarly, Formica and

Curley (2018) underscore the importance of cultural space in the knowledge economy

and the role of "togetherness" for innovating. Bertelli and Smith emphasize the

significance of "selecting mission-driven agents and developing long-term

relationships held together by relational contracts," which embody "the interaction

between formal and informal aspects of contracts, namely the relationship between

the parties" (2010, p. 123). Skelcher states that "relational transparency, in other
 37

words trust, is crucial" (Skelcher, 2005, p. 13). Similarly, Adler (2001) demonstrates

that growing knowledge-intensity will require greater reliance on trust. The author

differentiates modern trust (or reflective trust based on integrity and competence)

from traditionalistic trust (blind trust based on loyalty and obedience). Trust can

drastically reshape market and hierarchical structures. Low trust is associated with

top-down, rigid structures. High trust, in contrast, is associated with bottom-up,

inclusive engagement and enabling types of governance that promote relational

interactions.

States with higher levels of environmental concerns may be more supportive

of demand response development because of the benefits that this technology

introduces for the "greener" electric grid. The League of Conservation Voters score

could be used as a proxy for environmental values of state residents. The League of

Conservation Voters tracks the voting records of all Congressmen regarding major

environmental legislation considered by Congress (energy, climate change, public

health, public lands and wildlife conservation, and spending for environmental

programs). As a final step in its study of voting records, the League of Conservation

Voters aggregates the scores of all Congressmen at the state level.

2.4. Integrating Theoretical Insight

Table 2.1 summarizes the links between the relevant bodies of literature and

provides three categories of factors influencing demand response development by

investor-owned electric utilities:


Table 2.1. Factors Influencing Demand Response Development by U.S. Investor-
Owned Electric Utilities
Literature on Innovation
Adoption (Technology-
Organization-Environment
Framework)
Benefits of a new technology
adoption should outweigh the
costs of its deployment
(Tornatzky and Fleischer,
1990).
Organizational factors
represent size, ownership,
managerial specifics
(Tornatzky and Fleischer,
1990).
Literature on Regulatory,
Social, and Technological
Aspects of Demand
Response
Technological Factors
Advances in technological
solutions bring about progress
in demand response
development (e.g.,
automation and two-way
communications technologies
such as smart meters, smart
thermostats, and smart water
heaters).
Additional efforts are
required to integrate
intermittent (wind and solar)
sources of energy into the
electrical grid. Demand
response helps serve this goal
by shifting electricity usage to
the time of day that coincides
with high output of wind and
solar energy sources (Barton
et al., 2013; Vardakas et al.,
2015; Paterakis et al., 2017).
Organizational Factors
Utility size influence utilities’
decisions regarding the
adoption of new technologies.
Rose and Joskow (1990)
argue that smaller utilities
might not have enough
resources to invest in a new
technological deployment.
38
Literature on Socio-
technical Transitions
(Multi-level Perspective on
Sustainability Transitions)
Material infrastructure
investments and technological
capabilities contribute to the
stabilization of the existing
socio-technical regime and
might result in path
dependence and system lock-
in (Verbong and Geels, 2007,
p. 1026).
The three processes important
for niche development: are
vision articulation, building of
networks of actors, and
learning processes regarding
technical requirements,
customer preferences, policy
tools, and organizational
dynamics (Verbong and
Geels, 2007, p. 1026; Geels,

Environmental factors consist
of regulatory structure,
stakeholder inclinations
(Tornatzky and Fleischer,
1990).
Environmental Factors
The traditional regulatory
structure might discourage
electric utilities from
implementing demand
response programs due a
direct correlation between
utility revenues and the
amount of electricity sold
(Sullivan, Wang, and Bennett,
2011; Sousa, Martins, and
Jorge, 2013). Thus, policies
requiring electric utilities to
develop demand response are
likely to be of great
importance.
High electricity prices and
societal concerns over the
environment could provide
more value for demand
response resources.
39
2011, pp. 27-28).
Incumbent actors with vested
interests and dominant
institutional arrangements
(formal rules represented by
regulatory statutes and laws,
as well as informal rules and
norms such as value and
belief systems and consumer
preferences), contribute to
regime stabilization (Verbong
and Geels, 2007, p. 1026).
The landscape includes
"demographical trends,
political ideologies, societal
values, and macro-economic
patterns" (Geels, 2011, p. 28).
Despite being an exogenous
environment, it influences the
processes of the socio-
technical regime and the
niches level.
 40

3. Qualitative Approach

The study utilizes a comparative case-study analysis based on interviews with

a panel of stakeholders and the examination of relevant regulatory documents.

According to Yin, case study is "an empirical inquiry that investigates a

contemporary phenomenon (the "case") in depth and within its real-world context,

especially when the boundaries between phenomenon and context may not be clearly

evident" (2014, p. 16).

Case summaries in this study are structured as follows. The first section

provides a historical perspective on the development of the Pacific Northwest’s

hydroelectric system, including the main entities involved in energy governance in

the Pacific Northwest. Next, I present an analysis of environmental, technological,

and organizational factors of demand response development that reflect the Pacific

Northwest’s regional characteristics and, therefore, are applicable to all the three

cases (Idaho, Oregon, and Washington). Further, I present three separate summaries

and identify environmental, technological, and organizational factors of demand

response development in each state. Finally, I present a comparative analysis of

environmental, technological, and organizational factors of demand response

development across cases.

3.1. Case Selection

A "most-similar systems design" (Meckstroth, 1975) guided the case selection

process. Three states were chosen that were very similar in their electricity systems

(no organized markets, heavy reliance on hydropower, cheap electricity prices).

 41

Despite the systems’ similarities, each state experienced different outcomes in their

level of demand response development. Table 3.1 summarizes the measurements of

the independent variables across cases. Examining cases that have common dynamics

at the landscape level can potentially provide insight about processes at the other two

levels – regime and niche – that lead to variations in the dependent variable.

Table 3.1. Independent Variables Across Cases

Variable U.S. Idaho Oregon Washington

Average Retail 10.58¢/kWh Low Low Low

Price of
8.20¢/kWh 9.05¢/kWh 7.98¢/kWh
Electricity, 2018
(EIA, 2018)

Electricity 6.98% High High High

Generated from
60.25% 56.65% 69.85%
Hydroelectric
Power, 2018
(EIA, 2018)

Restructuring N/A Vertically Vertically Vertically

Integrated Integrated Integrated

Policy Actions N/A Yes – Early Yes – Late Yes – Late

that Promoted
Impact of 2019
Demand
legislative
Response
efforts to be
determined

Peak Demand N/A Summer Both summer Both summer

Period and winter and winter
 42

The measurements of the dependent variable varied from state to state. In

Idaho, demand response achievements are among the highest in the U.S.; in Oregon,

they are among the lowest; and in Washington, they are not reported at all. Figure 3.1

demonstrates the variation of the dependent variable across the three cases.

Figure 3.1. 2018 Enrolled Demand Response Capacity (MW). Source: Smart
Electric Power Alliance (2019).

3.2. Data Collection

I conducted 21 in-person and phone semi-structured interviews with a panel of

stakeholders in each state in May-June 2019. A systematic search that included public

utility commissions’ dockets, public reports, public testimony, review of websites and

materials related to demand response development in each state) was conducted to

identify important stakeholder organizations. Interviewees were selected through

purposive sampling: Individuals with the highest citation number within each

stakeholder category were selected for initial contact, assuring the representation of
 43

all main stakeholder groups. In addition, snowball sampling was conducted to

supplement the systematic search sampling. The main stakeholder groups represented

state executive agencies, state public utility commissions, electric utilities, consumer

advocates, energy-management firms, and environmental groups. A list of interview

participants is presented in Table 3.2.

Table 3.2. A list of interview Participants

Organization Type Number of interviews State

State Public Utility 3 interviews, 4 participants ID, OR, WA

Commissions

State Offices or Departments 3 ID, OR, WA

of Energy

Investor-owned electric 3 ID, OR, WA

utilities

Public electric utilities 2 interviews, 3 participants WA

Regional electric power 1 PNW

planning entity

Independent power producer 1 Western US

Customer advocates 3 OR, Western US

Demand response 1 National

technology provider

Environmental organizations 2 PNW, ID

Smart grid community 1 PNW

Industrial Customers 1 ID

Total 21 interviews, 23
participants
 44

During the data collection process, I used a list of questions (presented in

Appendix A) to help guide the interviews to address the main issues. But I also left

room for unanticipated data by exploring, clarifying, and probing when necessary

(Crossman and Clarke, 2010). I consider the study as low risk because it did not

include vulnerable populations. My goal was to build a rapport with my interviewees.

To achieve that, I first made sure to clearly explain the project goals and my

intentions as a researcher. Once this was made clear, I did state that interviewee’s

confidentiality would be guaranteed and that they would be able to withdraw from the

study anytime they desired.

3.3. Data Analysis

Data analysis involved transcribing and thematic coding of the interviews

(extracting primary codes from the existing literature and adding secondary codes

emerging from the data). Table 3.3 presents the qualitative codebook used for

thematic coding.

Table 3.3. Qualitative Codebook

Code Definition Sub-codes Illustration

Exogeneous The broader Political ideologies "And to me, Oregon and Washington, are
socio- context that much more, I don't know if "liberalist" is
technical sustains the right word, but more environmentally
landscape society and maybe conscious."
influences the
socio-
technical Societal values "Efficiency is considered a good thing;
regime and conservation is a good thing in the
niches region."
 45

Demographic and "I would say that just depends on the load
macro-economic that each utility gets, so Idaho is growing,
trends we have a lot of people moving to the
state, and the utilities are planning for
that."

Physical "60% of our electricity comes from

configuration of hydro. And hydro does provide capacity."
the electricity
system

Major changes in "We're putting more renewables on the

the electricity system and are trying to reduce carbon
system (e.g., emissions associated with the electric
decarbonization system, it means we have a lot more
goals, emerging variable energy resources that you can't
threats over the always count on in times of peak summer
system capacity in load or peak winter load. And so, you've
the Pacific got to manage that variability in
Northwest) generation. And being able to have the
variability in load as a way to balance the
variability in generation."

Socio- A formal and Informal rules, "Unlike Washington and Oregon, the
technical informal norms, and shared Idaho legislature has not chosen to insert
regime structure that beliefs prevalent itself into energy matters. So, we don't
enables the among the regime have … we have not had any bills from
functioning of actors the legislature tell the Public Utility
a current Commission what they've got to do, not
socio- having from the legislature telling utilities
technical what they have to do.”
system
Formal "Because our, our way of evaluating cost
institutional effectiveness is most likely changing as a
arrangements and result of Senate Bill 5116. So, some of
regulations those other pieces could be included for
the first time: Public interest includes
health benefits and all other potential
non-energy benefits that could be
included."
 46

Electricity "I think people do care, but I think for the

customer practices most part customers don’t want to think
and expectations about, that’s why they are buying smart
thermostats, they want to make the
control more seamless, trust what they
can do for you, but also have remote
access. I think most of the population just
wants a trusted energy manager to do
automated for them, they don’t want to be
actively responding or having to take
action. I don’t think that’s what most
customers want to do."

Available "Your firm demand response are the

technical resources that we got a system operator
capabilities and can visualize they can see it, and they can
competencies control it. So, this is what we might call
like direct load control demand response.
Something that’s meterable, has telemetry
of some sort."

Market dynamics [In Oregon, we don't have an organized

market structure. Does it affect demand
response potential?] "Absolutely 100%,
right, in both positive and negative
fashion. So, when you have a locational
marginal price, like you do in any of the
ISOs or RTOs, you have a decently
granular market indicator or signal for
development of resources, whether they
have to be non-wire alternatives or other.
And that includes demand response."
 47

Niches Special Vision formation "But this is what's going to help us as

‘protected that guides with various services for the system. So,
spaces’ where innovation it'll help with capacity. And it'll help with
innovations activities energy services, ancillary services,
are emerging: balancing services, storage services. And
R&D so, we're trying to develop our programs
laboratories, as such right now. So that we can see,
demonstration there's a pathway to flexible load. So, all
and pilot of the demand response programs that we
projects, etc. have right now, are on a pathway to
flexible load. So, our thermostat program,
we really call it 12 to 20 times per year.
But we know we can call it much, much
more often."

Creation of "As a company we work a lot with the

networks of actors partners, we work directly with our utility
that comprise a clients. But within the family, you have
resource base for the implementors, these folks offer their
the niche program management services to utilities
development who run these programs."

Learning processes "We're working with the Energy Trust of

occurring on Oregon right now, on the development a
different direct install heat pump water heater
dimensions of the program. This is a big game changer for
socio-technical the region. If this works, we're going to
regime (political, do this first in our testbed area, just a few
cultural, hundred homes. But if we can leverage
technological, energy efficiency dollars and demand
market) response dollars, to bring down the
overall insolent installed cost of a heat
pump water heater, which is super-
efficient, that's demand response capable.
We've just saved the region a lot of
money and a lot of resources."
 48

Heterogeneity in 1) "You might call it like ‘non-wire

niche technologies solution,’ there is kind of, there is other
(e.g. different buzz words that I think are internalized or
types of programs, being planned forward in those utilities.
different customer It’s like when you start a research project:
segment targets) What’s demand response? What it
encompasses, what’s inclusive, what’s
exclusive, I think you have a lot of
planning efforts that might fall into load
management that are happening."
2) "So, there's roughly two different types
of demand response, there's non-firm and
firm."

The role of "So, we are the only in the northwest

contiguous have we been able to get the average
technologies household energy usage to go down over
the last 30 years; and I think that helps for
demand response, because we've got
institutions and a legacy of running these
programs [energy efficiency programs]."

3.4. Historical Perspective on the Development and Structure of the

Pacific Northwest’s Hydroelectric System
A major source of electricity in the Pacific Northwest is hydroelectricity

generated by dams on the Columbia River and its tributaries. The source of the

Columbia River is Columbia Lake, located in the Rocky Mountains of British

Columbia, about 100 miles southwest of Calgary, Alberta. The river enters the United

States in Washington, about 90 miles north of Spokane. It then runs along the

Oregon-Washington border and empties into the Pacific Ocean near Astoria, Oregon.

The river’s largest tributary, the Snake River, rises in western Wyoming, flows

through southern Idaho and then along the Idaho-Oregon border and empties into the

Columbia River near Tri-Cities, Washington. The Columbia River and its tributaries
 49

account for about one-third of North America’s hydropower potential (U.S.

Department of the Interior, 1967).

Blumm (1982, pp. 240-241) argues that the conceptual origin of the

development of the colossal Pacific Northwest’s hydropower system can be traced to

two major philosophical paradigms. First, Progressive era ideas in the early decades

of the 20th century emphasized the significance of public ownership of the Columbia

river waterways and the importance of promoting social equity and limiting the

negative effects of economic monopolies (e.g., high electricity rates and the

unwillingness of private companies to provide electricity in rural areas due to their

remoteness and sparse populations). And second, New Deal concepts, which emerged

as a response to the harsh realities of the Great Depression in the 1930s, highlighted

the potential positive effect of federal infrastructure investments for economic

growth. Indeed, the construction of large federal dam systems created large numbers

of jobs as well as spurred competition with the private electric companies. Public

power companies were deemed a "yardstick" that could bring electricity to places

where it didn’t exist, reduce rates where it did, and improve the overall quality of

services.

In 1932, under a congressional mandate, the Army Corps of Engineers

delivered the so-called "308 Reports" assessing the opportunities for multipurpose use

of the Columbia River waterways. Different uses included opportunities for

generating hydroelectric power, navigation, irrigation, and flood control (Miller,

2012). The reports suggested that the creation of dams would help generate

significant amounts of hydropower and spur economic growth in the Pacific

 50

Northwest. In response to the "308 Reports," the Washington State Legislature

created the Columbia Basin Commission in 1933. That led to the construction of

hydroelectric dams at Bonneville, completed in 1938, and Grand Coulee, completed

in 1941 (Pacific Northwest Public Power Records Survey and Western Washington

University, 1981, p. 1).

The main entities involved in energy governance in the Pacific Northwest

In 1937, the Bonneville Project Act, passed by the U.S. Congress, created the

Bonneville Power Administration (BPA), a federal wholesale marketing agency. BPA

was formed to market power generated by the Bonneville Dam on the Columbia

River to public entities, the retailers of wholesale federal hydropower (Blumm, 1982,

p. 241). Subsequently, BPA was granted authorization to market power generated by

projects in the federal hydroelectric power system in the Columbia River Basin built

and operated by the U.S. Army Corps of Engineers and the U.S. Bureau of

Reclamation (Pacific Northwest River Basins Commission, 1978, p. 2).

Electric utilities that serve end-use customers in the Pacific Northwest include

private and public electric utilities. Each utility operates in a designated area where it

is obligated to serve all customers. Private, or investor-owned, utilities are for-profit

enterprises. Their main goal is to earn profits (rates of return) for their shareholders.

To reduce potential negative effects of the monopolistic nature of private electric

utilities, state public utility commissions regulate their activities to make sure that

utilities’ infrastructure investments are used and usable and that ratepayers pay just

and reasonable rates.

 51

Unlike private utilities, public utilities are not for-profit entities. Public

utilities include Public Utility Districts (or People’s Utility Districts), municipal

utilities, and rural electric cooperatives. Initiatives to create public utilities in the

Northwest date back in 1889 when McMinnville, Oregon, formed a municipal system

to procure power for its citizens. In Washington, Port Angeles established a municipal

system in 1891, followed by Tacoma in 1893 and Seattle in 1902.

Private electric utilities fought the public power movement for more than two

decades. But in 1930 Washington voters approved the creation of Public Utility

Districts that were given responsibilities similar to those of Washington’s cities (U.S.

Department of the Interior, 1967). Public Utility Districts in Washington and People’s

Utility Districts in Oregon are entities "formed by local initiative to perform a service

for an area which may overlap several separate governmental units or include only a

limited territory within the boundary of a standard unit of government" (Pacific

Northwest Public Power Records Survey and Western Washington University, 1981,

p. 1).

A rural electric cooperative founded by several farmers of southern Idaho in

1914 was the first rural electric cooperative in the region (Pacific Northwest Public

Power Records Survey and Western Washington University, 1981, p. 4). Extending

power to rural areas became the goal of the Rural Electrification Administration

(REA) of 1935, part of Roosevelt’s New Deal. This initiative was a response to high

electric power costs in rural areas and the unwillingness of private electric utilities to

serve rural customers.

 52

Initially, the Bonneville Power Administration’s highest priority was to offer

electricity for purchase to public utilities in the Pacific Northwest. In the 1950s, BPA

started selling access power to private utilities and large industrial customers in the

region. It could also sell power to customers outside the region if the electricity needs

of customers in the Pacific Northwest were met (Pacific Northwest River Basins

Commission, 1978, p. 2). The revenues derived from BPA’s wholesale power rates

have enabled the federal government to recover the cost it accrued to produce and

transmit electricity (Katz, 1973, p. 2).

Although there is no organized market in the Pacific Northwest, numerous

efforts have taken place to enhance regional cooperation between different power

players, both private and public. In 1942, BPA and 10 public and private electric

utilities formed a voluntary entity to improve the power system’s efficiency and

reliability, and to increase power supplies to meet wartime needs (Pacific Northwest

River Basins Commission, 1978, p. 23). The region’s power pool integrates different

generation facilities and transmission systems so that participants can trade with each

other (Kershner, 2016). Currently the power pool consists of 34 members. This

coordination is supported by a vast transmission infrastructure that interconnects

different entities across the region and that allows for energy exchanges, which

improve the system’s reliability (Pacific Northwest River Basins Commission, 1978,

p. 1).

In 1964, driven by the need for regional cooperation, 16 entities, including

BPA, the Corps of Engineers, and the Bureau of Reclamation, as well as Public

Utility Districts, municipal and private utilities, signed the Pacific Northwest
 53

Coordination Agreement, "a formal contract for coordinating the seasonal operation

of the generating resources of the member systems for the best utilization of their

collective reservoir storage" (Pacific Northwest River Basins Commission, 1978, p.

25).

BPA was given responsibility for operating the transmission infrastructure and

substation equipment. According to the Pacific Northwest Coordination Agreement,

BPA employs its transmission infrastructure to facilitate capacity and wheeling

services for the entities that belong to the Northwest Power Pool (Pacific Northwest

River Basins Commission, 1978, p. 2). Thermal power plants began generating

electricity in the region in the 1950s. BPA permitted private electric companies to

transmit power using excess line capacity so that they could avoid building new

transmission lines. At the same time, BPA collected money for its transmission

services, which allowed it to reduce rates for public utilities (Blumm, 1982, pp. 212-

213).

3.5. Results: Dynamics of Demand Response Development in the

Pacific Northwest
The study results suggest that the Pacific Northwest has been lagging behind

the rest of the country in terms of demand response development. Yet, it is also

important to note that the region has begun accelerating the pace of its transition

toward demand-side management of the electric grid. Idaho has become a national

leader in meeting peak electricity demand by using demand response resources.

Despite the low amount of potential peak demand savings reported by electric utilities

in Oregon and Washington, emerging programs and policies in both states are
 54

projected to facilitate demand response development in the future. In all cases,

landscape pressures have created tensions in the regime that led regime actors to

explore and develop demand response resources. Despite some common dynamics,

the transition to more flexible load is characterized by diverse goals and unique

transformation strategies applicable to each utility in all three states. Such singular

efforts amid common challenges and goals will be discussed in sections 3.6-3.8.

Early Demand Response Development Efforts in the Pacific Northwest

The abundance of hydroelectric power in the Pacific Northwest made it

possible to keep the price of electricity much lower than in the rest of the country.

Cheap, reliable electricity attracted many large industrial customers, contributing to

the region’s economic growth. Over time, BPA became not just a marketing agency

of wholesale power for public utilities but a regional actor guaranteeing that the

system could meet peak demand of all electric companies, both public and private,

serving customers in the region. BPA’s arrangements to sell cheap federal

hydropower to large industrial customers in exchange for interruptible load

agreements helped ensure that all Pacific Northwest’s customers could count on

reliable electricity supplies (Blumm, 1982, pp. 237-238). In the 1970s, aluminum load

comprised about half of the total Pacific Northwest’s industrial load (Washington

Public Interest Research Group, 1977), which made it easier for BPA to devise a

demand response initiative as a viable solution for improving the reliability of

electrical supplies in the region. Agreements with several aluminum smelters to shut

down their operation for a certain period helped reduce demand for electricity during
 55

critical peak demand. One interviewee commented on the demand response resources

available at that time:

In the 1980s, Bonneville had, or the region had, a number of aluminum

smelters. They were mostly direct service to Bonneville, and Bonneville used
them basically as enormous demand response providers. So, if Bonneville
needed a drop in their demand, they would call up the direct service industries
(DSIs) and say, "Cut your load by 10%." And they were able to respond very
quickly and very easily. Most of the DSIs have left the region, so there's no
longer this kind of easy resource for demand response (Interview 3).

This option is currently not available to BPA since the last two functioning aluminum

smelters were idled in 2016. In addition, the electric system in the Pacific Northwest

currently faces new challenges requiring greater demand response resources. An

overview of such challenges is presented in the next section.

Recent Concerns Over Historically Abundant Hydroelectric System’s Capacity

in the Pacific Northwest

The Pacific Northwest’s electricity system has enjoyed a unique advantage of

having available large amounts of energy storage that can be used for peak capacity

(Salisbury, 1980, p. 150). One interviewee emphasized that the Pacific Northwest had

never faced any major capacity issues:

I think the Pacific Northwest is a little behind on demand response, in that the
hydro base that we've had, has meant that we are not really capacity
constrained, we're energy constrained. In other words, we can store so much
power through hydroelectric dams, that we can meet energy demand pretty
much anytime of the year, or historically have been able to, and the need to
focus on demand response as a tool to meet peak winter load or peak summer
load is only recently happening. So, I think we've got some work catching up
with other parts of the country that have done more on it (Interview 4).

The interviewee makes an important point in differentiating between the

system’s capacity and energy components. The system’s capacity level is the
 56

maximum electric output the system resources are capable of providing at a single

point in time, measured in megawatts. (This includes the maximum electric output the

system generators are able to physically produce, as well as demand response

resources that shift part of the system peak demand to a different time). The system’s

energy component, on the other hand, is the amount of energy its generators produce

over a given period of time, measured in megawatt-hours.

Energy constraints (and not capacity constraints) began manifesting

themselves in the Pacific Northwest’s electric system in the 1970s for several reasons.

First, during the 1970s issues pertaining to energy, and particularly to energy

efficiency and conservation, became nationally prominent, including in the Pacific

Northwest (Salisbury, 1980). In 1973, the Organization of Arab Petroleum Exporting

Countries declared an oil embargo. As a response, the US Congress passed the

National Energy Act of 1978 to support the domestic development of alternative fuel

sources and promote energy efficiency and conservation. Second, during the summer

of 1973, low water supply raised concerns over the reliability of electricity generated

in the region due to potential disruptions in the functioning of the hydropower system,

which is heavily reliant on streamflow conditions (Marshall et al., 1978, p. 4). BPA

forecasted that starting in 1983 the system was likely to face shortages in electricity

supplies (Washington Public Interest Research Group, 1977, p. 30). And third, by the

end of the 1970s, power actors within the Pacific Northwest became fully aware that

the Columbia River Basin resources were limited, and that serious efforts should be

taken to restore depleted anadromous fish stocks caused by the functioning of

hydroelectric dams (Blumm 1980, p. 214).

 57

In the second half of the 1970s, the potential for a significant expansion of the

dam system became quite limited. Thus, it became well understood that the levels of

abundant, low-cost hydropower that the Pacific Northwest could produce had reached

its limit. Concerns over the possibility of high electricity prices, wildlife threats, and

increased pollution from thermal power plants, generated great interest in

conservation and alternative energy sources (Washington Public Interest Research

Group, 1977). In 1980, President Carter signed into law the Northwest Power Act,

aimed at mitigating negative impacts on fish and wildlife resulting from the existing

hydropower system. The Act provided Idaho, Montana, Oregon, and Washington

with broader opportunities to participate in energy policy making by establishing the

Northwest Power and Conservation Council (NWPCC) (originally named as the

Pacific Northwest Electric Power and Conservation Planning Council). The Council,

which consisted of two representatives from each state, was authorized to develop a

regional conservation and electric power plan, as well as a program to protect fish and

wildlife (NWPCC, n.d.). Over the decades, the Pacific Northwest became a national

leader in conservation.

Until recently, electricity capacity issues were never of great importance in the

Pacific Northwest. But the current electricity regime in the Pacific Northwest has

been experiencing several cross-cutting pressures. Interview participants accentuated

recent regional concerns over capacity constraints and their potential impact on

demand response development. The decommissioning of coal-fired power plants, for

example, has raised worries that it will lead to the need for additional capacity. One
 58

interviewee participant discussed future capacity needs of Portland General Electric,

one of Oregon’s investor-owned electric utilities:

[Portland General Electric] is expecting load growth, particularly in the

summer, but [capacity needs] are primarily driven, from my understanding, by
the retirement of the Boardman coal plant next year in 2020, which I think is
600 megawatts. It's a large source of their generation. And so, without that
their [capacity] needs are greater (Interview 3).

In Idaho, similar processes have been affecting the electricity system. An

interviewee summarized the impact of the decommissioning of coal-fired power

plants on the largest electric utility in Idaho:

In Idaho Power’s next Integrated Resource Planning cycle, they’re talking

about decommissioning two of its coal plants, one in Boardman, Oregon and
one in Nevada. And so, at that point they'll probably need some new peaking
resources, and they're not adding any more thermal resources at this point
(Interview 2).

Several interviewees asserted that replacing fossil fuels with renewable energy

sources could pose a difficult challenge for the region’s existing capacity system. The

following quote exemplifies this point:

Our hydro system has really protected us for a long time because it's so robust.
We've had a lot of excess capacity in our hydro system for a very long time.
And then when you add on fossil plants, nuclear plants, that helped prolong
the ability of the hydro system to meet our capacity needs. So, what's
happening is as you're retiring coal plants now, you're replacing it with
variable renewables that can't provide firm capacity (Interview 6).

Some interviewees assessed that intermittency of renewable energy sources

might further challenge the system because storing large amount of electricity is not

available at a reasonable cost, yet energy supplies must match energy demand in real

time:
 59

We're putting more renewables on the system and are trying to reduce carbon
emissions associated with the electric system, it means we have a lot more
variable energy resources that you can't always count on in times of peak
summer load or peak winter load (Interview 4).

Scholars and energy sector actors have placed a growing emphasis on

understanding the impacts of climate change on the Pacific Northwest’s electricity

system. Hamlet et al. (2010, pp. 103-104) contend that rising temperatures, changing

precipitation patterns, and population growth are likely to significantly alter both

supply and demand of electricity in the Pacific Northwest. Specifically, they project

that by the 2040 there will be a 4.7-5.0% increase in the amount of available

hydropower in winter and a 12.1–15.4% decrease in summer (and a 17.1–20.8%

decrease in summer by the 2080s). Simultaneously, residential air conditioning load

is likely to significantly increase because of population growth and rising

temperatures in summer. One interviewee noted that electric utilities could see

changes that tilt the region’s peak demand towards summer instead of winter, as is

now the case (Interview 5). Another interviewee said that winter peak could go down

because of a shift from electric heaters, historically used in the region, to natural gas

heating systems:

We have been historically winter peaking, now winter peak has been going
down. Summer peak has been going up. It’s just a fact. And the reason for that
primarily is our heating load is being managed by gas, people are putting in
gas heats and taking out electric heat (Interview 13).

Recent Regional Actions to Facilitate Demand Response in the Pacific Northwest

Concerns over capacity constraints created tensions in the regional electricity

regime, and policy makers started taking measures to address these challenges. First,

the Northwest Power and Conservation Council created the Demand Response
 60

Advisory Committee. The Committee convenes stakeholders across the region to

discuss issues pertaining to demand response development. As one interviewee

mentioned, "The Demand Response Advisory Committee is providing a venue for

people to talk about the need for demand response and how to properly model it"

(Interview 3). In addition, the Northwest Power and Conservation Council regularly

develops regional resource adequacy assessments. The Seventh Power Plan, prepared

by the Council in 2016, estimated the region’s capacity needs at 600 megawatts and

identified demand response as the least-cost solution to meet the growing need

compared to the cost and economic risk of market purchases (NWPCC, 2016).

Second, BPA launched demand response pilot projects in partnership with

public utilities (BPA, 2016). In addition, BPA has conducted benchmark studies to

identify successful demand response programs across the U.S. and assess their

regional potential.

3.6. Results: Idaho

Idaho Power has reported the largest potential peak demand savings in the

Pacific Northwest. It serves a significant portion of Idaho as well as parts of eastern

Oregon. Currently, about 11% of Idaho Power’s system peak is met by demand

response resources. The utility developed three programs to reduce its peak demand.

The Irrigation Peak Rewards Program (begun in 2004) is Idaho Power’s

largest demand response program. The program, which gives irrigators monetary

incentives in exchange for shutting down their pumps during peak hours in summer,
 61

resulted in 297 MW of potential peak demand savings in 2018. An interviewee who

discussed the specifics of the program, noted:

Idaho Power has a giant irrigation program, that's not an accident, irrigation is
really big in the summer, that's when the system is really stressed out, so the
irrigators were driving the need for a new power plant. So, it was clear to say,
"Hey, let's work with you on demand response and avoid the power
plant.”...Energy is so cheap, it's pretty cheap in Idaho, but the summers are
expensive, I think the summer peak is more expensive to meet (Interview 12).

The AC Cool Credit program, which began as a pilot program in 2003, is a

residential air conditioner program that gives residential customers a flat bill credit in

exchange for the customers’ permission to install a switch and cycle on and off an air

conditioner for up to four hours. The program provided 29 MW of potential peak

demand savings in 2018.

The Flex Peak program, begun in 2009, gives commercial and industrial

customers performance payments if they manage to reduce their electricity use during

a demand response event called by Idaho Power. The payment depends on how much

load reduction the commercial or industrial customer is able to achieve. The program

provided 33 MW of potential peak demand savings in 2018. Figure 3.2 demonstrates

a historical trend of peak demand-reduction capacity and demand response expenses,

2004–2018 (Idaho Power Company, 2019).

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Figure 3.2. Peak demand-reduction capacity and demand response expenses,

2004–2018 (MW and millions [$]). Source: Idaho Power Company (2019).

Rocky Mountain Power, an investor-owned utility in Idaho serving a

southeastern portion of the state, has a large share of irrigation load, similar to Idaho

Power. The utility launched the Irrigation Load Control program in 2003. In 2013,

Rocky Mountain Power hired EnerNOC to operate the program (Rocky Mountain

Power, 2019). As of 2017, the utility reported 247.1 MW of potential peak demand

savings (EIA, 2018).

As for demand response initiatives implemented by public utilities in Idaho,

Fall River Rural Electric Co-op, in partnership with BPA, started a pilot program in

2016 to reduce irrigators’ summer peak load (Conduit, 2017). The Co-op reported 9

MW and 8.1 MW of potential peak demand savings in 2016 and in 2017, respectively

(EIA, 2018; EIA, 2017).

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Environmental Factors

In Idaho, the legislature is not heavily involved in energy policy decisions.

Oversight authority has been delegated to the Idaho Public Utilities Commission. One

interview participant summarized the critical role played by the Idaho Public Utilities

Commission in the state’s electricity system.

We don't have any of the programs or policies Washington and Oregon

have… I think one of the important factors to recognize is that, unlike
Washington and Oregon, the Idaho legislature has not chosen to insert itself
into energy matters. So, we have not had any bills from the legislature tell the
PUC what they've got to do, not having from the legislature telling utilities
what they have to do. We don't have a renewable portfolio standard or
anything else. That's the primary difference really, is that in Washington, in
my mind, in Washington and Oregon, you have the state government dictating
what goes on. While, in Idaho, you have the PUC, and utilities, and
stakeholders working out what goes on (Interview 11).

Concerns over capacity of the electric grid manifested themselves at different

timescales in different parts of the Pacific Northwest. The eastern portion of the

region, most notably Idaho, has shown awareness of this issue earlier than the western

portion of the region. One interview participant exemplified this point:

West of the Cascades is just now starting to be concerned about capacity, and
before that it was the East of the Cascades utilities that were really concerned
with capacity. And as Western utilities have become more concerned over
capacity, that’s a little bit less of an issue over here. They see the capacity
deficiency dates being pushed out further and further in the future. They used
to be imminent and now they are 10 years out or so. It’s been funny to watch
the trajectory of the conversation to ramp up over there and cool down a little
bit over here, still something we track and keep our eye on, but it’s less of a
near term concern (Interview 18).

Idaho Power is the largest electric utility in the state. A significant share of

Idaho Power’s energy mix consists of hydropower, which means that its power

supply costs can fluctuate drastically based on streamflow conditions and market
 64

dynamics. During periods of low water supply Idaho Power relies heavily on the

market for power purchases. The California electricity crisis of 2000-2001 caused a

skyrocketing increase in electricity prices across the Western states. At the same time,

the American West was experiencing a drought and, consequently, reductions in the

available hydroelectric power. As a result, electric utilities, as well as BPA, tried to

reduce power demand and avoid high-priced power purchases. For example, BPA

paid its large industrial customers (aluminum smelters at the time) to halt their

operation.

In the summer of 2001, Idaho Power’s system became severely stressed. The

skyrocketing increase in electricity market prices during the California electricity

crisis of 2000-2001 and low hydropower supply coincided with high demand for

electricity from Idaho Power’s customers. The strain on the electricity rose as Idaho’s

farmers operated irrigation water pumps 24/7, residential customers kept their air

conditioners to beat the heat, and commercial and industrial customers sought to

maintain their operations. Compared to Idaho, air conditioner load is lower in Oregon

and Washington. Most electric utilities in the latter states are dual peaking utilities,

meaning that the peak for system capacity occurs both in the summer and in the

winter. In Idaho, by way of contrast, electric utilities are summer peaking utilities,

meaning that the system’s peak occurs only in the summer. Consequently, reliability

issues in summer are critical for those utilities. One interviewee elucidated this aspect

of Idaho Power’s system:

All of Idaho Power’s programs are offered at the same time from June 15th to
August 15th. Idaho Power is a summer peaking utility, unlike the utilities on
the other side of the Cascades... So, the value for Idaho Power lies strictly in
 65

the summer, mostly in late June, early July. That's usually when they peak.
And their peak load is comprised of a large irrigation load, and then on top of
that, is a residential and commercial and industrial air conditioning load
(Interview 2).

In brief, Idaho experienced a great need for load shedding in summer to avoid

or defer acquiring additional supply-side resources. To address this need, Idaho

Power paid irrigators, comprising a large share of the utility’s load, to shut down their

pumps. In addition, the utility filed an application to the Idaho Public Utilities

Commission to implement "emergency energy charges" to recover its enormous

power supply costs due to the aforementioned conditions.

In response to Idaho Power’s request to implement "emergency energy

charges," the Idaho Public Utility Commission issued Order No. 28722 in May 2001,

which called on Idaho Power to develop a comprehensive demand-side management

plan to promote energy efficiency and conservation and reduce peak electricity

consumption (Idaho Public Utilities Commission, 2001). One of the Commissioners,

Marsha Smith, strongly believed that implementing demand response programs

would be cheaper than building another supply-side resource to meet peak demand

(Interview 18). In 2008, Commissioner Smith (President of the National Association

of Regulatory Utility Commissioners (NARUC) at the time), in testimony before the

Federal Energy Regulatory Commission, stated that "for years, NARUC has

supported and promoted demand-side management as a means of making the most

efficient use of electricity" (FERC, 2008, para. 4).

The number of megawatts of potential peak demand savings have grown

continuously since 2004 and indeed has ramped up in 2009. In 2012, Idaho Power’s
 66

Integrated Resource Plan revealed that there was no need for demand response

programs because the system’s peak could be met by existing supply-side resources.

Thus, Idaho Power filed to suspend all demand response programs. Different parties,

including Idaho’s farmers and industrial customers as well as the Idaho Conservation

League and the Public Utilities Commission, resisted the programs’ suspension. Their

argument was that even though there is currently no short-term capacity deficit,

demand response could play an even bigger role in the years ahead. Yet, it would be

impossible to tap into this resource in the future if further development were to be

discontinued now. Since both utility operators and customers have to be trained for a

proper resource dispatch, a middle ground was found in restricting the number of

participants that could sign up and setting the minimum number of events called by

the utility (a minimum of three events should be called every summer). An

interviewee discussed the negotiation process.

Idaho power, which is the largest investor-owned utility in Idaho, had been
doing demand response for a long time, and then about five years ago or so,
they actually stopped doing demand response and they said it was too
expensive. They went through a long negotiation with their Commission and
came up with a cost-effectiveness methodology that's kind of a settlement
agreement on a cost-effectiveness methodology that basically values demand
response against this simple cycle combustion turbine. And so that's what they
use now. They also have an agreement with their Commission that they will
continue the demand response programs that they have that are cost-effective
against that methodology, whether they feel like they need it or not, they're
still doing it because of that (Interview 3).

Technological Factors

All three Idaho Power programs are voluntary. Customers don’t pay any

penalty if they cannot deliver the target load reduction. Instead, they only miss out on

their incentive payments. An interviewee discussed this aspect of the programs:

 67

Customers can get a certain percentage over and a certain percentage under
[performance], they'll never get a penalty. They'll never pay the utility
anything. So, it's good in that way. They don't have to be afraid not to achieve
their nomination or if they don't do anything at all, they’re unharmed
financially (Interview 2).

Initially, Idaho Power hired EnerNOC, a Boston based smart energy

management provider, acquired in 2017 by Enel Group, to operate their demand

response programs. The programs were successful enterprises from a technical

perspective and in terms of customer satisfaction. One interview participant described

the utility’s efforts:

And the company has become very sophisticated and adept at how they
integrate it into their system. Their operators have really learned how to find
out how much you can ask from customers, how much to pay them, how
much is asking too much of them, to make sure that you don't create a fatigue,
where folks aren't willing to participate or aren't willing to give you the
amount that you need (Interview 18).

As Idaho Power became proficient in implementing its demand response

programs, demand response resources were taken seriously by the power sector

actors. One interviewee illustrated this point:

The conversation has changed, more and more utility planners and regulators
talk about demand response as a real thing. Years ago, it was like, "Maybe
there is a program for emergency, but we are not sure if it works." And
particularly in Idaho, Idaho Power has practiced over the last several years
how to dispatch the resource and has gotten really good at it. So even
operators have started saying, nothing formal, but at meetings and
presentations that they see demand response as a viable means to the balance
of the system, not just a special thing on a side, turning into something that
you can rely on and count on. I think that’s the evolution over the last several
years (Interview 12).
To sustain its skills and expertise in operating demand response programs,

stakeholders required Idaho Power to continue implementing its demand response

 68

programs even when the utility system did not need that resource. One interviewee

put it this way:

If you suspend the program, and it's not available anymore, but that you plan
to implement it again in the future on a large scale, it would be much more
difficult to get the participation again than it would be to just continue
through (Interview 14).

Organizational Factors

Idaho has three investor-owned utilities (Idaho Power, Avista Corporation,

and Rocky Mountain Power, a division of PacifiCorp), three municipal utilities, and

eleven rural electric cooperatives. Private utilities account for 88% of the state’s

electricity sales, and public utilities account for just 12% of the sales (Energy

Information Administration, 2018). One interviewee participant discussed some

specifics of demand response pertaining to utility ownership:

I am not aware of any of our munis and co-ops having demand response
programs. So probably the first thing to explain is that Idaho is different from
Washington or Oregon in that we don't have large public utilities. Our public
utilities are generally speaking small munis and co-ops (Interview 11).

Public utilities mainly purchase electricity from BPA, which provides

inexpensive capacity services. As a result, the incentives for public utilities to

implement demand response programs are lower than for investor-owned utilities that

do not enjoy BPA’s preferential treatment. An interviewee spoke to this issue:

Consumer-owned utilities are not getting much of a price signal at the

wholesale level, let alone the retail level. So, it's very smooth, and that's not
really helpful for demand response. They should be frankly penalized during
higher load hours to incentivize them to do demand response... They're all on
20-year contracts with Bonneville that lock in the rates and rate structure and
they don't expire till 2028. So, there's a lot of talk about what those contracts
are going to look like in 2028 when they have a chance to renegotiate. But a
 69

lot of these things aren't going to be able to be changed until then. So that's a
barrier (Interview 6).

3.7. Results: Oregon

In response to the question, "What is Oregon's approach to demand

response?", one interviewee simply said, "emerging" (Interview 1). In Oregon,

demand response achievements are among the lowest in the U.S. In 2016, Portland

General Electric (PGE) started developing substantial demand response programs for

its residential, commercial, and industrial customers. Despite the number of reported

megawatts of potential peak demand savings remains one of the lowest in the country,

Portland General Electric is emerging as one of the national leaders in the

development of Demand Response 3.0. One interviewee illustrated this point:

Portland is really exciting because of the scale, and I'm sure you're learning a
lot about their smart grid testbed. The participation levels of most opt-in
demand-site programs are in the mid-single digits (three, five, seven percent if
you're doing really well), but they're going to try to get five or ten times that in
their customer base, which really revolutionizes the way we think of demand-
side management. Not as an interesting tool on the side that we can use at a
small scale, but a foundationally useful and accessible resource that we can
use at this scale (Interview 9).

Pacific Power, another investor-owned utility operating in the state, has yet to

develop a major demand response program in Oregon. Idaho Power has developed

the same demand response programs for its Oregon customers as it has implemented

for Idaho customers.

In terms of demand response programs implemented by public utilities in

Oregon, the city of Milton-Freewater, in partnership with BPA, started a pilot

 70

program in 1985 to shave peak power demand by means of cycling residential water

heaters through sending a voltage signal (BPA, n.d.). The program is still in

operation, and Milton-Freewater reported 4 MW of potential peak demand savings in

2017 (EIA, 2018). BPA has implemented other demonstration projects and pilot

programs in partnership with Oregon public utilities, including the Midstate Electric

Cooperative’s residential thermostat program.

Environmental Factors
Oregon legislature has been actively involved in energy policy decisions. In

2016, Governor Kate Brown signed Senate Bill (SB) 1547 into law, increasing

Oregon's renewable portfolio standard to 50% by 2040 and required Portland General

Electric and Pacific Power, the state’s two investor-owned utilities, to stop using

electricity generated from coal by 2030. In addition, Section 19 of SB 1547 states that

"demand response resources result in more efficient use of existing resources and

reduce the need for procuring new power generating resources, which, in turn,

reduces energy bills, protects the public health and safety and improves

environmental benefits". The bill states that electric utilities should "pursue the

acquisition of cost-effective demand response resources" (SB-1547, 2016), but no

concrete targets were specified in the bill.

Meanwhile, in its 2016 Integrated Resource Plan (IRP), Portland General

Electric projected that it will face a capacity deficit of 819 megawatts in 2021 once

the Boardman coal-fired power plant is closed (Oregon Public Utility Commission

(OPUC) acknowledged capacity needs of 561 MW). To eliminate this capacity gap,

the utility proposed several options. One of the solutions – adding natural gas
 71

capacity to replace coal generation – met with strong stakeholder resistance and was

excluded from the list of options. In contrast, the measures to promote energy

efficiency and to pursue demand response to address its capacity needs, received

strong support from the stakeholders. An interview participant summarized this

process:

There is a split between more traditional old school utility people who are
being like, "We need to build new gas plants." We need to get over it. No
more gas plants. A lot of us say, "Well maybe, but let's see what we can do
with demand response and more flexibility and storage and see where we can
get." So that's really where this PGE demand response testbed came from. In
the last IRP cycle for PGE, they initially came out in 2016 and said, "We need
to go to a gas plant. Basically, we need to build a new big capacity resource."
And there was pretty much uniform opposition from the PUC, from the
Oregon Department of Energy, from the Oregon Citizens’ Utility Board, from
all the stakeholder groups and said, "No, don't do it, put it off. And basically,
we want you to get really aggressive with demand response and we want you
to sign a couple of short-term contracts… So, they're going to make a go at it
for a couple of years and see what they can accomplish and if they can defer
or eliminate the need to go to a new gas plant (Interview 6).

In the IRP, Portland General Electric proposed to acquire some demand

response response. OPUC Staff, the Citizens Utility Board, the Northwest Energy

Coalition, and the Oregon Department of Energy deemed PGE’s targets too

conservative. In their response, OPUC Staff noted that "PGE is "stuck" in a demand

response pilot cycle and that the company does not yet consider demand response to

be a full-scale resource (OPUC, 2017). In the Resolution, the Commission required

that Portland General Electric to attain at least 77 MW (winter) and 69 MW (summer)

of new demand response resources and aimed to increase these targets to 162 MW

(summer) and 191 MW (winter). The Commission suggested establishing a "Demand

Response Review Committee" to assist the utility in expanding its demand response
 72

efforts as well as to create a demand response test bed by July 1, 2019 (OPUC, 2017).

One of the interviewees summarized this development as follows:

Public Utility Commission’s order number 17-386 for the first time created
very solid goals around demand response and said, "Listen, utility, if you don't
meet these goals, we're really not interested in giving you other things.
market. … And just before this order was issued, about a year before SB
1547, Section 19 of that Act, said the utility must go get all cost-effective
energy efficiency and demand response. So, this is the Commission adopting a
legislative requirement to get all cost-effective demand response. It's also
interesting that within this order, the Public Utility Commission created
something called the testbed. This is one of the first instances, one of the rare
instances I have seen where a Public Utility Commission got out ahead of its
regulated entity. So, there's an actual white paper in staff’s final comments in
that docket LC 66, where the commission staff issues this white paper
explaining what a testbed is, and why they want the utility to do it, which is to
accelerate the utilities development of this new resource called demand
response. And they were dictating to the utility how to develop its resources,
which is an odd thing to do. It's rare for a Public Utility Commission to tell a
utility, how they're going to develop a resource. They generally give a yes or
no around resource or give requirements around planning or requirements
around acquisition. But it's very rare for a Commission to actually tell a utility
how to develop a resource. And the reason that [the Commission] pushed PGE
in this direction was because [they] knew that this was a real resource. And
[they] had seen PGE a number of times, start a demand response program only
to shut it down (Interview 1).

Overall, Oregon Public Utility Commission played an important role in

enhancing demand response by directly requiring Portland General Electric to

develop this resource. One interviewee put it this way:

So, PGE came out in their Integrated Resource Planning saying that they have
this capacity shortfall. They did a demand response potential study that
showed all this potential for demand response, yet, their programs hadn't been
doing much. The Commission actually was the one who said, "You need to
figure this out." The testbed concept came from the Commission staff
(Interview 3).
 73

In response to stakeholder pressure, Portland General Electric launched a

demand response testbed, consisting of a set of large-scale programs for residential,

commercial, and industrial customers. This initiative allows PGE to test new

technologies and understand customer preferences. One interview participant

mentioned that the primary goal of Portland General Electric is to understand demand

response as a resource:

PGE has done several pilots in the past and they are just not able to achieve
the potential that they think they need. Right now, they're doing what's called
a demand response testbed. They're just launching it right now. And cost-
effectiveness is not the primary driver to this. So, it's really more about
acquiring the resource and what does it take to acquire the resource. And so,
from that perspective their methodology for cost-effectiveness is not the
overarching force there, but it's out there. As they go into fuller
implementation of demand response, it may change before then, but at least
for now, they're not relying on it because they're just trying to get this testbed
concept off the ground and running (Interview 3).

Technological Factors

Portland General Electric has developed a range of voluntary demand

response programs to reduce both summer and winter peak energy consumption,

including: (1) Energy Partner, program that provides commercial and industrial

customers with monetary incentives in exchange for shifting or shedding their load

for several hours during cold winter and hot summer days (e.g., shifting non-critical

production processes, adjusting HVAC set points). Under this program, the utility

gives customers access to real-time energy information for better management of

energy usage; (2) Peak Time Rebates, program that incentivizes customers to shift

their energy they use to non-peak time in exchange for rebates; (3) Residential Water

Heaters, program that provides customers with monetary incentives in exchange for
 74

their permission to shift water heating to a non-peak time; and (4) Smart Thermostat

program that installs free smart thermostats on customer premises in exchange for

their permission to adjust set points during peak demand events or provides customers

with monetary incentives if they already have smart thermostats (PGE, n.d.). One

interviewee emphasized the benefits of demand response to customers:

The various customer benefits that are associated with demand response,
where you’re shaving peaks, some of the high cost items. But then you're also
through demand response, like through energy efficiency, offering customers
devices, schemes and rates that can help control their costs and enable them to
control their overall energy footprint or energy usage (Interview 1).

Portland General Electric’s goal is to offer every customer an opportunity to

participate in at least one demand response program and keep the level of enrollment

well above the national average level. Unlike many electric utilities across the

country, PGE is a dual peaking utility, which means that the utility cannot rely solely

on solutions suitable for summer peak demand reduction (e.g., programs involving air

conditioner load) (Keeling, 2019). In addition, Oregon’s Direct Access policy allows

large industrial customers to purchase electricity directly from an independent power

producer, rather than an electric utility. The fact that PGE has fewer large customers

means that the utility needs to develop mass market demand response programs for

residential and commercial customers to achieve load flexibility (Keeling, 2019). An

interviewee summarized this point:

I think that, just in general, this would be true that if there are large industrial
facilities like paper mills or chemical manufacturing or something within a
utility service territory, it would be easier. I've heard that those industries are
kind of eager to participate in a demand response program because they see it
as being a means of gaining revenue. Obviously, there's a lot of negotiation
and issues that would have to be worked out, but from what I've heard, if that
can be worked out, they like the idea of it. And they're big loads generally and
 75

so they can be kind of an easy, easy access to a demand response for a utility.
PGE, one of the struggles that they have is they don't have a lot of large
industry in their territory, so they don't have that one or two customers that
they could just call upon and be like, "Do what we need." And boom, it's
done. So, they've been having to tap more into the residential and small
commercial sectors. And I think PGE has done, and other regions around the
country have started to look into smart thermostats, also the Bring-your-own-
thermostat program. Those are becoming a relatively easy way to tap into the
residential market since the saturation of these thermostats is growing and
they're already connected. And so, by kind of getting that permission, they can
do a lot with the thermostat (Interview 3).

Organizational Factors

Oregon’s electric system is composed of private utilities, which account for

70% of all electricity sales in the state, and public, which account for 30% of all

electricity sales in the state. There are three private utilities (Portland General

Electric, Pacific Power (a division of PacifiCorp), and Idaho Power); six People’s

Utility Districts; ten municipal utilities; eighteen rural electric cooperatives; four

independent power producers; five behind-the-meter providers. BPA serves directly

one industrial customer (EIA, 2018).

In Oregon, demand response programs are implemented exclusively by

electric utilities and not by third-party aggregators. Electric utilities have learned

many things in their efforts to develop such programs. One interviewee commented:

PGE is testing a new utility business model and how they could operate in the
future to have a more dynamic distribution system, more engaging with the
customers... I think there needs to be a lot of education and that PGE is doing
well. That's why I think what PGE is doing is kind of pushing new ground in
both these issues: Trying to better understand operationally how they can use
distributed demand response and better understand customer receptiveness
and where the barriers are and what messages motivate consumers and how
they can better deploy demand response. I'm excited about the test, and I think
it's going to be a really cool program (Interview 6).
 76

3.8. Results: Washington

In Washington, electric utilities did not report any developed demand

response resource, and it has been limited to pilots and demonstration projects run by

BPA. In 1977-1978, BPA implemented the first load control pilot projects in Port

Angeles (BPA, n. d). More recently, Washington’s investor-owned utilities (Puget

Sound Energy and Avista Corporation) started exploring the potential to address

probable capacity needs by procuring demand response resources but have not yet

identified any cost-effective solutions. The changes introduced in Senate Bill (SB)

5116 are likely to have a significant impact in the process of evaluating the resources’

cost-effectiveness, which could result in more cost-effective demand response options

(SB-5116, 2019).

Environmental Factors
In Washington, like in Oregon, the legislature is actively involved in energy

policy decisions. In 2019, Governor Jay Inslee signed Senate Bill 5116 into law,

requiring all retail electricity sales in Washington to be greenhouse gas neutral by

2030, as well as requiring the state’s electric utilities eliminate coal-fired resources by

2025. The law revolutionizes the principles of the regulatory regime governing

procurement of electricity in Washington. Specifically, the Washington Utilities and

Transportation Commission (UTC) was granted authority to implement performance

and incentive-based regulation that would allow achieving fair, just, reasonable, and

sufficient rates as well as public interest objectives. One interviewee put it:
 77

Because our way of evaluating cost effectiveness is most likely changing as a

result of Senate Bill 5116. So, some of those other pieces could be included
for the first time: Public interest includes health benefits and all other potential
non-energy benefits that could be included (Interview 17).

According to Senate Bill 5116, public interest is defined as:

The equitable distribution of energy benefits and reduction of burdens to

vulnerable populations and highly impacted communities; long-term and
short-term public health, economic, and environmental benefits and the
reduction of costs and risks; and energy security and resiliency (SB-5116).

Section 4 of the bill also requires electric utilities to pursue all cost-effective, reliable,

and feasible demand response resources. Both public and private utilities are subject

to the provisions of the law.

Technological Factors

In 2015, BPA, in partnership with several electric utilities, the Pacific

Northwest National Laboratory, and the Northwest Energy Efficiency Alliance

conducted a demonstration project that investigated opportunities to manage peak

demand by using smart electric water heaters enabled with two-way communication

between utilities and their customers. On the one hand, such communication makes it

possible for utilities to send load curtailment requests to the water heaters on a daily

basis; on the other hand, it allows utilities to avoid affecting customers’ lifestyles by

ensuring that sufficient hot water is always available. This two-way communication is

enabled by equipping a water heater with a communications port (similar to a USB

socket on a computer). This port should be compliant with a certain communication

interface standard (CTA–2045). The demonstration project found that having a large
 78

number of CTA-2045-equipped water heaters would create a significant cost-

effective demand response resource in the Pacific Northwest (BPA, 2018).

To move forward with market transformation, a group of stakeholders,

including the Pacific Northwest Energy Coalition and the Northwest Power and

Conservation Council, managed to incorporate a relevant provision into House Bill

1444 relating to appliance efficiency standards. Section 4 of the bill states that "all

residential electric storage water heaters must be grid-response capable by having a

modular demand response communications port" (HB-1444, 2019). In 2019,

Governor Inslee signed House Bill 1444 into law. Washington is the first state to

adopt this technology requirement.

Organizational Factors
Washington’s electric system is composed of private (38% of all electricity

sales in the state) and public (62% of all electricity sales in the state) entities. There

are three private utilities (Puget Sound Energy, Avista Corporation, and Pacific

Power, a division of PacifiCorp); twenty-one Public Utility Districts; nine municipal

utilities; sixteen rural electric cooperatives; five independent power producers; one

behind-the-meter provider. In addition, BPA serves eleven industrial customers

directly (EIA, 2018).

Puget Sound Energy, one of Washington’s investor-owned utilities, had a

negative experience implementing a time-of-use program in the past, which could

have contributed to a negative feedback towards demand response development.

Interview participants had this to say:

 79

Puget Sound Energy in Washington was actually one of the first utilities in the
country to do mandatory time-of-use. They did it for about six months,
somewhere around the year 2000. And had an incredible backlash that made
them cancel the program. And the current CEO says that they will never do
that. So, there's an example of that really the community wasn't ready for it.
And again, it's a winter peaking, electric heat utility, which time-of-use is less
able to deal with. I think time-of-use is a great program on a voluntary basis
for folks who can use it (Interview 4).

Puget Sound Energy did have a time-of-use rate once, and it was in the 90s I
believe, a long time ago, and it didn't work out very well. And they're very
hesitant about time-of-use rates even though a lot has changed since then
(Interview 17).

The interview participants highlighted the efforts of Avista Corporation,

another Washington investor-owned utility, to engage in innovative activities. These

efforts could lead to progress in demand response development in the future. The

following quote further discusses this matter and emphasizes the importance of

corporate culture and managerial aspects to spur innovative practices by electric

utilities:

I think it just comes down to company culture. Avista has always tried to
maintain a spirit of innovation within the company, and that has turned to the
things where they have turned into subsidiaries, and then eventually they go
their own way like Itron or Ecova. It's just something that they maintain in the
culture. They have a whole innovation station, which really encourages people
to bring their ideas forward. Even if those ideas might be pretty imaginative.
They create a safe environment where those ideas can be shared. And they
also put resources around those people if they do want to continue to develop
those ideas, they would have a clear path forward (Interview 20).

On the other hand, investor-owned electric utilities dominate demand-side

management programs in all three states, leaving scant space for third-party

providers. Lack of competition might impede the process of development of new

initiatives. An interviewee underlines this point:

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Avista, for instance, is going to use Smart Cities, Smart Grid as their next
entrepreneur venture. So, they do not want vendors coming in and running
programs at their service territory, because they want to build it and they want
to control it, and eventually if they do it well, it would be a business that they
will spin off. Itron is a meter company that started at Avista. Ecova, it was a
billing system for utilities that started at Avista and spun off to become its
own company. So, Avista, they love little pilot projects that they can turn into
future businesses… But at the same time there are many vendors that could be
offering services at Avista’s territory, but they won’t allow that to happen,
they won’t run a program that isn’t controlled by the utility. And that’s also
true for Puget Sound, all the programs are owned and run by Puget Sound
Energy (Interview 13).

3.9. Results: Comparative Analysis

Based on the specific circumstances that it has faced, each state has

demonstrated a distinct way of developing demand response. This section provides a

comparative analysis of environmental, technological, and organizational factors

impacting these efforts.

3.9.1. Environmental Factors

This section will discuss the influence of environmental factors on demand

response development. Specifically, this section provides a discussion on the overall

influence of state-level policy actions, the impact of low electricity prices and the

absence of an organized electricity market in the Pacific Northwest on the

development of demand response, as well as the role that societal values and shared

beliefs play in such efforts.

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State-level Policy Actions

The throughput incentive for vertically integrated investor-owned utilities is a

factor that disincentivizes the development of demand response (as well as other

demand-side management programs and distributed energy sources). The existing

regulatory regime, created a century ago, has discouraged electric utilities to invest in

demand-side management programs. One interview participant illustrated this point:

The way the model works with demand response is the money passes through
the company, and [investor-owned electric utilities] don't have an opportunity
to rate base anything. That's actually why the customers like it. These things
often have been designed in response to customer desires, they get the money.
The customers love it, but the utility is like, "Well, we'd rather build a power
plant" (Interview 12).

Specifically, selling less energy means investing less capital in building new

resources. Utilities, as a result, receive lower rates of return on its investments and

there are less profits for the utilities’ shareholders. An interviewee commented on this

matter:

Investor-owned utilities have shareholders and they make money by

deploying large amounts of capital. They want to rate base capital
expenditures, and if you were to run a demand response program, that reduces
your need for capacity by hundreds of megawatts, you are also reducing the
need to build transmission or a new power plant. So, you're using expense
money to reduce the need for capital expenditure. This is probably the number
one reason utilities have been opponents of programs that reduce a need for
capacity (Interview 13).

The inconsistency in policy goals to enhance resource flexibility and the

traditional regulatory structure can be mitigated through various regulatory

instruments, including the decoupling mechanism that removes the link between the

utility’s revenue and the amount of energy it sells. However, the decoupling
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mechanism is hard to implement in practice, and it can only partially eliminate the

throughput incentive that vertically integrated utilities face. An interviewee

demonstrated this issue:

The decoupling mechanism is not enough. The incentive that your decoupling
has must be big enough that the utility’s interest in building doesn't exist. And
you're never going to do that with a vertically integrated utility as a large
capital base …. You've got an [investor-owned] utility that wants to grow, but
they have a throughput incentive -- the more kilowatts they sell, the more
resources they build, the more resources they build, the more money they
make (Interview 1).

As discussed earlier, the Public Utility Commissions in Idaho and Oregon

unequivocally required investor-owned electric utilities to develop demand response

programs. An interviewee summarized the way Public Utility Commissions

prescribed utilities to develop demand response resources:

Public Utility Commissions don't tell you what resource you have to procure
but they will tell you what you have to look at. They will tell you what you
have to consider. So, in Oregon, you very clearly have to look at energy
efficiency, you have to look at demand response... And the PUC's been pretty
clear that they expect you to look at demand response. The seventh power
plan by the Northwest Power Planning Council, it found demand response was
one of the necessary resources we're going to need in this region (Interview
4).

Price of Electricity and the Absence of Organized Electricity Markets

According to FERC (n.d.), in the Pacific Northwest, vertically integrated

utilities (those which own the generation, transmission and distribution systems) are

responsible for system operations and management and, in most cases, for the selling

of power to end-use consumers. Wholesale physical power trade, which occurs

through bilateral transactions and power pool agreements, is not as effective as power

trade that takes place with the help of Independent System Operators (ISOs). ISOs
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ensure access to transmission and facilitate competition for providing generation

resources among various entities (buyers and sellers of energy and ancillary services

bid for or offer generation) (FERC, n.d.). An interviewee highlighted some

inefficiencies that arise due to the absence of an organized market in the region:

It's a very balkanized area in that we have a number of balancing authorities.

They don't share, well they don't have any need to share. So, we have, for
example, Clark Public Utilities, which is just in Vancouver, north of us
[Portland, Oregon], has a number of those large industrial customers that
would be happy to participate in the demand response program. But Clark as a
Bonneville customer has almost zero capacity costs. And the way that their
contract is that they really pay very little for their capacity. That they have
almost no economic signal to do a demand response program. Now, PGE is
just on the other side of the river where they have a strong need to demand
response, but they don't have the resources like that. And there is no good way
for this sharing to happen between Clark and PGE. We've been doing some
work to try to facilitate something like this, but it's really challenging
(Interview 3).

The absence of price signals about the resource value in regions outside of

ISOs or RTOs makes it more difficult to participate in the market. An example made

by an interview participant further sheds light on this argument:

Tacoma Power, it's a city-owned utility in Washington State, and their

situation is one where they still have surplus capacity, small amount at the
federal level, but for their utility it's a large amount of hydro. And [why would
they try] to do demand response programs, because they don't really have a
good market for the capacity that they already have in the hydro system
surplus, there is no good way to sell that surplus to someone else (Interview
16).

Overall, the interviewees were not conclusive in their assessments of the role

of the organized market structure on demand response development. Some

interviewees evaluated the absence of a market as a negative factor:

And I think, sometimes what we hear in terms of when we ask utilities to be

more aggressive with demand response, they say "Well, there's no capacity
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market. There's no way to value that in the market right now.” So, I do think
that if we were to progress on those markets, on the market front, that it would
be helpful in terms of creating more opportunity for demand response to
actually be valued (Interview 8).

In Texas you have the ERCOT market and you have critical peak events, so
you see a lot of folks can monetize that capacity, they can actually bid and
monetize it, or they avoid peak power expenses. So, a lot of those folks don’t
generate their power and they see that peak power cost going up over the
years, so they are developing DR as a hedging mechanism. They are like, "We
know it’s going to be more expensive; we can’t keep buying this power at
peak purchase times, let’s develop this capacity to hedge and allow us to
reduce that purchase price." I think you’ll see that a lot when folks don’t own
their own generation or have to go to the market to buy (Interview 7).

Yet some interviewees suggested that the absence of an organized market

does not dampen retail demand response development by investor-owned utilities:

If you can save electricity through demand response, cheaper than you can go
out and procure it, that makes economic sense. It has nothing to do with any
kind of an organized market (Interview 11).

Other interview participants evaluated market absence as neither a positive,

nor negative factor:

I don't know how much [the market structure] really influences it or doesn't
influence it. Maybe Idaho Power will be able to bid into the market more if
there was an organized market. And they do have very sophisticated, effective
demand response programs. So maybe that would happen. I haven't heard
anybody say that. But that doesn't mean that it's not possible. Or perhaps the
inverse is true, maybe the need for demand response is decreasing in an
organized market where companies can trade more easily and more
seamlessly (Interview 18).

Similarly, interviewees were not conclusive regarding their assessments of the

role of electricity prices on demand response development. While some interviewees

suggested there is no effect on electricity prices, others viewed cheap electricity

prices as a negative factor:

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The thing that I think really holds demand response back is the pricing
structure in this area… Our prices are way lower than, say, California. In
California, there's a great economic driver to reduce the peak loads because of
how expensive it is to get electricity to the system (Interview 5).

First is we have not had any price transparency around constraints in the
system. So, there's no signal really sent to end use consumers when we have
capacity constraints, like there is in places that have an organized market, for
instance (Interview 6).
Societal Values and Shared Beliefs

Societal values and shared beliefs are essential aspects of socio-technical

transitions. One interviewee underlined the importance of environmental values in

shaping demand response development:

People want to be a part of a program that they're making an impact with and
that they're improving their community, they're improving the environment.
So, when they get, when given the option, especially in this geography, people
like to be a part of it. They like to participate, and they like to do their part and
they like to help, and not only to help their neighbors and their community,
but there's a pretty strong environmental ethos. So, if it has an impact to
reduce the use of heavier carbon resources or optimize the use of clean
renewables, people are pretty much going to be all on board for that
(Interview 9).

Another interviewee explained that participation in demand response

programs might be determined by different rationales, including economic reasons

and not just strong environmental concerns:

I think [rationales to participate in demand response programs] vary by

customer classes. I think the irrigation customers are businessmen, first and
foremost, and I think they do it because it decreases or eliminates their
demand charge, and irrigation customers hate demand charges. So, I think that
their motivation is primarily, if not exclusively financial. The flex peak
customers [commercial and industrial], now they can have a little of both. I'm
sure the basic needs for them are financial. However, you might walk into an
Albertsons store and see a sign that says, "Please bear with us, we're currently
participating in a load reduction for the local utility." So. they're going to get
some goodwill out of it, be green out of it. And it does help reliability. And
most of the irrigators and business customers are well aware of reliability,
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which is one of their primary, um, that's what they want….I think with the AC
cool credit customers [residential air conditioner program], you get a lot of
people that are doing it because they want to help, you know, a global
warming and want to help to reduce carbon emissions. That the financial
incentive for the AC program is so small that I just can't imagine that anybody
would be doing it for a, for the financial incentive. ...But I think probably the
majority of the AC cool credit participants are in because they're trying to help
the environment and to help decrease load on the local utility’s system
(Interview 2).

Similarly, another interviewee commented on the range of reasons that might

drive customers’ decisions to participate in demand response programs, from

reliability and economic rationales to environmental concerns and a willingness to

help integrate renewable energy sources into the electricity system:

One idea is saying, "You're making our grid more efficient, you're making it
so that we're able to integrate renewables more easily and make it a greener or
lower carbon intensity grid." Stories like that tend to resonate. Or you're going
to save X number of dollars by participating in this because we're going to pay
you to not use electricity during certain times of day… The C&I [commercial
and industrial customers], I think are a little bit more savvy on this because
they tend to have more demand charges on their bill. They have a more
nuanced understanding of how their bill works, for them reliability is probably
the biggest concern and so, you know, telling them about how we're making
our grid more reliable and you are helping with this through a demand
response program. And so, I think, it depends on the customer sector
(Interview 3).

3.9.2. Technological Factors

This section will discuss the influence of technological factors on demand

response development. Specifically, this section discusses the influence of Advanced

Metering Infrastructure and other technological devices, the impact of the growing

intermittent energy sources, and the role of seasonal utility peak demand on demand

response development.
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The Role of Advanced Metering Infrastructure and Other Technological Devices

on Demand Response Development

The interview participants provided several perspectives on the matter of

smart meter use for implementing demand response programs. Some interviewees

suggested that smart meters are a necessary device for implementing demand

response programs:

What utilities can use to evaluate programs, they need smart meter data, that’s
where they see impacts. I think also what utilities are trying to do with the
data is understand the customer base and who would benefit from a certain
technology (Interview 7).

Other interviewees acknowledged the importance of Advanced Metering

Infrastructure for demand response programs, but suggested that installing smart

meters is only one component of the required technological solutions:

I think smart meters are an essential part, but they're really just kind of the
gateway to all of this other stuff (Interview 6).

You can get into some really sophisticated grid management techniques
because you can read on near real time, not just usage, but you can read a lot
of other components of what's going on at the edge of your system. So, what
some of the more advanced applications in the marketplace are now are really
allowing operators to understand the health of their system and reading a lot
of other pieces of telemetry from their AMI installations (Interview 9).

One interview participant provided an example of more advanced grid

management techniques that would require near real time data collected by the AMI:

You use your meter data to construct your baseline and your performance
information, so you need sub-hourly metering data... So, you use our meter
data so that you can develop a more accurate baseline and a more accurate
profile of performance. And it will and can give you near real time data
feedback. And then something called a demand response management system
or DRMS is sort of like a user interface and control panel that tells you in real
time, how much of your resources are responding and aware, it's an
operational program that gives you field data about the performance of the
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resource, and depending upon the GIS information that's embedded within
your DRMS, can get extremely granular, almost down to the home level
(Interview 1).

Additionally, interviewees maintained that smart meters are a useful device

for various purposes and not strictly for demand-side management:

Idaho Power used to control the [AC] switches with a paging device. And the
irrigation customers had cellular service devices that would turn off the
pumps. So, AMI wasn't required to do [demand response] programs, but it
makes the programs a lot less expensive. Idaho Power did not install it for
demand response, they figured that there'd be enough operational benefits to
make it pay for itself. AMI system's primary duty is to read meters, which is
the utility’s cash register. And it does a brilliant job with the rural areas: They
get very heavy snowfall. So, the utility would have a real hard time reading
meters in the winter. And there are a lot of meters that are on irrigation pumps
that are out in the middle of nowhere and very muddy, and access at
sometimes of the year is limited (Interview 2).

An AMI deployment, and why I think they used the word foundational earlier,
is that in getting so much more information, you can do a lot of additional
things on the edge of your system, much more intelligently. So, it brings so
much more outage awareness to your operations if you want to. It brings so
much more optionality to kind of edge generation with working with your
customers. It definitely can help you improve the information that you're
sharing with your customers. It used to just be literally a once a month static
piece of paper. Now you have the opportunity to put portals on and compare
to neighbors, compare to history, incentivize kind of through behavioral stuff,
you know, people to be more efficient (Interview 9).

On the other hand, some interview participants criticized available

functionality of smart meters and their use in ensuring communication between the

utility and customer devices (e.g., smart thermostat and smart water heaters):

AMI has been, from a smart grid perspective, a disappointment. I think a lot
of people thought it was going to be the communication gateway. So, it’s been
a disappointment. Technology companies continue to push ahead (Interview
13)

The best utility programs, again, are the direct load control programs. What
those require is two-way communication. The thing that I'm most
disappointed in the smart meter programs, I was led to believe that the
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communication system PGE has set up to communicate with the meters would
also enable them to talk to hot water heaters and thermostats and talk to
charging. They don't, they're not robust enough. The utilities have trouble just
handling the volume of information they get from the smart meters. What they
tend to do is utilize home Wi-Fi networks for demand response. So, if I want
to put in a smart thermostat that can communicate over Wi-Fi, the utility can
use that for demand response programs. But it can't use the communication
network built-in, but ratepayers paid for that talk to my meter. And to me, it's
the communications. It's the two-way communication that's the most
important part of the smart grid and demand response because it enables. And
that can be sort of a separate thing from the meter itself (Interview 4).

Demand response practices are diverse. Some, like Demand Response 2.0 and

3.0, rely on Internet-enabled devices, while Demand Response 1.0 practices are based

on one-way communication between the utility and its customers and do not require

any Wi-Fi enabled devices. The following quote sheds light on this matter:

When you go out with a residential demand response program, you're paying
for [residential customers’] participation, but not for their nominated load.
You pay them [a certain amount of money] a season to hook up their air
conditioner, and whatever you get you get, and you don't see it individually,
you see it in the aggregate… You can't really control, improve, analyze it...
When you have switches on air conditioners, you don't even know if they're
working. It's a radio-controlled switch, it doesn't report back (Interview 1).

Transitioning to Demand Response 2.0 and 3.0 requires a stable Wi-Fi

connection to connect all the system components, including smart appliances at

customer sites, to implement demand response programs successfully. Additionally,

many interviewees asserted that demand response programs, which use automation

work better both for the utility and its customers. The following quotes provide

examples of such benefits:

So, my experience here is that things that are more automated, like the less the
customer realizes what's happening, the better the program it is. Like the air
conditioning residential program -- they don't tell people they are running it,
they just run in the background, quietly, that's really helpful (Interview 12).
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To me, the best program is the one that relies the least on the customer
interaction… It's also something where most customers don't necessarily want
to spend a whole lot of time thinking about energy usage... And people want
simplicity. So to be a program where I can sign up with my utility, and they
can benefit from charging my car when they want to, or adjusting my
thermostat when they need to, is to me sort of an ideal program, it does
involve the customers making a decision to sign the program... In fact,
oftentimes, you can do a lot of these programs without the customer even
knowing that that happened... They take technology, they take a decision by
the customer, to allow that technology in their home and the utility to have
some management of that. But then they operate fairly seamlessly from that
(Interview 4).

The Impact of Growing Intermittent Energy Sources on Demand Response

Development

Interviewees expressed confidence that renewable energy growth would

enhance demand response development in the Pacific Northwest. Hydroelectric

power has played an important role in integrating intermittent energy sources into the

electric grid. As one interview participant pointed out, "The hydro is fairly flexible

and can ramp up pretty readily … and the hydro tends to be able to accommodate a

lot of renewable integration" (Interview 5). When renewable energy sources comprise

more than half a share of the energy mix, demand response will become more

important. One interviewee put it:

As we move towards deep decarbonization, in the electric sector, um, you

know, I think we need a lot more flexibility all around, so we need more
flexibility on the supply side, way more flexible generators. We need more,
you know, we're lucky in the Northwest to have the hydro system, which
provides a lot of flexibility already, and that is a sort of the bedrock of our
power system. So, it helps us integrate renewables (Interview 6).

In Oregon, Portland General Electric’s testbed program has become a

"laboratory" where large-scale learning processes takes place. The utility and

potentially the state’s socio-technical regime might be altered as a result of these

innovative activities. Specifically, knowledge about technological solutions and

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customer preferences might help promote flexibility for a large portion of electricity

demand:

PGE's decarbonization study, which was published last year, and what they're
trying to do is to know what it takes to get to their decarbonization goals. And
what they identified was that they need to develop 900 megawatts of flexible
load by 2050. Flexible load is demand response, available 8760 hours out of
the year. So, every hour of the year demand response has to be available. 900
megawatts on a 4-gigawatt system is almost one quarter of PGE’s resources
and will now come from the demand-side of the system. Nationally, if you get
6% of your customer base to sign up for demand response, you're doing really
well. That's a huge number. Storage is part of this number, but it has to be
storage on the distribution side of a system, on the customer side of the
system, because the way the system is set up now, generation chases load, so
wherever the load goes, generation chases it, but in the future, they're going to
have so many renewables on the system, that the two parts of the system have
to balance one another. And so, demand will have to chase generation at times
and vice versa. In order to do that, you need resources on the demand side,
you chase the supply side. And you're going to have distributed generation
throughout the system. You will have distributed wind, distributed solar, and
all that has to be balanced locally, or on the system as a whole. And so that
means you have to have properly placed resources to make that happen
(Interview 1).

The role of seasonality of utilities’ system peak demand on demand response

development

In the Pacific Northwest, cheap electricity prices led to a higher number of

installed electric heaters compared to the rest of the U.S. One interview participant

commented:

In the Pacific Northwest we have a lot of electric load, we've historically had
really cheap electricity. So, we have a lot of electric heating. And the climate
is relatively mild in Oregon and Washington. So that's for the most part
sufficed. So, there is not as much of a need for the ability to reduce peak
demand (Interview 5).
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Oregon and Washington’s electric utilities are unique because they are either

winter or dual winter/summer peaking. In contrast, most demand response programs

implemented in the U.S. focus on managing summer peak demand. Interviewees

emphasized the challenges related to implementing demand response programs

focusing on the dual peak demand issue:

I know PGE has found a lot of challenges to try to get the winter smart
thermostat program. All the studies you'll read about are summer events.
Winter events are a lot more challenging to do, especially in the morning.
Generally, there's such a small window in which homeowners are operating in
their house in the morning and they don't want that window to be interrupted.
In the evening, it's a little bit easier because there's a long period of time that
they are home, and so having temperature fluctuation within a couple of
hours, it's not as big a deal (Interview 3).

The Northwest has more electric heating than the other part of the country.
And that's what drives overall winter peaking, peak demand being from
electric heat. And PGE, when they did their pilots on demand response, found
that things like critical peak pricing did not work anywhere near as well in the
wintertime as it did in the summer … People want to turn on their heat when
they get up in the morning. People, for air conditioning, can take a little more
sort of discomfort in the summer months, letting your house get up to 76 or 77
is different from getting your house down to 62 or 63 degrees when you get
up. It's just a much harder resource to work with (Interview 4).

In contrast to Oregon and Washington, Idaho utilities have predominantly

summer peaking systems. Utilities’ summer peak in Idaho coincides with high

irrigation loads, which has made summer irrigation demand response programs

exceptionally successful. One interviewee pointed to the differences in seasonality of

utilities’ system peak demand:

PGE is, as I mentioned, summer and winter dual peaking, Idaho power, who's
been doing demand response for a long time is summer peaking. I think part
of the reason Puget Sound has kind of floundered in the demand response
spaces is because they are a winter peaking utility and it is more challenging
for that.
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3.9.3. Organizational Factors

Utilities’ Versus Third Party Aggregators’ Demand Response Efforts

In the Pacific Northwest, demand response programs are mostly implemented

by investor-owned electric utilities and not by third party aggregators. An interviewee

participant discussed the positive aspects of demand response programs run by

utilities:

What we don't have here is demand response aggregators that can sell that
capacity into a capacity market. But what we have is utilities that need to meet
capacity requirements. And on the distribution side by having vertically
integrated utilities that own the generation and provide the distribution and
have to integrate the wind, have to meet the capacity -- those things have the
relationship with the customers. I'm not sure we need those capacity markets,
I think the utilities, the same person who runs the wires and poles to
somebody's house is a person who has to make sure that they have the
capacity on the hottest day of the year. The people who have to make sure that
they can deal with the variability, the wind resources that they have on. So,
they have a good incentive to try to work through and get the customers
signed up for demand response programs (Interview 4).

Another interviewee illuminated the inefficiencies associated with the

exclusivity of demand response programs run by utilities:

Right now, in the Northwest demand response is run just by the utilities,
individually, utility by utility, to meet their operation needs. Where, in an
organized market, you can have third party aggregators, providers. And why
does that matter? So here, the programs are designed mostly to meet the
utilities' needs and attract customers. Where the third-party aggregators offer
products to meet customer needs and not just the utilities. It's just having the
market to develop demand response. Here we have just the utility model. So,
you have hurdles or barriers, which comes down to the utilities making profits
on building gas power plants and not providing demand response. Maybe we
should fix that? That can solve the problem (Interview 12).

In my view, the utilities, what they need, is they need to learn how to interact
with vendors and service providers. That’s what they should be piloting, what
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they should learn. They don’t need to become experts in water heaters and
thermostats and EV chargers. They are not good at it, and I don’t think they
are going to be good at it (Interview 13).
Utility prerogatives to manage demand response programs could be explained

by the necessity to control their resources (since demand response functions as a

generation resource in times of capacity needs). However, utility monopoly on

electricity services makes it harder to benefit from having multiple firms developing

demand response solutions and not just the utilities dominating such efforts

(Interview 16). One participant provided a concrete example why demand response

programs run by vendors could be better than those run by the utilities:

Idaho Power contracted with a third party to administer the demand response
program and that company's name is EnerNoc, and they're pretty large. I don't
know what all they do, but they do a lot of demand response programs across
the country. At that time, when we were participating with them, I could,
during an event, I could get into the website, and I could see near real time
data on each of our sites. And so, I could tell and also any of our site people
could get in and see how they were performing versus what they had
committed to. Seems like four or five years ago, maybe six, Idaho Power, I
think to save money decided to administer the programs. And so mostly, the
program has stayed the same. But one of the things that we did lose was I can
no longer get in and see near real time data on our sites. So, it's really, you
know, I know the event is happening, and people are notified. And until
usually within a day or two, after the event, I'll get the data from Idaho Power,
saying, "This is what you nominated to reduce and, and they'll give it by site,
this is how much you did reduce and good job or hopefully next time you can
do better" (Interview 14).

The Role of Utility Ownership on Demand Response Development

Bonneville Power Administration, the federal wholesale marketing agency,

prioritizes the sales of hydroelectric power to public utilities in the Pacific Northwest.

Public utilities receive preferential treatment from Bonneville. Cheap power

 95

undermines price signals and thus curbs any incentives to purse demand response

programs. As one interviewee put it:

In Washington, there is a greater portion of electricity demand being served

by public utilities that get the majority of their power from Bonneville. And
most of that comes along with sort of all the balancing, you know, and stuff
that they need, especially for the smaller ones. And so, I would say, most of
public power hasn't really seen the need yet to do much in the area of demand
response. Now, when you talk about like, the Bonneville overall the system
could really benefit from demand response. But when you get down to their
individual utilities, it's not as useful to them. So, you have sort of this
disconnect in the system. And so, we haven't seen, you know, Bonneville has
done a great pilot, and they've been really trying to reorganize internally to
promote demand response, but they don't have the connection, you know,
directly to the customer. They are sort of in the middle. And so, they've been
trying to do what they can, but we haven't seen a ton of movement there
(Interview 8).

Compared to public utilities, investor-owned utilities have a greater need for

demand response resources. The following quote exemplified this point:

The big part of the problem with that, with demand response in the Northwest
is that we've been pretty flush on capacity for quite a while, and particularly
the publics have a lot of hydro and their capacity prices are not terribly high at
all. But for the investor-owned utilities, particularly in the next few years,
quite a few coal plants start to retire. There're definitely going to be some
capacity constraints. And that's going to drive that price up quite a bit, I
imagine. So, we do expect demand response to start to be a pretty reasonably
significant resource in the next 10 years for sure (Interview 17).
 96

4. Quantitative Approach

I employ an Ordinary Least Squares estimator to analyze a unique data set

assembled with published data from different public sources. To structure my inquiry,

I utilize theoretical postulates introduced in the literature review. I examine factors

influencing adoption of demand response by investor-owned electric utilities in 49

states (excluding Nebraska because there are no investor-owned utilities operating in

the state). The unit of analysis is a U.S. state at a given year (data for investor-owned

utilities is aggregated at the state level). The current sample examines data from 49

states between 2010 and 2018 (the latest available data). The study’s time period is

constrained due to data availability issues. Specifically, before 2010, the Energy

Information Administration reported data on utilities’ demand response levels without

specifying data at the state level. For example, PacifiCorp (id 14354) serves six states,

and only one number was reported regarding that utility, which combines data for all

six states.

4.1. Hypothesis Development

The technology-organization-environment framework (Tornatzky and

Fleischer 1990), supplemented by demand response literature and literature on socio-

technical transitions, serves as a conceptual framework for the study’s quantitative

analysis (see Table 2.1 for more detail). Several groups of factors help explain

variations in the state-level demand response adopted by investor-owned electric

utilities: technological factors (conditions in which the benefits of demand response

adoption outweigh the costs associated with it); organizational factors (e.g., the size
 97

of the electric utility), and environmental factors (e.g., regulatory structure and

stakeholder inclinations).

Technological Factors

I expect that utilities with higher AMI adoption rates are more likely to have

greater levels of demand response compared to utilities with lower AMI adoption

rates (Hypothesis 1). I also expect that utilities that operate in states with a larger

share of intermittent energy sources in the energy mix (wind and solar) are more

likely to have higher levels of demand response compared to utilities that operate in

states with lower shares of intermittent energy sources in the energy mix (Hypothesis

2). In addition, I control for the population density in each state.

Organizational Factors

I expect that utilities that serve more customers are more likely to have a

higher level of demand response compared to utilities that have fewer customers

(Hypothesis 3).

Environmental Factors

I expect that utilities operating in states that adopted more policies requiring

investor-owned utilities to implement demand response, are likely to have higher

levels of demand response compared to utilities operating in states with fewer such

policies (Hypothesis 4). Such policy efforts include legislative acts, actions of state

governors, and orders of public utility commissions. Next, I expect that utilities

operating in states that demonstrate higher League of Conservation Voters scores are
 98

more likely to have higher levels of demand response compared to utilities operating

in states with lower League of Conservation Voters scores (Hypothesis 5). I expect

that utilities operating in states with higher prices of electricity per kilowatt-hour are

more likely to have higher levels of demand response compared to utilities operating

in states with lower prices of electricity per kilowatt-hour (Hypothesis 6). In addition,

I control for the presence of an Independent System Operator and a 3-month (June

through August) average of maximum temperatures in each state during each year.

4.2. Data Sources

A unique data set for purposes of this study was compiled with the use of different

public sources. Table 4.1 illustrates the description of variables and sources.

Table 4.1. Description of variables and sources

Dependent Variable Measurement Source

Demand Response Number of potential peak U.S. Energy Information

demand savings reported by Administration: Form 861,
investor-owned utilities https://www.eia.gov/electricit
(IOUs) (MW) per state i in y/data/eia861/
year t

Independent Variable Measurement Source

Population Density Number of people per square U.S. Census Bureau:

mile per state i, 2010 Census https://www.census.gov/data/
tables/2010/dec/density-data-
text.html

Wind and Solar Energy Wind and solar energy
Consumption consumption (Billion Btu) per
state i in year t-1
AMI Adoption Rate Number of AMI installed
divided by the total number of
IOUs’ customers per state i in
year t-1
Average Number of Total number of customers of
Customers IOUs’ divided by the number
of IOUs per state i in year t
State-level Policies Number of adopted policies
requiring IOUs develop
demand response per state i in
year t-1
League of Conservation The number of pro-
Voters Score environment votes cast by
House Representatives divided
by the total number of votes
scored per state i in year t-1
99
U.S. Energy Information
Administration: State Energy
Data Systems,
https://www.eia.gov/state/sed
s/seds-data-
complete.php?sid=US#Statist
icsIndicators
U.S. Energy Information
Administration: Form 861,
https://www.eia.gov/electricit
y/data/eia861
U.S. Energy Information
Administration: Form 861,
https://www.eia.gov/electricit
y/data/eia861/
Federal Energy Regulatory
Commission: Reports on
Demand Response &
Advanced Metering,
https://www.ferc.gov/industri
es/electric/indus-act/demand-
response/dem-res-adv-
metering.asp), state
government websites
League of Conservation
Voters,
http://scorecard.lcv.org/sites/
scorecard.lcv.org/files/LCV_
Scorecard_2009.pdf
 100

ISO Membership Percentage of customers of U.S. Energy Information

IOUs that joined ISOs/RTOs Administration: Form 861,
per state i in year t https://www.eia.gov/electricit
y/data/eia861/

Price of Electricity Average price of electricity U.S. Energy Information

(cents per kwh) per state i in Administration: Electricity
year t-1 Detailed State Data,
https://www.eia.gov/electricit
y/data/state/

Maximum Temperature 3-month (June through NOAA National Centers for

August) average of maximum
temperatures per state i in year
t Statewide Time Series,
Environmental information,
Climate at a Glance:
https://www.ncdc.noaa.gov/c
ag/statewide/time-
series/1/tavg/3/8/2010-
2018?base_prd=true&begbas
eyear=1901&endbaseyear=2
000&filter=true&filterType=
binomial

4.3. Data Analysis

I use panel data and an Ordinary Least Squares (OLS) estimator to examine

factors that influence demand response adoption rates by investor-owned electric

utilities in 49 U.S. states. Table 4.2 contains descriptive statistics of the panel data.

Table 4.2. Descriptive Statistics of the Panel Data

Variable Obs Mean Std. Dev. Min Max

 101

Demand Response 441 398.65 694.2 0 5889.5

Population Density 441 1.96 0.61 0.08 3.08

(log)

Wind and Solar Energy 441 3.85 1.02 1.08 5.81

Consumption (log)

AMI Adoption Rate 441 0.25 0.4 0 4.11

Average Number of 441 5.52 0.5 3.2 6.4

Customers (log)

State-level Policies 441 0.9 1.5 0 9

ISO Membership 441 54.41 47.46 0 100

League of Conservation 441 44.1 30.12 0 100

Voters Score

Price of Electricity per 441 10.59 3.81 6.08 34.04

State

Maximum Temperature 432 83.88 6.51 57.7 100.4

The model employs a random effects estimator as the Hausman test suggested

the usage of random effects. In addition, one independent variable (population

density) does not change over time but varies across cross-sectional units, so it is
 102

omitted in the fixed effects model due to the separation problem. Note that the main

independent variable of interest (state-level policies) remains significant and doesn't

change its sign in the fixed effects model (see Appendix B). To correct for the time

non-stationarity problem in some variables and account for time shocks, I included n-

1 year dummies in the model. An LR test revealed heteroscedasticity; therefore, I

included robust standard errors. Woolridge test suggested that the first order serial

correlation is not present in the specified model.

4.4. Results

The results of the regression analysis are presented in Table 4.3. As

hypothesized, state-level policies appear to be a crucial determinant of higher levels

of demand response (Hypothesis 4) (at a 99% significance level). As expected, larger

utilities tend to have higher levels of demand response (Hypothesis 3) (at a 95%

significance level). As hypothesized, higher adoption rates of AMI are associated

with higher levels of demand response (Hypothesis 1) (at a 90% significance level).

The League of Conservation Voters Score has not performed the way it was

hypothesized (Hypothesis 5), its effect appears to be significant at a 90% significance

level. Price of electricity and wind and solar energy consumption (Hypotheses 2 and

6), as well as population density, ISO presence, and a 3-month average of maximum

temperatures do not demonstrate any significant effect on levels of demand response.

 103

Table 4.3. Estimated Coefficients

Dependent Variable – Number of Potential Peak Demand Savings (MW)

Independent variables Coef. Robust Std. Z P > |z|

Err.

Population Density (log) 62.38 113.95 0.55 0.584

Wind and Solar Energy -6.00 37.66 -0.16 0.873

Consumption (log), t-1

AMI Adoption Rate, t-1 84.85* 47.62 1.78 0.075

Average Number of 345.28** 156.82 2.20 0.028

Customers (log)

State-level Policies, t-1 80.01*** 21.63 3.70 0.000

ISO Membership 0.18 0.68 0.27 0.788

League of Conservation -1.3* 0.71 -1.82 0.068

Voters Score, t-1

Price of Electricity per -14.57 11.59 -1.26 0.209

State, t-1

Maximum Temperature 5.19 7.95 0.65 0.513

Constant -1893.54 1372.22 -1.38 0.168

 104

Number of observations 432

Number of groups 48

R-squared (within) 0.0441

R-squared (between) 0.2796

R-squared (overall) 0.2421

Note. Cases are state years. Robust standard errors are clustered by state. N-1 year
dummies are included by not shown. Random effects estimator was used.
Significance levels are presented as follows ***p<.01**p < .05. *p < .1.
 105

5. Discussion

This research has utilized both qualitative and quantitative data. Qualitative

data was valuable for revealing unexpected phenomena that quantitative methods

might have been unable to detect. As a result, mixed methods have contributed to a

more complete, holistic, rich, comprehensive and context-based examination of the

unit of analysis (Jick, 1979). In this dissertation, I utilized a convergent parallel mixed

methods design that allowed for combining quantitative and qualitative data; I

analyzed the data separately and determined whether the findings converged

(Creswell, 2014, p. 219). The following section will jointly discuss the results of the

quantitative and qualitative studies.

5.1. Environmental Factors

5.1.1. State-level Policy Actions

Both qualitative and quantitative results have revealed the importance of state-

level policy actions on demand response development by investor-owned electric

utilities. The quantitative analysis identified a positive correlation between the

number of policies facilitating demand response and the level of demand response

development (at the 99% significance level). The comparative case study

demonstrated that state-level policy actions, including the decisions of public utility

commissions, led to demand response development in Idaho and Oregon. In

Washington, the effect of recent policies could not be evaluated due to an insufficient

time lag. These findings align with previously conducted research. Scholars generally

hypothesize the positive impact of policy instruments on enhancing low-carbon

 106

energy innovations (Stucki, 2018). Additionally, previous research documented the

highly significant role of policy incentives in the adoption of smart meters by electric

utilities (Zhou and Matisoff, 2016; Dedrick et al., 2015).

Further, the qualitative analysis revealed that there are several ways in which

policy actions influence demand response development. According to Verbong and

Geels (2010, p. 1220), the dynamics of different transition pathways impact the

choice of policy tools used by regime actors. In the transformation pathway, regime

pressure plays a more significant role for socio-technical transitions than purposeful

actions to nurture niches. In contrast, in the reconfiguration pathway, the role of both

regime pressure and niche stimulation are equalized. In this pathway, regime actors

make significant efforts to integrate niche-innovations in the existing regime so that

they become a system component for solving regime problems.

In Idaho, the transition to achieving more flexible load represents the

transformation pathway (Figure 5.1 illustrates this pathway), which is driven mainly

by incumbent actors. Cost-efficiency is the highest priority in determining whether

demand response resources should be considered for procurement by electric utilities

in Idaho. The physical characteristics of the southeastern portion of the state create

conditions for critical peak demand periods in the summer (large irrigation and air

conditioner load combined with regular electricity consumption by industrial

customers put a great deal of pressure on Idaho’s electric system). Developing

demand response resources under such conditions creates a cost-effective measure to

address peak electricity demand. However, no significant changes in existing rules

and norms in the regime were observed.

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Figure 5.1. Transformation Pathway. Source: Geels, F. W., & Schot, J. (2007).

In Oregon and Washington, the transition towards more flexible load

represents the reconfiguration pathway (Figure 5.2 illustrates this pathway). This

transition is also driven mainly by incumbent actors. The results suggest that the

governance regimes in Oregon and Washington more actively promote demand

flexibility, compared to Idaho. For instance, in Washington, adding a public interest

component to the cost-efficiency calculation can produce substantial changes in

determining what kind of resource to procure. The definition of "governance,"

derived by Verbong and Geels (2007, p. 1025), is used to conceptualize governance

regime: "Governance means that directionality and coordination in a particular

domain has an emerging character, arising from interactions between multiple

groups." Consequently, more substantial changes (as opposed to incremental changes

in the transformation pathway) occur in the existing regime configuration.

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Figure 5.2. Reconfiguration Pathway. Source: Geels, F. W., & Schot, J. (2007).

These changes in the regulatory structure could be considered as changes in

existing institutional arrangements. Institutions are viewed as visible and invisible

structures that determine individual actions. They can be either formal (e.g., laws) or

informal (e.g., norms). According to Ostrom, "institutions are collections of

interrelated rules and routines that define appropriate action in terms of relations

between roles and situations" (Ostrom, 1991, p. 239). One interviewee asserted that in

order to transition to greater demand-side management in the electricity sector,

radical changes in the existing institutional arrangements are necessary:

For most of the 20th century, we built a power system of oversize capacity, so
we could make sure that we had supply available when all of us, consumers,
changed our demand up or down. So now I think that demand response is the
flip of that. Now we have a situation where we have non-dispatchable
renewables that are variable in output. How can we move our demand around
to match the availability of the output? It's sort of flipping the whole thing on
its head. It's really the history you've had in reverse that all of us consumers
 109

have been so variable in our usage for so long that we had to build this crazy
system. It's overbuilt. We're flipping it around, we're saying, "Okay, now we
have to shift our demand to match the availability out" (Interview 6).

5.1.2. Societal Values and Shared Beliefs

The interviewees emphasized the importance of societal values and shared

beliefs in shaping socio-technical transitions. Environmental concerns were defined

as one possible reason that motivates some customers to participate in demand

response programs. Other motivating arguments include economic reasons and

reliability concerns. Quantitative analysis measured the influence of one dimension of

societal values, specifically, the influence that environmental concerns have on

increasing support for demand response development. The assumption is that society

would value the benefits this technology provides for the greener electric grid. In this

study, the League of Conservation Voters score was used as a proxy for the

environmental values of state residents. Contrary to the hypothesis, the study shows a

negative correlation between the League of Conservation Voters Score and the level

of demand response development (at a 90% significance level, the coefficient’s

confidence level includes 0). This inconsistency might be explained by highly

technical and low saliency nature of demand response as a policy area (people with

high environmental concern might not be aware of the benefits demand response

provides for the greener electric grid). Therefore, the League of Conservation Voters

Score might have not performed well in capturing the link between societal values

and shared beliefs and support for demand response. Interviewees described issues

pertaining to demand response as a highly technical and low saliency policy area:
 110

I don't know that anybody within the region, or within Oregon, really
understands the value of demand response, that even to an extent includes the
Commission's staff. They have a general understanding, but I don't know if
they get the details yet (Interview 1).

What I can say is most residential customers, if you use the word "demand
response," they have no idea what you're talking about. So PGE, for example,
is as part of this testbed they're going to do some baselines surveys to
understand customers' perception, but not necessarily use the word "demand
response," but just, "Do you realize that it costs the utility more to provide
during some hours versus other hours?" (Interview 3).
Civil society currently plays a significant role in shaping the electricity sector.

Partisan and nonpartisan nonprofit organizations (e.g., environmental groups,

customer advocates, think tanks) actively participate in crafting legislative and

regulatory acts that impact energy systems. Citizens become involved in shaping

energy systems in many ways. Customers are increasingly expressing their

preferences for the way their electricity is procured. In some states, entire

communities now have a right to leave their utility and sign a contract with

independent power producers. Some customers pay premiums to help their utility

invest in renewable energy. However, civil society actors have not exerted strong

pressure to increase demand response development, in contrast to the growing

number of successful campaigns for procuring larger shares of renewable energy in

the energy mix. An interviewee exemplified this point:

Customers don't really ask for, you know, active management. It's just not
something that they would think of one wanting. So, you know, customers ask
for choice, customers ask for, obviously, affordability, customers ask for, you
know, clean. But they don't proactively ask for active management, which has
some value to them if they're a part of that (Interview 9).
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5.1.3. Electricity Prices and Organized Electricity Markets

The comparative case study demonstrated that, despite low electricity prices

and no organized markets in all three cases, Idaho’s utilities achieved high levels of

demand response development, while Oregon and Washington utilities did not.

Similarly, regression analysis did not identify any statistically significant impact of

electricity prices and the presence or absence of organized markets on demand

response development. Interviewees were inconclusive in their assessments of the

impact of electricity prices and the presence of organized markets on demand

response development. Arguments for both the presence and absence of the impact of

these variables were presented by the interviewees. Qualitative analysis showed that

policy actors try to facilitate demand response bilateral transactions between electric

utilities. One interviewee commented on the specifics of bilateral transactions in the

region:

For the most part, markets here (because there's not a formalized market) are
done by bilateral transactions. There's a lot of relationships here. And a lot of,
you know, knowing when your neighbor has extra energy or has needs, there
is a lot of calling back and forth. It's a little hard to follow sometimes, and it's
not terribly transparent because it's not formalized (Interview 17).

Hewitt-Dundas and Roper argue that "a lack of information about the

capabilities of potential partners and a lack of information about the trustworthiness

of potential partners" (2018, p. 23) could be counterbalanced by policy actions. An

example of such facilitation is the Northwest Power and Conservation Council’s

effort to develop a template for a utility-to-utility transfer of capacity by means of

demand response. The Council created four potential scenarios and necessary

arrangements of a transaction between a publicly owned utility and an investor-owned

 112

utility, with the former serving as the providing utility and the latter as the receiving

utility.

5.2. Technological Factors

5.2.1. Advanced Metering Infrastructure and Other Technological

Devices
The quantitative data showed that the rate of installed smart meters is

positively associated with the level of demand response development in a given state

(at the 90% significance level, the coefficient’s confidence level includes 0). This

finding is consistent with previous research suggesting that smart meters provide

support for implementing demand response programs. According to the comparative

case study, Idaho’s utilities achieved both high rates of smart meter installation and

high levels of demand response development. Oregon’s utilities showed high rates of

smart meter installation but low levels of demand response. And Washington utilities

scored close to zero on both fronts). Interviewees provided opposing statements on

this matter. Some acknowledged the crucial role of smart meters for implementation

of demand response programs, while others asserted that smart meters are not a

necessary component for all demand response programs.

Additionally, implementation of Demand Response 1.0 programs does not

require Internet-enabled devices but transitioning to Demand Response 2.0 and 3.0

will require a stable Wi-Fi connection to bridge all the system components, including

smart appliances at customer sites. As the interviewees mentioned, such programs can

bring customers monetary benefits while solving some demand-side management

challenges:
 113

But when it comes to devices, we now have devices that are smart enough to
be able to take care of these schemes for the customer. And most of the time
the customer doesn't need to know or care. But by being enrolled and having
the tech, they're saving money (Interview 1).

What utilities want as well as customers [from installing smart thermostats] –

utilities want load management; customers want it for the remote access on
their phone... It also provides benefits to your customers, which utilities love.
If utilities can offer value to their customers and get some of this load
management they need, that’s great (Interview 7).

In addition, as one participant noted, customers can receive some free useful

technological devices from their utilities (like smart thermostats) if they sign up for

demand response programs:

[Utilities] can say, "You know, I'm so glad that you guys have been our
partners for such a long time. We're going to literally give this thermostat to
you because it provides a lot of value for us to have some flexibility just in a
few hours, literally a few hours over the year where we can call on resources
and flex things a little. Guess what? You can override it. If you decide that
that two-degree temperature or something you can't live with, just go over
there and change it." ...So, I think the utilities can be a conduit really, like in
the early days when they were kind of giving away or accelerating
investments in efficiency, like with LED bulbs. Same thing here with these
thermostats (Interview 9).

It is important to mention that Demand Response 2.0 and 3.0 programs rely on

high-quality communication networks at customer sites. Thus, if utilities suspect that

some customers lack a high-quality connection, they might not offer program

subscription to those customers. These customers will miss out on benefits that the

programs offer. One interviewee summarized this point:

So basically, at some point in time, once that event is called, the device will
speak to the Wi-Fi, and like in 5 seconds, it will download that thermostat. So,
you are relying on the customers’ personal Internet... That’s definitely what
utilities are concerned about, they won’t necessarily incentivize a smart
thermostat program in rural areas, they think that Wi-Fi penetration rate isn’t
very high. And they also have the same bias with low-income customers…
But it is a big hurdle for utilities. They don’t like to rely on customers’ Wi-Fi,
 114

it’s a potential reason the device might not be online… There are some water
heaters that have switches that are cellular and some one-way switches on the
AC that are cellular, but for the most part, most DR technologies are Wi-Fi,
for better or worse (Interview 7).

Demand Response 3.0 programs require high-quality communication services

due to the technicalities of processing and transmitting large amounts of data. Such

services may be less accessible and/or less affordable in areas without broadband

access. In this case, the issue of equality in energy systems (Sovacool and Dworkin,

2015; Jenkins et al., 2016; Heffron and McCauley, 2014) becomes important. One of

the elements of energy justice – the allocation of benefits provided by modern energy

systems – assumes that "all people have a right to fairly access energy services"

(Sovacool and Dworkin, 2015, p. 440).

The electrification of rural America was a challenging enterprise. Electric

companies were not willing to provide services to the rural areas because of

extremely high costs associated with service provision and dim prognoses for their

ability to collect enough revenue in sparsely populated areas. The installation of one

mile of rural line was estimated to be about $2000 more expensive than one mile of

urban line (Brown, 1980). In 1935, President Roosevelt issued an order that

established the Rural Electrification Administration, which aimed to incentivize the

electrification of American farms. Low-interest federal loans were allocated to

companies to expand electricity services throughout rural areas. This order made rural

electrification a critical public policy priority (Brown, 1980). As a result of this policy

intervention, access to electricity in rural communities ultimately matched the level of

access in urban communities.

 115

Today, despite the problem of electricity access being practically solved in the

U.S., the problem of unequal access to modern energy services persists. Sparsely

populated rural areas continue to face unique challenges that are not an issue in urban

areas. Customers who lack access to accurate, interactive information concerning

their energy usage, as well as two-way communication with their utility, are not well

equipped to engage in energy efficiency and demand-side management activities,

which aim to save customers money. Srivastava et al. (2018) found that demand

response programs are more successful in urban areas. According to the authors, one

of the reasons is that high population density helps reduce the costs of infrastructure

necessary for the implementation of such programs. Another reason is that rural

customers often are less aware of energy and environment issues.

Lack of broadband Internet service in some areas could become an immediate

technical hurdle to advanced demand response programs. Smart grid development

runs the risk of moving ahead in urban areas while leaving rural areas behind, unless

policy makers can devise treatments that will close the urban-rural gap. Appropriate

policy mechanisms might help prevent further delays in adoption of Demand

Response 3.0 programs in low population density areas. As investor-owned utilities

operate in a highly regulated market, regulators should be aware of this trend. For

example, utilities might file proposals to invest in broadband infrastructure so that

they are able to implement such programs in rural areas. Knowing the current trends,

the federal government could specify conditions for awarding grants that would favor

utilities operating in areas that face systematic disadvantages for the adoption of new

technologies.
 116

5.2.2. Integration of Renewable Energy Sources Into the Electricity

Grid
Interviewees observed that renewable energy growth has a positive impact on

demand response development. However, the comparative case study demonstrated

that despite high levels of renewable energy development in all three cases

(particularly, wind energy), Idaho’s utilities achieved high levels of demand response

development, while Oregon and Washington utilities did not. Similarly, regression

analysis did not identify any statistically significant impact of renewable energy

growth on demand response development.

As electric utilities transition to achieving their deep decarbonization goals, it

will be not possible to use a significant amount of fossil fuels (natural gas or coal-

fired power plants) to meet peak demand, and resource flexibility will be more of

value. One interview participant commented on this matter:

So, one thing that we started seeing with energy is that instead of the
traditional path or energy constrained markets, they were turning into capacity
constrained markets. And what we're having a problem with this meeting our
peak demand with clean energy, and that was the other thing that we are
working on, is we wanted to get to as much hundred percent carbon free
resource as we could. As a company that would require us to look at what we
are doing on peak. For example, are we buying energy on the market to meet
peak demand, which everybody is, and we are looking at what was the carbon
content, and because you can't track electrons across the grid, if you don't
know the actual source, you have to consider in the state of Washington to be
coal (Interview 15).

Thus, electric utilities will have to devise solutions to replace these resources,

and demand response will become one of such solutions. One interviewee called

attention to this point:

 117

Demand response is traditionally used to shave peak summertime or peak

energy demand. And the next level is to address renewable energy integration,
so you have more frequent use of demand response (Interview 12).

5.3. Organizational Factors

Consistent with previous research, the quantitative study revealed that larger

utilities are more likely to have higher levels of demand response development (at the

90% significance level). However, the comparative case study contradicts this finding

because Idaho’s utilities, which are smaller on average than Oregon and

Washington’s utilities, achieved higher levels of demand response development.

Dedrick et al. (2015) examined factors influencing the adoption of smart grid

technologies and found that some utilities considered their smaller size as a benefit

that provided some flexibility in their decisions to adopt new technologies.

Interviewees did not pay significant attention to this variable, but one participant did

provide some insight into why smaller utilities might have lower levels of demand

response development:

Tacoma, SnoPUD, those sorts of entities, the smaller public power providers
just need to have real acute market drivers for the acceleration of a demand-
side management program to rise to the top of a list of a number of issues for
them (Interview 9).
There is no data measuring corporate culture for each electric utility; thus, this

variable was not included in the statistical model. However, several interviewees

emphasized the importance of corporate culture on demand response development.

Specifically, the interviewees mentioned the issue of demand response initially not

being taken seriously as a resource by the power sector actors who elevated

traditional approaches for meeting peak demand:

 118

You hear a lot from the utility operation perspective that they're so used to
having big centralized levers they can pull. Now there is some skepticism, but
I think it's lessening, thankfully, but there's been some skepticism around all
these distributed demand response assets, "Can I really count on that in the
same way I can count on a gas turbine?" So, I think there's just some general
skepticism around the distributed nature of demand response (Interview 6)
Obviously, there is still some barriers in the sense that this capacity
development is not trusted by your transmission and distribution guys, your
power operators, there is still some gaps like that, creating that firm capacity
that people can call on, cause it’s not a power plant, it’s not generation, it has
different characteristics. There are those, I would say as these utilities are
developing these resources, there is internal cultural change that needs to
happen to understand how to operate these different assets (Interview 7).
In addition, the interviewees highlighted the significance of utilities’ corporate

culture that predisposes them to be more innovative, which might affect the

willingness to procure a new resource type. The following quotes exemplify this

point:

A lot of it is probably institutional culture. Partly, Portland General Electric

also, I think, because it has more of an urban service territory and also has a
more progressive customer base, I think, the utility itself is probably more
interested in aggressively pursuing [demand response]. Historically, PGE has
been more receptive doing pilot programs to try and test new business
strategies than PacifiCorp. They've always been more kind of tried and true
and it's just doing what works. So, you still have some of those kinds of
institutional cultural barriers (Interview 6).
[Why do some utilities conduct more pilots and are more creative and
innovative?] That seems to be part of the company culture. I'm not sure why,
but certainly, with their conservation program, Avista kind of likes to do their
own thing. And they don't want to make anybody unhappy. But they're not as,
what is a right word here, they're not as resistant to coming to the Commission
and hearing that, "You know, we're not super thrilled with what you're doing
and are we thinking of something different." Whereas a Puget Sound Energy's
culture is a little more, they really like have everything smoothed out before
they bring anything to the Commission, it's definitely a little more risk averse,
I think, but they're hesitant to do pilots sometimes because they want to make
sure that they're just not taking a risk that they don't have to take (Interview
17).
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5.4. Summary of the Quantitative and Qualitative Results

The following section provides the overall summary of the dissertation’s

findings and their connections to the main propositions of the study’s theoretical

frameworks. Specifically, Table 5.1 shows how the quantitative and qualitative

findings reinforce each other and how they connect with the theoretical postulates.

Table 5.1. Summary of the Quantitative and Qualitative Results

Theoretical Propositions Quantitative Component Qualitative Component

Environmental Factors

Existing regulatory and
market structure governing
electric utilities and
incumbent actors with vested
interests contribute to regime
stabilization meaning that
existing arrangements are
likely to favor supply-side
resources over emerging
demand-side resources.
The quantitative analysis
identified a positive
correlation between the
number of state-level policies,
which included legislative
acts, actions of state
governors, and orders of
public utility commissions,
and demand response
development by investor-
owned electric utilities.
The comparative case study
revealed that orders of public
utility commissions spurred
demand response initiatives in
Idaho and Oregon. In
Washington, the effect of
recent policies could not be
evaluated due to an
insufficient time lag.

Regression analysis did not The comparative case study

identify any statistically
significant impact of
electricity prices and the
presence or absence of
organized markets on demand
response development.
demonstrated that, despite
low electricity prices and no
organized markets in all three
cases, Idaho’s utilities
achieved high levels of
demand response
development, while Oregon
and Washington utilities did
not.

Landscape factors, such as
societal values, influence the
processes of the socio-
technical regime and the
niches level.
Benefits of a new technology
adoption should outweigh the
costs of its deployment.
Existing material
infrastructure investments and
technological capabilities
contribute to the stabilization
of the socio-technical regime
and might result in path
dependence and system lock-
in meaning that traditionally
used supply-side resources
might have advantages over
emerging demand-side
resources.
The quantitative results show
a negative correlation
between the League of
Conservation Voters score, a
proxy for environmental
values of state residents, and
the level of demand response
development. This was
inconsistent with the initial
hypothesis, which might be
explained by highly technical
and low saliency nature of
demand response as a policy
area (people with high
environmental concern might
not be aware of the benefits
demand response provides for
the greener electric grid).
Technological Factors
Demand response can provide
valuable by integrating
renewable energy into the
electric. However, regression
analysis did not identify any
statistically significant impact
of renewable energy growth
on demand response
development. This could be
explained by the fact that
current demand response is
limited to summer peak
solutions and predominately
provides capacity services
rather and not ancillary
services, balancing services,
etc..
120
While environmental
concerns were defined by the
interviewees as one possible
reason motivating customers
to participate in demand
response, other rationales
such as economic reasons and
reliability concerns, were
cited as important motives.
Moreover, civil society actors
have not exerted strong
pressure to increase demand
response development, in
contrast to the growing
number of successful
campaigns for procuring
larger shares of renewable
energy in the energy mix.
The qualitative study
demonstrated that, despite
high levels of renewable
energy development in all
three cases (particularly, wind
energy), the Idaho utilities
achieved high levels of
demand response
development, while Oregon
and Washington utilities did
not. Nevertheless, the
interviewees agreed that
moving toward deep
decarbonization goals will
make demand-side resources
of more value.

Advances in technological
solutions change incumbent
technologies and create
opportunities for demand-side
resources (e.g., automation
and two-way communications
technologies (smart meters,
smart thermostats).
Organizational factors
represent size, ownership,
managerial specifics.
Building of networks of
actors and learning processes
regarding technical
requirements, customer
preferences, policy tools, and
organizational dynamics,
become important in the
process of innovations
development.
Quantitative data showed that
the rate of installed smart
meters is positively associated
with the level of demand
response development in a
given state, although the
results are only significant at
the 90% significance level.
Organizational Factors
The quantitative results
revealed that larger utilities
are associated with higher
demand response levels.
There is no systematic data on
corporate culture and
managerial specifics of each
electric utility that could be
included in the statistical
model.
121
Some interviewees
acknowledged the crucial role
of smart meters, while others
asserted that smart meters are
not a necessary component
for all types of demand
response programs.
Interviewees emphasized the
importance of network
creation (e.g., Demand
Response Advisory
Committee and Grid Forward
convening the stakeholders
and facilitating development
of technical and policy
solutions of demand
response).
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6. Policy Implications

The following section outlines several policy implications based on the study

results. Specifically, potential policy solutions are proposed to mitigate the barriers

and enhance the facilitators of such efforts.

Reducing the Throughput Incentive

Current changes in the U.S. electricity sector demand a new type of regulatory

structure. These changes include a marked increase in distributed and intermittent

(wind and solar) sources of energy, increasing support for mitigating environmental

problems, greater use of advanced technologies (e.g., smart appliances, automation

solutions, and the emergence of technologies that allow for two-way communications

between utilities and their customers).

Regime actors might consider introducing significant changes in the

architecture of regulatory compacts. An example of such efforts is the adoption of

Senate Bill 5116 in Washington that, in addition to establishing a policy goal to make

all retail sales of electricity greenhouse gas neutral by 2030, recommended that

Washington Utilities and Transportation Commission implement performance and

incentive-based regulation. An interviewee explained the value of such performance

and incentive-based regulation:

[With the decoupling mechanism] the more efficient [utilities] are, the more
they save, the problem is that a utility, that has an incentive that way, will cut
to the bone, even on services and customer engagement in order to save
enough money to have shareholder benefit. So then in order to make sure that
the utility is properly performing, to the standards that the Commission wants,
they put into place performance incentive mechanisms, where they say, "We'll
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give you a certain amount of money when you hit these indicators around
customer service, customer sign-ups, safety, security, resiliency” (Interview
1).

Milward and Provan (2000) identify institutional design as a mechanism that

either encourages or discourages trust among various players. Baldwin and Von

Hippel (2015) consider institutions as "the equilibrium of a game" and assume that

they are static. However, institutions are dynamic, and it is important to understand

how they might change over time. One important question is whether trust is an

antecedent or a successor in certain institutional arrangements and what alters the

level of trust in actors’ interactions. In a strategic partnership, actors are interested in

pursuing common goals. According to Thomson et al., "the more value created

through collaboration, the greater likelihood of its sustainability because with value

comes commitment and with commitment, continued existence" (Thomson et al.,

2008, p.103).

Using Demand Response for Integrating Renewable Energy Into the Electric
Grid

One of the main drivers rendering demand response a more valuable resource

over time is the decarbonization goals announced by the states of Oregon and

Washington and many electric utilities in the Pacific Northwest (e.g., Portland

General Electric, Idaho Power) and in the rest of the country. Thus, demand response

planners should consider various services that this resource can bring to the system

(i.e., not just capacity services, but also energy services, ancillary services, balancing

services, storage services) (Interview 1). In short, preference should be given to

programs that have multiple benefits and uses (e.g., combining demand response and
 124

energy efficiency goals; demand response and resilience goals; and demand response

and ancillary services) (Keeling, 2019). As an interviewee put it:

It's important to look at demand response and all the multiple benefits you can
achieve through it. And, like electric vehicles, we shouldn't just think of it as
just an electric vehicle. We should look at it as an opportunity for demand
response as well and carbon reduction and positive community development.
It's just I think we get too caught up in knowing programs are one use for
multiple uses (Interview 15).

However, to help integrate variable generation sources, demand response

resources should not be limited to traditional summer peak solutions but should also

be utilized in the winter (e.g., electric water heater programs). One interview

participant underscored the versatility of demand response programs:

And [demand response] will help with energy services, ancillary services,
balancing services, storage services. And so, we're trying to develop our
programs as such right now. So that we can see, there's a pathway to flexible
load. So, all of the demand response programs that we have right now, are on
a pathway to flexible load. So, our thermostat program, we really call it 12 to
20 times per year. But we know we can call it much, much more often
(Interview 1).

Capitalizing on Nationally Recognized Success in Energy Efficiency

Development

Another factor that can make demand response more prominent is the success

of energy efficiency and conservation. For example, over the past decades, the Pacific

Northwest has nurtured a large network of actors, stable and effective institutions, and

public commitment to achieve remarkable advances in energy efficiency and

conservation. This capital could be utilized to help enhance demand response; one of

the interview participants called demand response as "really much more time targeted
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energy efficiency" (Interview 4). One example of capitalizing on existing energy

efficiency institutions involved the inclusion of the grid-response capable water

heater requirement, into a bill relating to appliance energy efficiency standards

(House Bill 1444) in Washington. As a consequence of melding these two goals into

one bill, there was no need to develop another bill just for the smart water heater

requirement, which helps to advance demand response, since a bill with energy

efficiency objectives had already been prepared by the Northwest Energy Efficiency

Alliance.

Another mechanism for capitalizing on existing energy efficiency institutions

would be to combine, where possible, the benefits of both the energy efficiency and

demand response programs, as one interview participant suggested:

You can call [demand response] resources much more often than you do now
when you start to package a thermostat with traditional energy efficiency, or
home insulation. So right now the Energy Trust [Energy Trust of Oregon that
receives money from Oregon’s investor-owned utilities to run energy
efficiency programs] is having a lot of difficulty going after above cost
insulation for homes, and they know that they have a lot of homes, they could
do more insulation, they can get to them, to their cost-effectiveness rubric. But
if they were to take demand response dollars, because there's actually a
demand response benefit in having a super insulated home with a smart
thermostat. And now I have a building that's flexible (Interview 1).

One participant summarized the inefficiencies of institutional arrangements

governing energy efficiency and demand response rather than connecting the two:

Here [in Oregon] we make very significant distinctions [between energy

efficiency and demand response programs] because mainly we set aside
money for energy efficiency, really specifically, so we send a lot of money to
the Energy Trust of Oregon to do energy efficiency. And they have this
mandate to acquire all cost-effective energy efficiency, and demand response
does not count as energy efficiency, we have not given that over to them,
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demand response remains with the utilities to do. And so, we make a very
clear distinction here (Interview 5).

Finally, customer participation in demand response programs would likely

increase significantly if customers understand its environmental benefits. An

interviewee illustrates this point:

So, in the Northwest we have been able to get the average household energy
usage to go down over the last 30 years; and I think that helps for demand
response, because we've got institutions and a legacy of running these
programs. Efficiency is considered a good thing; conservation is a good thing
in the region. All these programs have helped create this expectation that
we're doing these sorts of things that have led into other things: We lead the
country in recycling rates, we lead the country in, next to California, Oregon
and Washington are the next two states in terms of electrical vehicle sales, so
that, the conservation attitude, that I think energy efficiency programs, we've
been running them since 1980, helps put in this conservation mentality
(Interview 4).

Following Customer Expectations and Demand for Better Services

Some customers are highly engaged in the "ins" and "outs" of both smart

electricity consumption and production. A growing number of customers, for

example, are becoming increasingly conversant with the number of smart home

appliances enabled by new digital technologies. They are also gaining increasing

interest about photovoltaics, storage equipment, electric vehicles, and a wide range of

intelligent devices. Derakhshan et al. (2016, p. 295) underscore that "demand

response is one of the new developments in the field of electricity which is meant to

engage consumers in improving the energy consumption pattern." Entire communities

are deciding how they want their electricity to be procured. Customers in some

communities, for example, have broken contracts with their default electric power

utilities and signed contracts with independent power producers; other communities
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have built shared neighborhood-level storage systems to maximize the electricity they

produce off the grid (Müller and Welpe, 2018). Jamasb et al. (2017) emphasize that

smart grid implementation will likely need new business models that place a premium

on collaboration and specialization.

Customer expectations for having better services (access to both new

technologies and access to highly granular data on energy usage as well as monetary

incentives) may drive demand response developments. New technologies, along with

their capability to move electricity demand to off-peak hours, can ease customer

engagement and increase satisfaction. An interviewee illustrated this point:

Customers like them [smart thermostats] regardless of energy savings,

regardless of utilities subsidizing them, for them it’s modernizing their home,
having really easy customer experience that reduces their need to do energy
management, the thermostat does it for them (Interview 7).

Looking Beyond Immediate Capacity Needs

BPA has acted as a regional resource coordinator throughout the Pacific

Northwest. The region’s hydropower system has provided ample capacity resources

for electric utilities for decades. Electric utilities in the Pacific Northwest likely

would have engaged in greater efforts to develop demand response programs if

supplies of electricity have been less abundant (Jayaweera, 2018). In fact, until

recently, electric utilities in the Pacific Northwest have not faced any significant

constraints in meeting the demand for energy. Cheap electricity prices, moreover,

have made it more difficult for demand response resources to compete with supply-
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side resources. These conditions have resulted in a slower pace of demand response

development in the Pacific Northwest compared to other regions in the U.S.

However, short-term low cost-effectiveness performance of demand response

should not impede regime and niche actors, in the Pacific Northwest and in the rest of

the U.S., from exploring demand response that are likely to become crucial for the

functioning of the electric system both now and in the future. One interview

participant effectively summarized this point:

I think we're at a point in time, where it's really important that we not look at
current moment costs and prices, and that we look very carefully at planning
values or future costs and benefits. And so, what someone says, "It's not cost
effective to do, given today's prices," that concerns me because it is, well, it
will not be possible to turn a switch on some machine somewhere in five years
or 10 years and overnight have connected [flexible resources] that can be
managed by the grid operators. It takes time to build the demand response
capability into the power grid to build the controls into the distribution system
and things like that. And our utilities, in my opinion, need to make some
investments today that won't seem like they're cost effective at the moment,
but they are important for them to make nonetheless, so that they can develop
these capabilities so they are ready at the time they are needed and will be
very cost effective (Interview 16) .

Electric utilities need to keep an eye on demand response and conduct pilots

to understand technical aspects of its procurement. In addition, outreach efforts are

necessary to help customers understand why demand response is necessary for the

system and how they can help achieve flexible load in the future. And, as one

interviewee observes, it is important to understand how to motivate people to

participate in demand response programs:

Portland General Electric is going to be running this what they're calling this
Demand Response Testbed. And one of the things they are going to try is
quarterly, trying different messages to find out what motivates people the
most. Starting out with financial incentives, "I'll pay you to do this." And
 129

that's clearly one benefit that people will respond to as a bill credit, or
something like that. They're going to try giving, making a contribution to a
charity. So rather than you getting the bill credit, the bill credit goes to Oregon
Food Bank, or some sort of locally recognized charity within their
community. They'll try the message that this is really good for the
environment, this is an important part of carbon reductions. And we'll get a
better idea of what messages move the most number of people, I think all of
those messages work. Some work better with some groups of people than
others (Interview 4).

Regime actors can help niche-innovations devise cost-effective solutions

within the existing regimes. As Bogers et al. (2018) suggest, policy makers can

enhance innovation by facilitating collaboration among research and industry

organizations and ensuring access to state-of-the-art scientific materials. According to

Ansell and Gash (2008), a collaborative approach brings public and private

stakeholders together to engage in consensus-oriented decision making. Additionally,

Munoz and Lu (2011) emphasize that an effective network of enterprising actors is an

important prerequisite for creating an open innovation environment. Along these

lines, Agranoff (2006, p. 57) points out that networks “are important vehicles for

resource pooling, mutual exploration, and knowledge creation.” O’Toole underlines

that “network management involves trying to build trust among the participating

parties” (O’Toole, 1997, p.48). Interviewees cited Grid Forward as the kind of

organization that could convene the stakeholders to facilitate development of

technical and policy solutions:

[Grid Forward previously known as Smart Grid Northwest] is kind of the

network glue behind trying to facilitate a lot of peer interactions, a lot of
market-based transactions, people that have ideas but don't necessarily know
who they need to talk to (Interview 9).
 130

In addition, Bogers et al. (2018) suggest, policy makers can enhance

innovation by allocating public and private funds in technology pilots. The following

quote exemplifies this argument:

And so last couple of years ago, the project just finished last year, PGE,
Bonneville and a number of utilities did this pilot study to test the feasibility
of CTA-2045 and water heaters and how well they could be used to do
demand response. And the pilot study was quite successful (Interview 3).
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7. Study Limitations and Future Research

There are limitations to this study that need to be acknowledged. First, the

study’s time frame was constrained by the limited availability of data by the way the

original data base was assembled. As mentioned earlier, before 2010, the Energy

Information Administration (EIA) reported data on demand response for the entire

service area of an investor-owned utility, with figures aggregated across state lines.

For example, PacifiCorp (EIA’s id 14354), an investor-owned utility headquartered in

Portland, Oregon, has service areas in six states (California, Idaho, Oregon, Utah,

Washington, and Wyoming), and, before 2010, EIA only reported a cumulative

number of potential peak demand savings, combining data for all the six states. Other

data (e.g., the number of customers served by a utility) had been provided with

respect to state boundaries even prior to 2010. For that reason, longitudinal continuity

and consistency in data collection and reporting is important for conducting time-

series research.

Similarly, the Energy Information Administration reports figures on utilities’

peak winter and summer demand aggregated for the entire service area of the utility,

which might cross several state boundaries such as in the case of PacifiCorp, which

has service areas in six states (California, Idaho, Oregon, Utah, Washington, and

Wyoming), or in the case of Idaho Power, which serves two states (Idaho and

Oregon). Such data availability constraints did not allow me to conduct measurements

of the dependent variable in ratios (the ratio of demand response reported by an

investor-owned utility, in megawatts, to the total number of megawatts of that

 132

utility’s peak demand). Instead, the dependent variable is measured in absolute values

(the number of megawatts of potential peak demand savings).

Another limitation relates to the operationalization of one of the independent

variables that measures the effect of social values and shared beliefs on the level of

demand response development in a given state. In this study, I hypothesized that

states with higher levels of environmental concerns would be more supportive to

demand response development because of the technology's environmental benefits,

and the League of Conservation Voters score was used as a proxy for environmental

values of the state residents. However, environmental values do not always predict

energy values. For this reason, the League of Conservation Voters score might not be

the best proxy to capture the effect of societal values and shared beliefs on demand

response development. Including data on customer perceptions toward demand

response practices may have been a better way to operationalize this concept.

Future research should consider conducting surveys to record customer

attitudes and perceptions at the state level, which might include the following

information: 1) customer type: Resource Man, Energy Citizen, Indifferent Customer;

2) attitudes toward potential modes of change: technology change, change in service

expectations, and activity change; 3) attitudes toward different approaches of

demand-side management: real-time automated response with minimal customer

involvement, near real-time response to a notification from the utility, time-of use

rates; 4) key teleoaffectivities: comfort, economy, autonomy, sustainability and safety

(of supply); and 5) the fitness of different activities to demand response goals:

cooling, heating, lighting, etc.

 133

Another potential issue for future research is demand response development

pertaining to small businesses. Over the last decade, scholars have been paying

significant attention to understanding attitudes of residential customers toward

demand response programs (e.g., an online survey conducted by Parag & Butbul

(2018) of Israeli attitudes toward demand response technologies). However, little

attention has been devoted to understanding the role of small commercial customers

in providing demand-side flexibility (Brown et al., 2018). Research on attitudes of

small commercial customers toward providing such flexibility would fill this

important knowledge gap.

Additionally, there is a potential for future research related to examining the

role of PUCs in energy policy at the state level. Scholars tend to pay significant

attention to understanding the role of state legislatures and governors in shaping state-

level energy policies. But the role of PUCs tends to be overlooked. Boyd and Carlson

(2016, p. 77) underscore that PUCs in some states "like New York and California,

have long histories of innovating and thus their staffs may view themselves as

policymakers, not just approvers of utility-proposed rate increases." Similarly, this

dissertation’s findings suggest that PUCs in some states have become policy making

bodies that have issued decisions leading to demand response initiatives and

innovations in the electricity sector.

Several literature strands could help examine factors influencing innovative

activities of PUCs. The theoretical model of government innovation, which,

according to Berry and Berry (2014, p. 307), is "a program that is new to the

government adopting it") specifies internal and external factors influencing policy
 134

adoption. And literature that examines politics of PUCs (Gormley, 1983; Teske,

2004) can help refine concepts of the government innovation framework. Combining

the two strands of the literature – the politics of the PUCs and the government

innovation framework – could contribute to a better understanding of the

phenomenon of policy innovation.

Adoption of rules promoting access to electricity usage data might also

become a subject matter for such research. The presence of infrastructure that collects

high-frequency data on electricity usage and provides two-way communication

between utility and its customers doesn’t suffice – adequate usage of the collected

data should be ensured as well. Sharing data with customers and other stakeholders

(academic community, local governments, third-party energy management firms, and

customer advocates) can enhance innovation. Sayogo and Pardo argue that "open data

policies are expected to promote innovations that stimulate social, political and

economic change" (2013, p. 72). Currently, about half of the states have adopted rules

promoting access to electricity usage data. Researchers could undertake a project

examining factors influencing adoption of these rules by PUCs using the

aforementioned bodies of literature.

Theory of institutional change could be employed to dig deeper into the

dynamics of policy change. Researchers employ several approaches to examine

institutions (Hall and Taylor, 1996). First, rational choice theory assumes the

engagement of rational actors to achieve their goals and "pursue their common

interests" (Rothstein, 1996, p. 133). Once the goals are achieved, individuals are less

likely to deviate from their position. Therefore, institutions are a means for rational
 135

actors to maintain desired equilibria (Mahoney and Thelen, 2010). Classical rational

choice theory doesn’t consider actors’ cognitive and emotional factors. "We do not

take into consideration the whole personality of each individual when we discuss

what behavior is rational" (Downs, 1957, p. 7). Contrary to classical rational choice

assumptions, Simon (1997, p. 92) assumes actors’ bounded rationality, "It’s

impossible for the behavior of a single, isolated individual to reach any high degree of

rationality." Instead, actors are limited by cognitive and environmental constraints.

They neither operate with complete information nor conduct exhaustive cost-benefit

analysis during the decision-making process (Frederickson et al., 2015).

Second, the sociological approach for examining institutions (Hall and Taylor,

1996) asserts that existing rules, both formal and informal, and appropriateness guide

how individuals act and form their preferences. In other words, individuals choose

their preferences and act in accordance with the rules, formal and informal, of the

group they belong to. The main difference between sociological and rational choice

approaches is the nature of individual preference formation. Rational choice theorists

argue that preference formation is exogenous to institutional analysis, while

sociologists-institutionalists assert the opposite (i.e., the endogeneity of preference

formation to institutional analysis). According to the sociological approach,

"institutions do not simply affect the strategic calculations of individuals, as rational

choice institutionalists contend, but also their most basic preferences and very

identity" (Hall and Taylor, 1996, p. 15).

The third approach – historical institutionalism – tends to embrace

assumptions of rational choice and sociological approaches (Hall and Taylor, 1996).
 136

Historical institutionalism accentuates the importance of path dependence, which

Mahoney and Thelen define as following, "the persistence of particular institutional

patterns or outcomes, often over very long stretches of time" (2010, p. 6). In addition,

historical institutionalism underscores the role of power discrepancies among actors

that are engrained and perpetuated by certain institutions. Along these lines,

Flyvbjerg (1998) argues that rationalization and not rationality prevails in the

decision-making process. Rationalization substitutes for rationality because of

disparities in power dynamics. That is, the powerful skew the decision-making

process from reasoning and looking for best options to justifying the chosen options

once they are made. Therefore, it is important to incorporate power into the analysis

of institutional arrangements.

The Institutional Analysis and Development (IAD) framework, which

examines strategic interaction of boundedly rational actors within social, physical,

and institutional contexts (McGinnis, 2011), can be used to analyze the dynamics of

institutional change. The IAD framework draws on rational choice (acknowledging

actors’ bounded rationality) institutional theory in examining institutional

arrangements. According to IAD, the institution is "enduring regularities of human

action in situations structured by rules, norms and shared strategies, as well as by the

physical world" (Imperial, 1999, p. 453). The framework has been used to analyze

governance of sustainable natural resource management. Specifically, it examines

three sets of variables that influence interactions between individuals: formal and

informal rules-in-use; community attributes; and physical and material conditions.

 137

The IAD framework is usually applied to examining common pool resources.

Gollwitzer et al. (2018), in their study of governance of electricity access and mini-

grids, conceptualized electricity as a common pool resource. Electricity is not a pure

public good (non-rivalry and non-excludable). Yet, Simon and Bernell argue that

energy is neither a public nor marketable good. Rather, it represents a "public need,"

as "energy became more than a strictly "marketable good" that existed solely in the

private realm and that could be rivalry-oriented and excludable, and toward the status

of being a "marketable public good" with the attendant elements of public interest

calculations being present in policy debates" (2016, p. 22).

The IAD framework almost exclusively draws on rational choice institutional

theory. While the framework considers elements from other approaches (i.e.,

examining the impact of culture on institutional arrangements), it still could benefit

from insights drawn from sociological and historical institutionalism. Along these

lines, Andrews-Speed underscores that "most previous applications of institutional

theory to the analysis of energy transitions draw on organizational or sociological

institutionalism" and that "rational choice and historical institutionalism can provide

additional insights to the low-carbon energy transition" (2016, p. 216). Transitions in

the electricity sector toward greater demand-side management practices could serve

as a fruitful learning context for synthesizing elements from different approaches to

examining institutions.

For example, rules-in-use are mechanisms that govern actor interactions in the

action situation. These rules include both formal and informal mechanisms. Formal

mechanisms include the way investor-owned utilities are regulated in a given state.
 138

For example, the structure of a PUC (whether Commissioners are appointed or

elected) or, the way interested stakeholders can participate in a regulatory process

(whether they can engage in certain regulatory actions). Informal mechanisms include

the types of interactions that actors engage in (e.g., whether state legislative actors,

regulators, and advocacy groups have channels for resolving or mitigating issues

before an official rule is adopted). If effective channels are established and actors are

committed to communicating through these channels, transaction costs for finding a

solution that satisfies all the actors will be lower. In addition, physical and material

components might include weather patterns and available energy resources.

 139

8. Conclusion

Over the last decade, the U.S. electricity sector has seen an increase in the

share of renewable and decentralized energy sources. Various solutions are required

to integrate intermittent and decentralized sources of energy into the electrical grid.

At the same time, due to both economic and environmental reasons, coal-fired power

plants have been retired, and it has become difficult to get stakeholder approval to

build new natural gas-fired power plants. Given these conditions, the issue of

ensuring system capacity is becoming a top priority. Demand response is one way to

reduce peak load demand by incentivizing end-users to shift their electricity

consumption to off-peak times and thus accommodate system needs. Demand

response contributes to ensuring reliability, lessens transmission constraints, and

helps integrate renewable and distributed energy sources into the electric power grid.

It also has the potential to reduce carbon dioxide emissions.

Despite the benefits demand response brings to the electric power grid, it

remains a maturing resource. The main goal of this research was to examine barriers

and facilitators of demand response development by investor-owned electric utilities.

A combination of quantitative and qualitative data served as the basis of this study,

which consisted of two distinct, yet inter-related, components. First, I conducted a

comparative case-study analysis based on a most-similar systems design. Three states

in the Pacific Northwest (Idaho, Oregon, and Washington) were chosen that were

similar in their electricity systems (no organized markets, heavy reliance on

hydropower, cheap electricity prices). The states, however, displayed different

outcomes in their level of demand response development. The comparative case-

 140

study analysis was based on interviews with a panel of stakeholders and the

examination of relevant regulatory documents. Second, I analyzed panel data for 49

states (excluding Nebraska because there are no investor-owned utilities operating

there) between 2010 and 2018. Both the quantitative and qualitative studies examined

the factors that accounted for the state-level variations in demand response

development by investor-owned utilities. This dissertation utilized the literature on

regulatory, social, and technological aspects of demand response in the electricity

sector; literature on socio-technical transitions; and scholarship on the adoption of

innovation. Specifically, the study described environmental, technological, and

organizational factors influencing demand response development.

The dissertation findings are summarized as follows: First, both qualitative

and quantitative data showed that state-level policies appear to drive demand response

development; the comparative case study revealed the importance of the Public

Utility Commissions in the process of demand response adoption by investor-owned

electric utilities. Second, both qualitative and quantitative data were inconclusive in

the assessments of the impact of electricity prices and the presence of organized

markets on demand response development. Third, while environmental concerns were

defined by the interviewees as one possible reason motivating some customers to

participate in demand response programs (along with economic reasons and reliability

reasons), the quantitative results show a negative correlation between the League of

Conservation Voters Score, a proxy for the environmental values of state residents,

and the level of demand response development. Fourth, the quantitative data showed

that the rate of installed smart meters is positively associated with the level of demand
 141

response development in a given state. Some interviewees acknowledged the crucial

role of smart meters, while others asserted that smart meters are not a necessary

component for all types of demand response programs. Fifth, the qualitative study

demonstrated that, despite high levels of renewable energy development in all three

cases (particularly, wind energy), the Idaho utilities achieved high levels of demand

response development, while Oregon and Washington utilities did not. Similarly,

regression analysis did not identify any statistically significant impact of renewable

energy growth on demand response development. Nevertheless, the interviewees

agreed that moving toward deep decarbonization goals will make demand-side

resources of more value in the future. Finally, in terms of organizational factors, the

quantitative results revealed that larger utilities are associated with higher demand

response levels, while the qualitative study highlighted the importance of network

creation convening the key stakeholders and facilitating development of technical and

policy solutions of demand response.

 142

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Appendices

Appendix A. List of interview questions

1) Please tell me about your background and your current role.

2) How would you describe your organization’s current approach to demand-side

management in the electricity sector and important policies or practices?

3) What major changes to policies and practices have occurred, relating to demand-
side management practices in your state?

4) How have the market structure of the electricity sector in the Pacific Northwest
affected demand-side management practices, if at all?

5) How have some technological factors affected demand-side management practices,

if at all?
[AS NECESSARY, AS ABOUT SOME OF THE FOLLOWING]:

a. Smart meter installation.

b. Automation processes.

c. Data analytics capacity.

6) Can you please describe the differences in demand-side management for

residential, commercial and industrial customers?

7) How have some socio-technical factors affected demand-side management

practices, if at all?

a. To what extent customers have been willing to implement changes

in their electricity consumption: technology change, activity change,
change in service expectations.

b. What are potential reasons for such changes?

c. What features of electricity consumption have been most important

to the customers: comfort, economy, autonomy, sustainability, and safety
of supply?

d. To what extent the customers have been perceptive to different

approaches of demand-side management: real-time automated response
with minimal customer involvement, near real-time response to a
notification from the utility, time-of-use rates?
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e. What practices have been more compatible with demand-side

management: cooling, lighting, cooking, etc.

8) Is there anything else about your state’s policies and practices related to demand-
side management in the electricity sector that you’d like to tell me about?

9) Is there anyone else that you would recommend contacting about these issues?

Appendix B. Estimated Coefficients (Fixed Effects Model)

Table C.1. Estimated Coefficients

Dependent Variable – Number of potential peak demand savings (MW)

Independent variable Coef. Robust Std. z P > |z|

Err.

Population Density (log) 0 (omitted)

Wind and Solar Energy -56.4 67.8 -0.83 0.406

Consumption (log)

AMI Adoption Rate 82.59 54.83 1.51 0.133

Average Number of 74.17 263.75 0.28 0.779

Customers (log)

State-level Policies 64.41** 26.26 2.45 0.015

ISO Membership 0.34 0.84 0.41 0.684

League of Conservation -0.31 1.58 -0.20 0.844

Voters Score
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Price of Electricity per -25.86 25.44 -1.02 0.310

State

Maximum Temperature 5.98 10.15 0.59 0.556

Constant -125.96 1598.56 -0.08 0.937

Number of observations 432

Number of groups 48

R-squared (within) 0.0499

R-squared (between) 0.1407

R-squared (overall) 0.1224

Note. Cases are state years. Fixed effects estimator was used. N-1 year dummies are included
by not shown. Significance levels presented as follows: ***p<.01**p < .05. *p < .1.