Pepco plan encourages utility to reduce demand


March 24, 1991|By Kim Clark

Sometime next year, power company workers may come to your house and help you plug drafts, install money-saving light bulbs and lower your electric bill.

That's right, area electric companies could start spending tens of millions of dollars more on energy conservation programs that will cut into their electricity sales.

The reason: Maryland regulators are trying to kick-start energy conservation by giving utility companies a bonus for reducing power sales.

Although Americans just spent billions of tax dollars and sacrificed the lives of dozens of soldiers to free oil-rich Kuwait, they have shown a marked reluctance to bother with energy conservation that could reduce reliance on foreign oil.

So, as U.S. soldiers and diplomats try to forge a "new world order" out of the distant battlefield, consumer advocates, state energy officials and utility executives are forming a new energy order here at home by radically changing the rules that determine how electric companies earn their profits.

It's a revolutionary idea, those in the industry say. After all, arranging for electric companies to earn more by selling less turns upside down a centuries-old business formula.

And it is a controversial idea. Some industrial and utility executives feel government should not reward people for doingwhat they ought to do on their own.

Instead, they say, regulators simply should make sure prices are fair and let people and companies make their own decisions.

Though radical, plans giving utility companies a little extra profit whenever they help customers cut their power bills are sweeping the nation. Maryland has joined a rush of at least 27 states devising experiments to reward power companies for selling less.

If the state Public Service Commission approves a proposal now being negotiated with the Potomac Electric Power Co., residents of Prince George's and Montgomery counties are likely to see the beginnings of a dramatic expansion of conservation programs sometime this summer. And customers of other area utilities may see similar reforms sometime next year: Baltimore Gas and Electric Co. executives are currently negotiating with state regulators for a reform similar to Pepco's.

Pepco was pushed into the experiment last summer. Consumer representatives offered not to fight the utility's plan to build a power plant if the utility would agree to reform the rules that set its profits.

The agreement reached by Pepco, consumer advocates and state officials after months of negotiations allows Pepco to charge customers for its expenses on conservation, the interest on those expenses and a little extra.

Area utilities, which until now could collect only their conservation expenses, have long had small, though growing, conservation programs, explained Paul Buckley, an attorney for the People's Counsel, the state agency that represents consumers in utility matters.

But since they only earned their profit when they sold electricity from their power plants, the utility companies, understandably, soft-pedaled conservation, he added. The new plan, which goes beyond mere coverage of expenses, is designed to turn around the utilities' emphasis.

Mr. Buckley and state regulators have agreed that Pepco can for one year add a small fee -- both sides say it would be a fraction of a penny on each customer's bill -- to recover the money it would have made if it hadn't helped customers conserve.

While this may mean that all customers pay a little more than they normally would in the first year, the customers who conserve will save money because they will use less electricity, Mr. Buckley said. And all customers -- even those who don't conserve -- will benefit after the first year is up, he said. If conservation means Pepco won't have to build new power plants, all customers will avoid rate increases, he explained.

Under the plan, for example, if Pepco helps a business replace an energy-wasting exit sign with an energy-efficient one, it can charge customers an amount that makes up for one year's worth of the new sign's electricity savings. But after the first year is up, nearly all of the savings are passed on to customers.

If Pepco finds that the sign saved even more electricity than expected, it can continue charging its customers the value of 5 percent of the extra savings as a bonus.

Pepco is now negotiating the details of the plan, such as what conservation programs ought to be included, how much energy each program will actually save and how much money each ought to cost, Mr. Buckley said.

In New England, where states set up similar reforms more than a year ago, utility companies are now rapidly beefing up once-anemic energy conservation programs.

Overall, New England utilities are expected to spend a total of $1.5 billion on conservation programs -- ranging from free home insulation to building construction advice to equipment improvements -- over the next five years, according to the Boston-based Conservation Law Foundation.

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