PUC OKs Energy Plan Tied to Conservation

The California Public Utilities Commission on Wednesday approved a far-reaching energy conservation program that backers said would forestall the need to build new power plants and reassert the state’s leadership in energy efficiency.

Financed by the state’s four largest electric and natural gas utilities through short-term rate increases of less than 1%, the two-year, $560-million program would effectively double the amount of money spent by the companies on conservation efforts. Over the longer term, utility rates might decline through energy savings, the PUC said.

Under the plan--formulated during months of behind-the-scenes negotiations--the four utilities would be allowed to declare as profits part of the savings that result from greater energy conversation by their commercial and residential customers. In the past the PUC has set a ceiling on utility profits that does not account for energy-saving programs. The companies have had little financial incentive to promote conservation.

The heart of the progam would be to increase rebates for nearly 20 million utility customers who buy energy-efficient appliances and other energy-saving products. Home builders would be given additional incentives to construct energy-saving dwellings that exceed state energy conservation standards. Conservation programs would also be aimed at commercial, industrial and agriculture customers.

“This is the most important state regulatory decision I’ve ever witnessed,” said Ralph Cavanagh, energy program manager for the Natural Resources Defense Council, which helped devise the program.

“It has the potential to change the fundamental nature of the utility business. . . . For the first time in the state’s history, utility profits are being tied in part to their success in promoting energy savings as opposed to their success in building and operating power plants.”

Utilities participating in the program are the Southern California Edison Co., San Diego Gas & Electric Co., Southern California Gas Co. and Pacific Gas & Electric Co.

The program comes at a time of resurgent national interest in energy conservation in the wake of the Persian Gulf crisis that has threatened world oil markets.

“It is very clear that the timing couldn’t be more propitious,” state PUC President G. Mitchell Wilk said. “What has happened to fuel costs newly reminds all of us in a very stark way the importance of conservation.”

The program was ordered by the PUC after a study by the natural resources council found that California utilities had slashed conservation programs in half since the early 1980s.

In its first year, the conservation program will save 250 megawatts of electricity at half the cost of building a new power plant capable of generating that much energy.

Southern California Edison Co. said Wednesday its spending on energy conservation would double over the next two years to $63 million. The additional money will be used to expand a direct assistance program to low-income customers that provides them with free energy-efficient equipment.

Edison said it will also increase its rebate program for customers who buy energy-saving appliances and other equipment. All but $4 million of the more than $30 million in additional annual spending will be earmarked for rebate programs.

The company will also offer home builders financial incentives to build houses that exceed existing state energy conservation standards by 10% to 30%.

Edison officials said they expected customer rate increases to be less than one-tenth of 1% in 1990, and 0.14% in 1991.

Critics said one serious weakness in the PUC program is the decision to leave largely unchanged the utilities’ promotion of simple attic insulation and weatherstripping for existing homes--a 1970s-era approach that offers only minor energy savings.

Ray Hall, an energy conservation consultant, had lobbied the PUC to support a technique known as “super-weatherization,” used successfully in several states and Canada throughout the 1980s, which typically cuts household heating and cooling bills by 35% to 50%.

“They are relying on attic insulation again and some weatherstripping and that’s garbage--that’s 20-year-old nonsense,” Hall said. “Millions of California homes need far greater corrections because they are energy-guzzlers.”

Cavanagh insisted, however, that even super-weatherization is possible under the new program. “Where the program goes in the long haul remains to be determined,” he said.

Southern California Gas Co. expects to spend $39 million during the next two years. One new rebate program calls for replacing old, inefficient generators, motors and other equipment used by industrial customers.

San Diego Gas & Electric Co. proposes to spend $19.5 million in 1991 on energy efficiency, resulting in a 2.6% rate increase next year.

PG&E; will spend $102.8 million, and plans no rate increases this year, but a $38.7 million increase in electric rates and a $500,000 increase in gas rates to take effect in January.

The experimental program will be monitored by the PUC during the next two years to measure its effectiveness and assess the need for further changes. It is expected to become final after a 25-day public comment period.

BACKGROUND

Studies last year revealed that California’s big utilities had quietly slashed their energy-conservation programs by half after years of leading the nation in energy efficiency. The studies prompted environmental groups to pressure the California Public Utilities Commission to support a turnaround. The groups warned that increased burning of fossil fuels at power plants could increase global warming, worsen urban smog and threaten California’s economic competitiveness with nations such as Japan.