New Incentives Offered to Cut Peak Power Use

California businesses will be offered financial incentives to curtail electricity use during peak hours under a program unveiled Saturday by Gov. Gray Davis.

The new program will allow the state to pay companies under a novel bidding process that officials say is more efficient than existing conservation programs.

The incentives, administered by the California Independent System Operator, will cost an estimated $50 million to $100 million, but the state could end up saving money if the program results in fewer blackouts, officials said.

“This is a major step forward,” said Kellan Fluckiger, an energy advisor to the governor. “This is going to really enlarge our capability in a short period of time.”

The program is part of the ongoing effort to encourage conservation by consumers, especially commercial users who account for 70% of energy use. Manufacturers and other large businesses have been among the hardest hit by the energy crisis, losing millions of dollars through forfeited sales and squandered productivity.

Under the program, companies would offer to cut back on electricity at bid prices per megawatt. State officials would accept the bid if it is lower than the cost from energy generators. Energy savings would depend on the amount of participating businesses.

Officials said the new program would replace existing ones that operate under a “passive” arrangement that offers financial incentives at set prices. The new program is more efficient, officials said, because it is more responsive to fluctuations in the market.

Officials count on existing conservation programs to produce savings of 200 megawatts to 700 megawatts. They hope the new program produces more.

“A lot of blackouts [have] resulted because we were short 300 to 400 megawatts,” said Roger Salazar, a spokesman for Davis. “If we can get an additional 200 megawatts in peak periods, it goes a long way toward alleviating the threat.”

The one-year program will be offered to all businesses, though ones falling below a certain energy usage level would have to join with others to participate.