State seeks to reward utilities for conserving


State regulators have kicked off a campaign to fundamentally change the way electric utilities here do business by approving a plan that would, for the first time, reward a utility for conserving, not selling, electricity.

The precedent-setting agreement between Potomac Electric jTC Power Co. and the state People's Counsel would allow the utility to earn a profit on its attempts to persuade customers to install energy-efficient lights, appliances and other equipment.

Pepco officials said yesterday that they expect to start offering expanded conservation programs in Montgomery and Prince George's counties by summer.

Maryland Public Service Commission Chairman Frank Heintz said the board liked Washington-based Pepco's arrangement so much that they plan similar talks with Maryland's other major electric utilities in coming weeks.

Baltimore Gas & Electric Co., the state's largest electric utility, started negotiating a conservation reward plan with the PSC late last year.

Though the Pepco plan initially will affect a tiny portion -- perhaps 1 percent or 2 percent -- of the company's overall sales, Mr. Heintz said that "over time, if all of this plays outas expected, we will see significant impacts."

"If we can reduce electricity usage, we can make everybody a winner," he said. "Businesses become more efficient, the air and water are cleaner because we are not burning as much fossil fuel."

People's Counsel John M. Glynn, the attorney appointed by the state to represent consumers in utility matters, said that until now, Maryland utilities have given short shrift to conservation measures because they earned their profits from selling -- not saving -- electricity. The more plants they built and the more electricity they sold, the more theyearned, he said.

But after several months of negotiations with Pepco, Mr. Glynn and state utility regulators agreed in principle to let a utility charge customers enough to replace the money it would have earned if it hadn't reduced its sales through conservation efforts. Currently, companies can pass on only the direct costs of their conservation programs. In addition, the agreement provides a small bonus for the company if its conservation efforts reduce electricity use beyond what the state expects.

Not everyone is pleased with the proposal, however.

John Hughes, a manager for Elcon, a Washington-based trade association representing large industrial users of electricity, said many plant managers think some of the conservation investments are a waste of money.

If a utility gives a customer a rebate for replacing an old air conditioner with a new, more efficient air conditioner, the customer may end up buying two or using the new one more, thus actually using more energy, Mr. Hughes said.

The best way to encourage conservation is to price electricity according to its true costs and thus motivate customers to conserve on their own, he said.

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