WILL ELECTRIC UTILITIES COMPETE EFFECTIVELY WITHOUT A PROFIT MOTIVE?

This paper reviews the factors leading to the decline of utility participation in the energy conservation market over the past decade in California. The analysis finds that California's regulatory focus on mandating conservation program funding levels, rather than on measuring and rewarding the achievement of energy savings from utility conservation programs, has contributed to a decline in both program scope and program effectiveness. Other major reasons for this decline include potential revenue losses resulting from conservation programs on the generation side, a preoccupation with identifying winners and losers using benefit-cost tests, and a regulatory focus on "system" impacts from conservation programs that precluded a more direct marketing focus on utility customers' values and needs. The paper concludes that both regulators and utilities should work to develop new indicators of success in the conservation market. These should focus on achieving energy conservation results and rewarding the results with increased profits as opposed to rewarding just effort with expense recovery.