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California DSM: A Pyrrhic Victory for Energy Efficiency?

Fortnightly Magazine - October 1 1995

commonplace for many powerplants in the 1970s). Significantly increased efficiencies (more electricity output per input of gas) have also reduced effective emissions.19 Ratepayer-subsidized DSM for ad hoc emissions control thus represents an environmental overreach.

The Future:

A False Apocalypse

The NRDC has harsh words for DSM critics who favor long overdue market reforms in the electric industry:

"Some parties have argued that a market system composed of a proliferation of private actors each acting in their own narrow self-interest will provide for protection of the public welfare. NRDC believes that this contention is either naive or insincere. There is ample evidence that market forces will not necessarily optimize social welfare, even when there are no market failures. The well-documented, persistent market failures in the energy-efficiency market, and the limited level of development of the energy services industry, virtually assures that abandonment of the public interest to the free market would result

in a tragedy of the commons of enormous proportions."20

These apocalyptic forecasts are specious from an economic and environmental viewpoint.

Consumers have tried increasing doses of subsidized DSM and now trust themselves to make informed, stand-alone choices. The major California electric utilities have moved away from oil burning, have significantly reduced power-plant emissions, and prospectively operate under increasingly stringent NOx caps.

Policy reform to replace involuntary DSM with voluntary energy efficiency, however, might not occur in the initial rules governing California's restructured electric industry. Under intense pressure from the DSM lobby, the CPUC's majority proposed decision of May 1995 retreated from its market-based proposals of 13 months earlier to endorse ratepayer or taxpayer funding of DSM at "current or historical" levels as well as retention of a modified ERAM for DSM by utilities.21 The minority opinion of Commissioner Knight, while differing on other crucial aspects of the restructuring, seconds the majority decision to continue DSM with involuntary funding.22

Trends can again change. A consumer-oriented CPUC would end ratepayer subsidies and taxpayer funding for energy-efficiency programs. Utilities and independents, while free to offer energy-efficiency services on a "user pays" basis, could also advertise to boost electric use (em as purveyors of almost all other goods and services now do. Indeed, a "leave the lights on" campaign could stress the positive benefits of increased safety and comfort, while noting the negligable environmental effects of controlled burn, gas-fired electric generation.

A restructured electric industry would not artificially incite consumption by cost-capped rates. Nor would it promote conservation excessively through involuntary DSM. t

Robert L. Bradley, Jr. is president of the Institute for

Energy Research in Houston, TX, and an adjunct scholar of the Cato Institute, Washington, DC. He is

author of The Mirage of Oil Protection (Lanham, MD: University Press of America, 1989) and the two-volume Oil, Gas, and Government: The U.S. Experience (Lanham, MD: Rowman & Littlefield, 1995).

Go FigureBoth rates and total bills have increased faster in California than across the country in the post-1990 era of accelerated DSM funding. While the average national rate fell 16 percent between 1986 and 1992, California's rate was flat. And although California's average electric bill