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The Colorado Public Service Commission (PSC) has renewed its commitment to rate recovery of costs associated with utility-sponsored demand-side management (DSM) programs. At the same time, however, it has formally rejected a series of broader-based rate reforms under development since 1991. The rulings came in a case involving the Public Service Co. of Colorado, an electric utility. The PSC found a "ubiquitous lack of support" for mechanisms to encourage utility conservation investments that could reduce total system costs, but might also reduce sales levels. The rejected mechanisms include: 1) a parity revenue incentive mechanism (PRISM) that would link profits and achievement of energy-efficiency targets; 2) a statistical recoupling mechanism (SRM) to improve revenue-per-customer decoupling by using weather and economic factors to break the link between profits and sales levels; and 3) an inducement revenue formula (IRF) to compensate the utility for lost revenues associated with conservation efforts. (In an earlier ruling, the PSC approved the IRF as a default mechanism to be implemented by the utility beginning in 1996, but called for further study and hearings on the other rate reform proposals. See Re Public Service Co. of Colorado, 152 PUR4th 431 (1994)).

Simulations showed that the PRISM incentive plan would have required the utility to pay ratepayers $3.97 million in 1994 and $4.5 million in 1995. The SRM decoupling plan would have required rate increases ranging from $.04 to $9 million between 1991 and 1994. The IRF mechanism would have required additional customer revenues of $6 million in 1994 and $10 million in 1995.

The PSC denied claims that energy-efficiency markets had matured enough (em or that electric rate competition had grown so robust (em as to justify an end to all utility-sponsored DSM. It chose to retain the utility's existing DSM recovery mechanism, which permits recovery of direct investment costs as well as earnings on the unamortized balance of such investments. Nevertheless, the PSC did shorten the amortization period for recovery of the direct DSM costs, and eliminated the part of the plan allowing the utility to receive cash incentives for DSM investments. The company contended that the shorter recovery period was necessary because the regulatory assets associated with the DSM investments "could become at risk due to increased competition." Re Public Service Co. of Colorado, Dkt. No. 93I-199EG, Decision No. C95-1305, Dec. 20, 1995 (Colo.P.S.C.).

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