demand-side management (DSM).1
With broad-based support from utilities, consumer representatives, environmentalists, the California Public Utilities Commission (CPUC), and the California Energy Commission (CEC), some $1.8 billion has been spent since 1990 (and $3 billion since 1980) on ratepayer-subsidized electric conservation programs.2 The CPUC blessed this effort in 1993 as not only prudent but highly cost-effective:
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"DSM programs initiated since the [1990] Collaborative have produced an
estimated $1.9 billion in life-cycle net resource benefits (in nominal dollars). ... Even allowing for considerable uncertainty in savings forecasts, there is no doubt that ratepayers have received substantial benefits from utility DSM activities during the post-incentive period."3
With DSM expenditures in California exceeding $500 million in 1994, a record high, the future not only seemed bright but impregnable for ratepayer-funded energy efficiency in the state.
But three events have reversed the momentum. First, a rate crisis forced the CPUC to change course and issue the "Blue Book" proposal (April 1994) to restructure the California electric industry. Among the reforms was to
streamline DSM along consumer-driven lines. Second, during the Blue Book hearings, certain consumer groups that previously supported DSM started lobbying against forced ratepayer funding of utility conservation. No longer would they buy the "higher rates, lower bills" promise of DSM. Third, CEC hearings connected with the 1994 Energy Efficiency Report and the 1994 Electricity Report revealed that a flawed cost/benefit test was overstating the case for California's DSM programs.