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There is a tremendous potential for making energy supplies available for neto uses through improved efficiency in energy use. While higher energy prices will act to stimulate investment in conservation measures, market imperfections are likely to result in lower levels of spending on conservation than would be optimal. While both utilities and customers may benefit from increased development of the conservation potential, many utilities have not proceeded aggressively in promoting conservation. In part, this hesitation stems from uncertanty over the extent to which energy conservation programs fit traditional notions of the utility's role and our conceptions about the goals and objectives of utility regulation. Much of this uncertainty results from a tension between two quite different models of utility regulation: On one hand, there are those who argue that, while utilities are natural monopolies serving markets in which effective competition is impossible, the goal or regulation is to attempt to duplicate the results which would obtain if competition did exist. On the other hand, utility operations may be regarded as a public service; through public institutions, that it wants. Extensive utility conservation efforts fit more easily with the second of these models. One common view is that the existing system of utility regulation fails to provide incentives for innovation and change. In a drastically altered engery market, this failing may be critical. In response to such concerns, proponents of the "natural monopoly" model now argue for deregulation of the generation component of the utility of business. At this point, the two models divergy sharply. Regulation based on ideas of controlling the natural monopoly would logically not extend to the conservation market. If regulation is simply a vehicle to achieve agreed public goals, there is no reason not to extend it to conservation measures that are seen to be in the public interest. Legal challenges to utility conservation programs may discourage utilities and utility commissions from adopting such initiatives. But many of the most frequently raised legal objections lack merit. For example, it is sometimes urged that utilities have an obligation to expand in order to be ready to meet any and all future demands for service. But there is certainly no basis for this position in the common loaw duty to serve. And the cases decided under state utility regulation statutes have recognized that expansion to meet growth is neither always required nor uniformally desirable. Utility commission determinations on rate and service issues necessarily entail balancing many permissable but conflicting objectives. Since there is not mathematical formula for determining these issues, courts should allow commissions a wide latitude in selecting appropriate rate and service combinations. But judicial deference to commission decisions is limited: commissions must provide coherent rationales for their decisions based upon evidence in the record. If a rate or sercice policy transgresses some overriding norm, it will be invalidated. Proposed utility conservation financing programs of various kinds have been attacked on the ground that they unjustly discriminate against nonparticipants. Such claims have been urged both on behalf of nonparticipants in general and on behalf of identifiable groups of nonparticipants with specific concerns. Viewed from the proper perspective, such claims lack merit. The threat that they might be raised should thus not deter utilities and regulatory commissions from adopting cost-effective conservation programs. Utility financing programs have also been challenged on the ground that utility commissions lack jurisdictional authority to approve or require such efforts. Analogies to promotional activities, charitable contributions, research and advertising expenditures, and other utility expenses not immediately related to providing electricity would indicate that commission jurisdiction clearyly does extend to conservation activities in virtually all states. Thus, the most frequently raised objections to utility conservation financing programs are not tenable. Utilities and utility commissions should be free to initiate those programs free of significant threats on this score.

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