Energy conservation, especially as derives from improved efficiency of conversion and end use, has become perhaps the only widely agreed upon part of our national policy for dealing with the current projected shortfalls between domestic fuel supplies and the nation's appetite for energy. One of the many strategies to bring about reduced energy consumption now under active consideration at both the federal and state level is the redesign of electric utility rate structures.¹ A particular problem affecting efforts to conserve electrical energy, however, is the cyclic nature of daily and seasonal electrical loads. Peak loads may not account for a large portion of total consumption over a year, but they are responsible for a disproportionate share of the capital and fuel costs and adverse environmental impacts of electricity generation. Utilities must expand their facilities to meet these peak demands, and construction and operation of additional fossil-fueled and nuclear power plants, transmission lines, and pumped storage facilities require large capital outlays and have obvious environmental effects. When completed, however, these new facilities, except for pumped storage projects which are always used for peak generation, are brought permanently on line and older, less-efficient and more polluting equipment is shifted to peak load duty. Thus, it is actually this older equipment that is used to meet demand at peak loads, with the undesirable features of inefficient fuel consumption and emission of higher levels of pollution.

The Environmental Defense Fund and others have long argued that one way to both conserve energy and to decrease unnecessary environmental degradation due to electricity generation is to introduce peak-load pricing into electric utility rate structures. This advocacy has finally begun to bear fruit, as the public service commissions of several states, most notably Wisconsin and also California and New York, recently have taken initial steps toward incorporation of peak-load pricing into electric utility rate structures.