The D.C. Public Service Commission yesterday opened hearings on whether to either force or entice consumers to conserve more energy so utilities can avoid having to build expensive new electric generating plants or buy higher-cost natural gas.

The commission, in one of the the biggest cases ever to come before it, is considering a novel approach to energy conservation that has been successfully used by utilities in several states.

At the heart of the conservation plan is a controversial proposal by the commission to have the Potomac Electric Power Co. and the Washington Gas Light Co. pay their customers the extra money needed to purchase energy efficient appliances.

Other issues the commission plans to review include the use of low- or no-interest loans for efficient equipment, energy audit programs for commercial customers, production of power by sources other than Pepco, alternative sources of energy available to the District, the promotion of electric heat pumps in the District, and promotional activities used by the two utilities to influence customer choices of heating and cooling systems for commercial buildings.

The commission is expected to hear testimony from more than 70 witnesses this month at an estimated cost of more than $1 million. The cost of the hearings ultimately will be billed to the city's ratepayers.

In 1985, the PSC struck down a Pepco request to provide certain energy management steps, including the cycling of residential air conditioners and water heaters on and off for brief periods during times of greatest demand, because it saw no evidence that the programs were cost-effective. Pepco has introduced programs designed to conserve 440 megawatts annually by the 1990s in an effort to defer a $1 billion generating plant as long as possible.

In the hearings that opened yesterday, the PSC has begun a broad inquiry into the use of financial incentives, such as rebates to consumers to install energy efficient equipment. Such rebates would be financed by utilities and could ultimately be paid for by utility ratepayers as a less expensive alternative to building new generating capacity or buying more expensive natural gas.

Pepco and WGL both oppose the idea of incentives, saying that financing is readily available from banks and other creditors.

The commission's first action yesterday was to bar from the public record information about consumer use of gas and electricity in the District. Both Pepco and WGL asked that the information be kept from the public on the grounds that disclosure of the information would "pose a concrete threat to the commercial interests of Pepco and WGL," said PSC Chairwoman Patricia Worthy. But Commissioner Wesley Long vigorously dissented.

"The majority's ruling does not recognize the public interest; it does not advance the public interest; nor does it serve the public interest," he said. The utilities were asked twice to state their claims and why they outweighed the public interest and failed to do so, Long said.

WGL had the "brass" to threaten a lawsuit against the PSC, should it disclose the information, he said. Public participation is critical to the proceeding and simultaneous disclosure would put both utilities on an equal footing, he said.

The District PSC is believed to be the only commission in the country to rule that market information be confidential in a conservation proceeding.

Pepco officials have discounted many conservation strategies suggested by the Office of the People's Counsel, which represents ratepayers before the PSC, as not cost-effective. Some WGL officials have taken the position that concerted energy conservation strategies make no sense at a time when natural gas is cheap and plentiful.

Energy expert Ralph Cavanagh of the Natural Resources Defense Council, a consumer group, argued yesterday that utilities should be rewarded for conservation programs by allowing them to recover the costs from ratepayers, just as they recover the cost of a new generating plant. Experts say that although revenue to the utility might decrease, increased operating efficiencies and new customer hook-ups would more than offset the shortfall.