The best thing about the new refrigerator William H. Camp bought last month was the "$50 in cold cash" he says he was handed by the Sears Roebuck & Co. salesman.

The Goleta, Calif., retiree got a rebate from the electric company for replacing his old clunker with a model that uses less power.

"We didn't know anything about the refund until we purchased the box" and the salesman handed Camp and his wife a Southern California Edison application for a rebate, he said. "It makes me aware that, hey guy, look for the energy-efficient equipment" that can cut operating costs, said Camp.

Southern California Edison's many conservation programs, begun in the 1970s, have enabled the company to avoid building more than 1,000 megawatts of new capacity -- the equivalent of a large nuclear power plant. "That's enough capacity to light 600,000 homes all year around," said Greg Rogers, manager of energy management programs for the utility.

Whether the same thing will work in Washington is up to the D.C. Public Service Commission, which last week opened hearings on the controversial concept of having utilities pay their customers to save energy. Over the next month, 50 witnesses will testify before the regulatory agency about how the Potomac Electric Power Co. can defer or eliminate the need for a $1 billion generating plant scheduled for the mid-1990s and how Washington Gas Light Co. can hold down costly growth.

The strategies being debated include paying customers the extra money to buy more expensive energy-efficient appliances, offering low- or no-interest loans for efficient equipment, having other companies build power plants for the utilities, and capitalizing on alternative sources of energy, such as the Benning Road incinerator or the Blue Plains waste treatment plant.

Southern California Edison is at the cutting edge of a new regulatory theory that conservation is an equally reliable alternative to building new power plants, buying power from other utilities or burning expensive natural gas.

"This whole thing is catching on like wildfire at commissions across the country," said Mike Foley, an official at the National Association of Regulatory Utility Commissioners. "It's going to be a tidal wave of change in the way utilities are regulated."

The idea, said Foley, is to find ways to provide consumers with energy services at the lowest cost. NARUC has just received a grant from the Department of Energy to investigate the idea, which is already being applied by regulators in Washington state, California, Nevada, Wisconsin, Florida and other states.

"Utilities brought this on themselves by promising plants at costs that could not be realized," he said. "Nuclear plants were promised at half a billion dollars that cost $4 billion and came on line 10 years late." In 1985, 90 utilities spent $750 million on energy conservation programs as an alternative to new plants and their inherent risk of cost overruns, according to the Investor Responsibility Research Center. At least 59 utilities now offer rebates to customers who buy energy-efficient equipment.

IRRC estimates that by 1995, utilities will have reduced the maximum demand for electricity by the equivalent of 40 power plants through programs aimed at the customer's side of the meter.

The Maryland Public Service Commission -- which must approve licensing for Pepco's new plant at Dickerson -- plans to examine whether that is the least costly alternative to meeting rising electric demand sometime next year. The Virginia State Corporation Commission, which regulates Virginia Power and recently approved a new 210-megawatt plant at Chesterfield, has not tackled the new idea.

District regulators, however, are already taking note as rapid economic growth increases the demand for electricity.

Pepco's "peak demand" -- the power its customers use on the busiest day of the year -- has been growing three times faster than expected. The utility experienced a new peak of 5,153 megawatts on July 21 that was 9.6 percent greater than its previous record. "Conservation really is our top priority," said Bill Jones, a vice president and spokesman for Pepco. "You have to have a cost-effective program, and anything that meets the PSC's standards we'll embrace."

But because demand for electricity is growing steadily, Pepco still sees the need for a new plant. "Ultimately, some new generating capacity is going to be required," Jones said. "We can't gamble with not having generating capacity when it's needed -- our customers wouldn't put up with it."

But the Office of the People's Counsel, which represents District ratepayers before the PSC, counters that Pepco's priority is not real conservation. Instead, the utility wants to redistribute the consumption of electricity so less is used when demand is greatest and slack periods are filled up.

"Very few utilities have done conservation on their own," said Luis Wilmot, lead attorney on the case for the People's Counsel. "The real culprits in this one are the commissions -- it's their responsibility to order the utilities to take it and run with it."

The commission's decision could mean a decrease in revenue of millions of dollars for local utilities and could shift the competitive balance between the gas company and the electric company. Washington Gas Light Co. dominates the heating market, but Pepco has been making inroads with high-efficiency electric heat pumps that both heat and cool.

The two companies say they are so worried about competition that they have pressured the PSC to keep secret information about how many customers use electricity or gas for various purposes. Fights over keeping such marketing information -- made public in previous cases -- secret have held up the PSC proceedings and infuriated commission member Wesley Long, who thinks the details must be disclosed if the public is to understand the issues at stake.

"In our democracy, obsession with secrets often leads to misguided policies," said Long last week. "Fundamentally, these {utility} arguments presume that the utility's putative competitors have no knowledge of the utility's market characteristics. I cannot subscribe to a doctrine of pervasive stupidity." The D.C. PSC last week is believed to have become the first commission in the country to rule such information secret in a conservation proceeding.

The conservation question is also clouded by what utilities say is the possibility that saving energy will result in less revenue, forcing them to raise rates to pay for the fixed costs of gas pipes and electric generating facilities.

While Southern California Edison pays customers to buy energy-efficient appliances, it gets that money back in its rates along with a reward for making the program work. The cost to customers of the rebates and the reward are offset by lower bills.

The D.C. PSC says it's committed to lowering costs. "This PSC is very interested in seeing whether we can reduce consumer bills in this town," said Howard Davenport, general counsel for the PSC. PSC staff members working on the case estimate that Pepco could avoid building 350 megawatts of generating capacity -- or a hefty-sized plant. That could save customers $116.7 million a year.

What the PSC can or should do is uncertain. PSC chairwoman Patricia M. Worthy questions whether the commission has the legal authority to force utilities or home and office builders to do anything at all.

It "would be deemed to be government attempting to regulate if the PSC attempted to strengthen building codes," said Worthy at hearings last week. "If we imposed these technologies, wouldn't the city say we are making more red tape, preventing people from coming in here and doing business?"

Consumer advocates say the question of the PSC's authority has been settled in other states and contend that the utilities are not serious about cutting consumption.

Washington Gas Light Co. is "notoriously anticonservation," prefering to sell more gas rather than less, said Frederick Dorsey, of the People's Counsel. Pepco is nervous because the company doesn't believe it can find other ways to make money besides building plants, he said. "You can't talk to Pepco because they aren't about to take anything until that plant is secure."

Pepco already offers a number of conservation programs that it estimates will eliminate the need for 440 megawatts of new capacity by the mid-1990s. The programs include turning residential air conditioners and water heaters on and off by remote control, performing free energy audits, giving commercial customers financial incentives to cut electricity use, and setting time-of-use rates that penalize customers for using electricity at times of greatest demand.

The utility is considering rebates for residential customers who install high-efficiency central air conditioners, extending its time-of-use rates to residential customers and offering loans and rebates to home builders who build energy-efficient homes, to owners of existing multifamily buildings that install high-efficiency cooling systems, and to builders who install thermal energy storage systems in new buildings that operate by chilling water at night and circulating cool air by day.

The People's Counsel has proposed eight test programs, among them rebates of up to 50 percent for energy-efficient equipment for commercial customers who account for about 75 percent of D.C. electric sales and about 90 percent of Pepco's projected growth over the next 15 years. The proposal also includes rebates for residential air conditioners, heat pumps, gas furnaces and water heaters, and other rebate and loan programs for retrofitting small rental properties, low-income homes and large multifamily buildings.

Howard Geller, an energy consultant for the People's Counsel, said that in less than 10 years there is a savings potential of 25 to 50 percent of all electricity consumption in commercial buildings and a 25 to 30 percent savings in gas consumption in the city.

But Pepco has rejected nearly 20 ideas -- including refrigerator rebates -- as not cost effective. The company counts any reduction in revenue as a loss in the calculations. Consumer advocates reject those premises.

"They want a subsidy for a power plant, but they attack subsidies for an alternative that is several times cheaper than a power plant," said Michael Totten, a congressional energy specialist. Utilities end up with more cash because they are cutting their costs, demand continues to grow and the utility continues to collect revenue from old plants without having to invest that cash in new facilities, advocates say.

"Your rates may go up slightly, but if your rate goes up 5 percent and your consumption goes down 10 percent, you come out ahead," said Geller.

Some Pepco customers, such as the Apartment and Office Builders Association, fear the conservation approach is unproven and could leave customers paying for energy-saving programs and a new generating plant. "We're not convinced these programs will produce reliable energy," said Frann Francis, general counsel for the association, which has more than 1,000 members.

Washington Gas Light Co., which offers educational programs, low-interest loans for equipment, low-income assistance and other programs, is more committed to changing the rate structure to encourage gas consumption than "overconserving" gas, according to Jack Keane, a company vice president.

In a separate proceeding, the utility has asked the PSC to adjust its current rates to increase the share of fixed costs paid by residential customers, thus lowering rates for big commercial customers who can switch to oil. Under the plan, average residential heating customers would see monthly bills rise 1.2 percent, smaller commercial customers would get a hike of up to 14 percent, and the largest gas users would see their bills drop by as much as 10 percent.

The current rate structure, imposed at the time of natural gas shortages, discouraged heavy consumption of gas, he said. "Gas is no longer supply limited and under those circumstances it is wrong to price it as though a shortage exists." Draconian conservation programs could lead to "even higher costs" for consumers who would have to pay more to maintain the existing gas distribution system, Keane said.

Energy experts say the gas bubble won't last forever and, more important, that it's time for utilities to start thinking of themselves as energy service providers. Gas companies could sell efficient lighting retrofits to commercial customers and split the energy savings at a profit. Then, because the lights generate less heat, less electric cooling would be needed and the gas company could come in and sell gas cooling, said Amory B. Lovins, director of research at the Rocky Mountain Institute. "They think they are in the kilowatt {or gas} business and I think they are in the energy service business," he said.