After rewarding 80,000 customers who surrendered control of their air conditioners on the hottest summer days, Peco Energy Co. will likely suspend the program next year because the state is no longer requiring utilities to curtail peak demand.

Peco said it would shelve its heavily promoted Smart A/C program in response to a recent Pennsylvania Public Utility Commission decision that discontinued financial support for programs that reduce energy use during high-demand periods.

Peco's program pays customers $120 a year for allowing their air conditioners to be cycled off, but the PUC's Dec. 5 directive provides Peco with no guarantees that it can pay for the program's costs by boosting rates, which it has for the last three years.

"We're anticipating at this time the program will be suspended in the summer of 2013," said Cathy Engel Menendez, spokeswoman for the Philadelphia utility.

The PUC on Dec. 5 rejected Peco's request to pay for "demand response" programs - programs that shift electrical loads to off-peak hours - out of the $256 million the utility has budgeted for the next three years for energy conservation.

The PUC approved conservation programs that reduce consumption, but it declined to endorse peak-shaving efforts because it has not yet completed an analysis of whether such programs are cost-effective.

Under the state's 2008 energy conservation law, utilities were required to reduce energy consumption 3 percent by May 31, 2013.

They were allowed to spend up to 2 percent of their 2006 revenues on such programs, and could recover the costs by boosting rates.

Peco and other utilities devised a host of energy conservation programs to meet the targets, including subsidizing the cost of energy-efficient lighting and appliances and paying for energy audits.

As part of the program, utilities also were required to reduce demand by 4.5 percent during peak periods, which typically occur on hot summer afternoons.

For Peco, the flagship of its effort to curtail peak demand was the Smart A/C program, which allows the utility to cycle air conditioners off for 15 minutes every half hour during a "conservation event."

Residential and small commercial customers who agreed to have the radio-controlled devices installed received four monthly bill credits of $30. The program costs Peco about $12 million a year.

The PUC decided this year to step up the energy conservation measures for another three years after determining they were cost-effective. But the jury is still out on demand-response programs.

Jennifer Kocher, a PUC spokeswoman, said the commission has not determined whether demand-response programs are good or bad, "we just haven't finished our evaluation."

"We will not sacrifice energy efficiency programs for demand response," she said.

Peco argued that allowing the Smart A/C program to go dark would create customer confusion and increase costs later if the program were restarted.

But the PUC rejected Peco's request to recover $53 million in rates over the next three years to pay for demand-response programs. Instead, it wants Peco to devote its entire $256 million conservation budget to energy efficiency programs.

Engel Menendez said the utility would not activate the Smart A/C devices this year and customers would receive no compensation. But she said the utility would encourage customers to keep the devices installed in case the program was renewed.

Kocher said Peco was free to continue the Smart A/C program and seek to recover the costs later. "Or they could pay for it out of shareholder money, if they thought it was worthwhile," she said.

The debate over the demand-response program was one part of a protracted PUC exercise this year to set new energy conservation targets for utilities for 2013-2016 under the five-year-old conservation law, known as Act 129.

The law was designed to provide utilities with financial incentives to compensate utilities for selling less electricity. It requires the PUC to periodically evaluate the programs to assure they are effective.

Rather than setting a statewide energy reduction goal, the commission decided this time to set targets for individual utilities based upon a calculation of the funds each utility is allowed to spend on conservation measures under the law.

Since Peco has the highest rates in the state, it got the biggest target - its customers must reduce consumption by 2.9 percent, or 1.1 million megawatt hours, by May, 2016. West Penn Power Co. has the lowest goal, 1.6 percent.

Peco argued for a uniform statewide standard, and it also pleaded for a lower target. Its arguments were opposed by the environmental lobby, led by PennFuture, the Clean Air Council and the Sierra Club.

The PUC unanimously rejected Peco's requests for relief, partly because the company has been able to achieve its 2013 targets at less cost than anticipated.

Contact Andrew Maykuth

at 215-854-2947, @Maykuth on Twitter, or amaykuth@phillynews.com.