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Do Energy Rebate Programs Encourage Conservation?

Apr 2012
Policy Brief
By  Koichiro Ito
Congratulations! You’ve earned a bonus credit of 20 percent on your winter natural gas bill.” If you are a customer of Pacific Gas & Electric (PG&E), you might be among 1.8 million households that received this message in the winter of 2012. Such programs, often called conservation-rebate programs, recently became popular among electric, natural gas, and water utilities. Customers usually do not need to sign up for enrollment. If customers achieve a certain targeted level of conservation relative to their historical consumption level, utility companies automatically issue a bonus credit. PG&E’s winter gas rebate program issued a credit for 2.7 million customers in 2011 and 1.8 million customers in 2012. The total bill credit was $70 million in 2011. The primary policy goal of this program is to encourage customers to reduce consumption by giving them an economic incentive. At this point, however, you might ask how much of this spending actually contributed to “conservation” and how much of it did not? This is exactly why conservation-rebate programs have been controversial since their first implementation. During the California electricity crisis, Governor Gray Davis introduced the 20/20 rebate program in which residential electricity customers obtained a 20 percent bill credit if they could reduce their consumption by 20 percent relative to their consumption a year earlier. This California statewide program provoked controversy over its cost-effectiveness.