ANALYSIS OF UNITED-STATES UTILITY CONSERVATION PROGRAMS

This paper reviews the United States' experience with utility sponsore d energy conservation programs. Such programs are central to the recen t discussions about electric utility regulation in the United States a nd elsewhere. First it is shown that these programs are exposed to thr ee problems on the consumers' side - rebound, adverse selection and mo ral hazard - which lower the effectiveness of conservation incentives and impede in most practical cases a reliable quantification of the ac hieved conservation. Moreover, the utilities have under the regulatory practice an incentive to invest in conservation measures but to limit factual conservation through a proper design of the program. Reviewin g the recent literature shows that these four crucial points, which af fect many of the applied conservation programs, are either insufficien tly covered (rebound and adverse selection) of neglected entirely (mor al hazard and regulated utilities' interest in little conservation). W e conclude, that this undertaking has resulted in insignificant conser vation and doubt the adequacy of these programs to reduce external soc ial costs from energy use.