The Economics of Conversation

In a period of relatively high costs for new generation resources and potential supply deficits, utility planners are increasingly examining conservation as a supply alternative. Because conservation is dependent upon individual consumer actions, some utilities have also begun offering various incentives to motivate greater customer participation. This paper examines the issue of cost-effectiveness from three different perspectives: (1) societal, (2) customer (conserver), and (3) utility (nonparticipant rate-payer). A methodology is presented for determining the maximum incentive a utility can offer under a nonparticipant breakeven cost-effectiveness standard. Finally, two example applications of this methodology are presented.