Why Your Energy Company Wants You to Use Less Energy

It may even pay you (a little) if you do.

A close up of a typical electric meter.
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Your electric company wants you to use less electricity. As you may have noticed, many utilities are offering smart meters to homeowners, designed to help them monitor their energy usage and hopefully use it more efficiently. Some energy companies are offering to take that old, energy-sucking refrigerator you have stored in the garage—and they may even pay you a few bucks for it. And if you get your energy from the Minnesota Valley Electric Cooperative, and you participate in certain energy-savings challenges during times of peak energy consumption, you can even win prizes.

It is hard, in this jaded culture of ours, to not be a little suspicious. If you are a homeowner who has been repeatedly beseeched by your utility company to sign up for a particular program that promises to save energy, you may wonder what is going on. After all, if you cut your electric bill, you're paying the electric company less money.

Is this a trick? In a word, no. Many utilities have been somewhat strong-armed by numerous forces into helping homeowners save money. As Robert Mittelstaedt, dean emeritus of the W. P. Carey School of Business at Arizona State University, says, "Electric utilities find themselves in an awkward position where they make money by selling power, but are required by regulators, and increasingly by consumers, to help customers find ways to save power or use renewable sources. The collision of new technology, social good, business strategy and politics will make the next decade the most interesting in the century-long history of the industry."

[Read: 11 Ways to Spring-Clean Your Finances.]

Somewhere at the top of the electricity supply chain, there is often a mandate that requires a utility to take a tiny percentage of each consumer's bill, usually around 1 percent, and feed it back into an energy-efficiency program. This is typically part of a state program, but sometimes a federal one.

"The utility has to present programs before the public utility commission and say, 'This is how we're going to promote energy efficiency.' It might be educational, or it might be a rebate for an old refrigerator, or they might ship energy-efficient light bulbs to the homeowner for free," says Todd Recknagel, CEO of the Charleston, S.C.-based AM Conservation Group, a company that specializes in creating customized energy and water conservation programs for utilities throughout the nation.

"Like anything else, it's driven by the money," says Recknagel. Still, that doesn't mean it isn't a good idea to save on one's electric bill, given that less electricity means the consumption of fewer natural resources.

"It's a win-win-win situation all the way around," says Recknagel. "Saving energy makes tremendous economic sense."

A small catch. The utilities have a lot of incentive to make sure their programs actually save consumers money because when they work, the utilities benefit. "If they do hit their goals and targets and do well, the public utility commission will allow them a rate hike," says Recknagel.

So does that mean it's actually a bad idea to participate in an energy-efficiency program, knowing that if it works, you could earn a rate hike for your trouble? Well, no. "The hike is nowhere near the savings," Recknagel says.

In other words, if you save 20 percent on your energy bill but you then get a 2 percent rate hike, you're still better off.

What types of programs are out there? If it has to do with energy, just about everything, according to Steve Rudd, director of business development for Utility Partners of America, a Greenville, S.C.-based company that manages large-scale installation projects for water, gas and electric utilities, municipalities and energy cooperatives.

[See 10 Energy-Efficient Home Improvements.]

The most popular programs are those in which an electric company will give a home fluorescent and LED lighting, says Rudd. For good reason: "They're more efficient than incandescent lighting and typically lasts twice as long."