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I live in British Columbia, Canada, and we have a hydro electric company called BC hydro that supplies our power. They run ads encouraging us to use less power. I have been wondering why they would do this as money we spend on power is their profit. What is their incentive for us to use less? From an economic perspective, this doesn't make sense to me. Any explanation for the rationale behind this would be appreciated.

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  • $\begingroup$ Perhaps the federal or provincial governments require the power company to promote energy efficiency. Perhaps prices are regulated so the marginal cost of extra production exceeds the marginal price charged to customers (particularly likely if consumer prices are related to average costs of production). $\endgroup$
    – Henry
    Nov 2 '16 at 10:36
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    $\begingroup$ Encouraging the saving of energy always or just on high demand times and days? $\endgroup$
    – BKay
    Nov 2 '16 at 13:12
  • $\begingroup$ A bit more context would be helpful. For example, what exactly are the ads trying to convey? You picked up the part that encourages you to use less power, maybe there are other information in the ads, say, their products will help you use less power? $\endgroup$
    – Paul
    Nov 2 '16 at 21:25
  • $\begingroup$ BC Hydro is a government crown corporation, which means it's different the ordinary profit-seeking private firms. I think it's operations are heavily regulated. $\endgroup$
    – Herr K.
    Nov 4 '16 at 6:09
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BC Hydro is a a public body: that means it can run for the wider public good, rather than purely as a profit-maximiser.

Pretty much everywhere in the world, electricity markets are dysfunctional. They typically have high negative externalities.

Historically, electricity prices haven't included all the costs of the electricity, which means that electricity has been over-consumed, relative to economically-efficient levels.

Energy-efficiency is, typically, the cheapest (when measured as a whole-system cost) way to provide additional energy services.

Furthermore, there is some evidence that energy-efficiency measures have a lower uptake than would be efficient, due to consumers having insufficient information, and due to them having irrationally high discount rates for future energy-bill savings.

So the ads can help to correct these imbalances.

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As comments above note, they are regulated and certainly want to be seen as good corporate citizens. Furthermore, although hydro is largely renewable, they do not have infinite power generation capacity. They do not want to run their system near capacity constraints, as that would cause brown outs.

However, they also have a financial incentive. BC Hydro exports power, and they will be able to charge more for that power than they will get from regulated consumer uses. (Otherwise, why export?) The less consumers use during peak hours, the more peak hour sales they can make.

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BC Hydro is controlled by the government. There are two ways the government can be harmed by consumers using too much energy:

1) Consumers may complain about high bills.

2) The government needs to spend more money on infrastructure to produce more energy.

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