In this study, we use data from a natural field experiment designed in partnership with Opower
and implemented in the service area of a utility in the U.S. Northeast. The experiment combines
two interventions. The first treatment is Opower’sHome Energy Report(HER), a social nudge
that has been studied extensively in recent years (Allcott, 2011c; Costa and Kahn, 2013; Allcott
and Rogers, 2014; Allcott, 2015; Brandon et al., 2017). The HER is a monthly mailer that con-
sists of three main modules: (i) a social comparison of a recipient’s monthly electricity usage to
the average usage of similar households; (ii) graphical information about the recipient’s usage
trend over time; and (iii) a tip sheet with different ways to reduce energy use in the home, such as
changing ambient room temperature or investing in more efficient appliances. Figure 10 provides
Figure 10: Opower’s Home Energy Report
(a) Front Page (b) Back Page
Notes:Example Home Energy Report generated by Opower. The front page provides a neighbor
comparison and injunctive norm; the back page includes a personal usage history and conserva- tion tips. Our marketing module was included in the lower half of the front page in May 2013. Source: Opower.
The main innovation in this study is the introduction of a second intervention that provides
financial rewards for reductions in usage relative to an individual, predetermined benchmark
level.49 Customers accumulate rewards points for consumption below the benchmark level and
receive one point for each kWh saved.
49Each customer faces an individual, undisclosed baseline. Baselines are calculated based on a customer’s usage
for the same month in the previous year and normalized by weather based on heating degree days and cooling degree days. The use of an undisclosed baselines reduces the possibility that subjects distort behavior in the pre-intervention period to influence the baseline. Using this approach is an important lesson learned in early pilot experiments testing critical peak pricing plans that provided rebates (Wolak, 2010).
This program design shares important similarities with other popular policy instruments in the
energy sector, such as peak-time rebates and subsidies that are assessed relative to a benchmark
level of consumption (Faruqui and Sergici, 2010; Wolak, 2010, 2011; Ito, 2015).50
The incentive structure of the program differs from a first-best solution because customers
face asymmetric incentives (Ito, 2015). Energy consumption below the benchmark is subject to
increased marginal prices. After the introduction of the program because customers forgo the
associated reward in addition to paying the marginal price for each unit of energy used below
the benchmark level. Consumption above the benchmark level, however, remains at the original
marginal price. This asymmetry can introduce an “option to quit” or “giving up effect” that may
limit the impact of our program (Wolak, 2010; Borenstein, 2013).
Customers can exchange rewards points for several goods in an online portal.51 The portal
offers three types of goods to customers: (i) gift cards for popular shops, such as Starbucks and
Amazon; (ii) donations to several charities, which include national organizations like Habitat for
Humanity; and (iii) Tango Cards, which are a digital rewards program that can be used at hun-
dreds of retailers, restaurants, and other stores both online and in-store.52 To purchase a good,
customers must access their rewards portal, where they can see their current tally of points. The
exchange rate between rewards points and the value of a good is approximately one cent per point
but varies as larger items are provided at a discount. For example, whereas a $1 gift card costs
100 points, a $5 gift card only costs 475 points. Compared to the residential rate of 6.963 ¢/kWh
at the beginning of the experiment, the financial rewards are equivalent to a 14.4 percent subsidy
on energy conservation below the benchmark.53
50The marketing literature also provides a long history of work highlighting the use of rewards and loyalty pro-
grams as part of relationship management strategies across many markets (Uncles et al., 2003; Dorotic et al., 2012). Findings generally suggest that rewards programs increase consumer spending (Lewis, 2004; Meyer-Waarden, 2007) and brand loyalty (Bolton et al., 2000; Verhoef, 2003; Liu, 2007). In contrast to these programs, customers in our experiment receive rewards for reduced consumption. An additional motive for using the rewards program may be to engage customers and make them more responsive to future utility programs.
51Figure B4 in the appendix presents a screenshot of the rewards portal that was common to all participating
customers.
52See https://www.tangocard.com/the-tango-card/.
Responses to the rewards program are likely a lower bound for effects that we would observe
in the case of direct financial rebates of the same magnitude. Customers in our experiment may
not be interested in the goods provided, despite the best efforts by Opower to offer a range of
products (Berman, 2006). If customers do not value the available options highly, the strength
of the program’s incentives is reduced. There is also evidence that consumers value gift cards
less than a cash bonus of the same amount (Pate Offenberg, 2007). Lastly, customers may face
additional costs of redeeming rewards point, such as the value of time accessing the portal and
making a choice, leading to rewards that remain unclaimed.