WP-029: Katrina Jessoe, Maya Papineau, and David Rapson, "Utilities Included: Split Incentives in Commerical Electricity Contracts" (May 2017)
The largest decile of commercial electricity customers comprises half of commercial sector electricity usage. We quantify a substantial split incentives problem that exists when these large firms are on electricity-included property lease contracts. Using exogenous variation in weather shocks, we show that customers on tenant-paid contracts use 6-14% less electricity in summer months. The policy implications are promising. Nationwide energy savings from aligning incentives for the largest 10% of commercial customers exceeds analogous savings from the entire residential electricity sector. It is also cost-effective: switching to tenant-paid contracts via sub-metering has a private payoff period of under one year.