Energy conservation is a topic of worldwide importance. In addition to the prospect of depleted nonrenewable supplies, increased concern over environmental issues, such as air pollution and global warming, have contributed to the interest in energy conservation. The U.S., as the largest per capita user of energy, has taken the lead in promoting conservation and pollution abatement, through incentive and regulation. This climate has led to an important development in the utility industry in the last few years: the growth of demand-side management (DSM) programs. These voluntary programs are designed to induce the adoption of energy efficient technology (new capital) by consumers (both residential and commercial/industrial). DSM is advocated by utility regulators, who cite factors such as the divergence of the private and social short run costs of energy (due to, e.g., the existence of environmental externalities), and the fact that the price of energy is not equal to its long run marginal cost. This means that the cost of implementing these programs may be below the cost of increasing capacity. In addition, some DSM programs are designed to flatten the load curve (power demand over time), since the cost of producing power at peak load is considerably greater than at times of normal system demands. For the consumer, it is argued that there are market imperfections which prevent adoption of energy efficient measures. These imperfections are usually attributed to the consumer's lack of knowledge concerning energy efficient technology. Total revenue lost by the utility from a DSM program is the sum of the direct incentive cost, returned to the consumer, and the value of any lost sales. These costs may be offset by any efficiency gains in production, especially during periods of peak demand. In order to preserve the stockholders' rate of return in these regulated companies, this revenue loss is usually recovered by an increase in utility rates. To warrant this, utilities must present evidence of lost revenue due to energy savings to their regulatory commissions. These programs are becoming so large and