It is government regulation that makes the system work the way it does. Basically, utility rates have always been regulated, but California regulates them differently than most places. The amount utilities are allowed to charge depends heavily on consumption, not just production costs. When consumption goes down, the utilities are allowed to raise their rates enough that their profitability goes up rather than down. It produces the unusual situation where a company is encouraging its customers to buy less, and that's entirely by design.
An important point is that most of the specific conservation programs aren't dictated by the government, just the overall pricing rules. The utilities are free to come up with their own plans for encouraging conservation, and they naturally have a strong incentive to find the easiest, cheapest way of doing it. The utilities apparently think that CFLs are a big enough win over incandescent bulbs that they have subsidized them to get people to switch. Another big program is an attempt to get people to give up second refrigerators. Many people who got new refrigerators would move their old ones to their garages and keep using them. That was convenient because it meant people could have a whole second fridge full of cold soda and beer, but the old refrigerators tended to be inefficient, garages are bad places to put them (the higher ambient temperatures in the summer make the fridges power hogs), and a second fridge is more of a convenience than a necessity. Getting rid of them turned out to save a lot of power for a fairly minor inconvenience, so a modest cash reward was enough to get people to get rid of them.
I think that points to a big factor in all kinds of energy saving technology: people have only a vague idea of how much power different things use. We get a single electric bill rather than an itemized one, so it's very difficult to see where the money is going. If we don't know what in our house is using the most power, it's hard to make intelligent decisions about conservation. That's why policies that go beyond just raising prices are more likely to be successful at encouraging conservation. The average person may not have a very good idea about what in their house is wasting power, but the electrical utilities have the resources to figure out what things are especially wasteful on a larger scale. If you give the utilities the incentive to reduce consumption rather than increase it, they can do a more effective job of conservation than individuals can.