Decoupling policies adjust rates between rate cases to ensure a utility collects the amount of revenue its regulator or governing board authorized, no less and no more. As they become increasingly common across the U.S., this article attempts to clear up many commonly asked questions and misconceptions about decoupling using case studies, previous research, regulatory filings, and the authors’ experience in utility regulation.
Decoupling policies adjust rates between rate cases to ensure a utility collects the amount of revenue its regulator or governing board authorized, no less and no more. As they become increasingly common across the U.S., this article attempts to clear up many commonly asked questions and misconceptions about decoupling using case studies, previous research, regulatory filings, and the authors’ experience in utility regulation.
Energy efficiency is the cheapest and cleanest source of energy in the American economy, with enormous potential to save money (nearly $700 billion by 2020), create jobs, and reduce pollution (1.1 gigatons of carbon dioxide by 2020), through improvements in buildings, processes, and devices served by America's electric and natural gas utilities.1 Energy efficiency programs that provide customers with information, assistance, and incentives for energy efficiency improvements are needed to overcome the persistent market barriers that prevent households, businesses, and industry from taking advantage of this opportunity.2
Utilities, together with their regulators and governing boards, are responsible for providing customers with reasonably priced and reliable energy services. Whether utilities only distribute energy, have competitively provided generation service but retain responsibility for resource acquisition, or provide fully integrated distribution, transmission, and generation service, they have a critical role in accelerating the deployment of energy efficiency. Utilities have existing relationships with customers as “energy authorities,” will collectively invest more than $2 trillion in infrastructure between 2010 and 2030,3 and have the ability to reduce transaction costs for third-party providers of efficiency services. But under traditional regulation, utilities are discouraged from investing in the best-performing and cheapest resource – energy efficiency – because it hurts them financially.
Fortunately, there is a simple, effective, and proven way to remove this conflict: break the link between the utility's revenue and the amount of energy it sells by adjusting rates to ensure that the utility collects its authorized fixed costs, no less and no more. Combined with other key policies to encourage energy efficiency, such “decoupling” mechanisms can free utilities to help customers save energy whenever it is cheaper than producing and delivering it.
Yes. Efficiency efforts will be significantly impeded if they have to compete against utilities with powerful financial incentives to encourage customers to increase energy consumption. Moreover, utility engagement and support is important to the success of energy efficiency programs, regardless of the entity administering programs.43 Utilities often have a strong relationship with customers and serve as an authority on energy matters with regulators, legislators and other public officials. They can be influential on policies such as codes and standards, and on the scale of efficiency investments. Regulators recognize this: electric and natural gas utilities in many states that have used third-party administrators, including Wisconsin, New York, Vermont, and Oregon, are decoupled.
