Utility Incentive Reform: Decoupling

Adjusting the way utilities collect revenue is essential to achieving large increases in energy efficiency investments across the region. In many states, utilities’ earnings are linked to their volume of sales, so they make more when usage increases and lose money when customers conserve. Environmental groups like ENE, utilities, business leaders, consumer groups, and state officials to develop decoupling mandates that remove this disincentive to utility investment in efficiency programs.

Background

Traditionally, the formula for compensating utilities for delivery services has tied their revenues (and earnings) to the number of units of electricity (kWh) or gas (Mcf) used by consumers. This formula rewards utilities for encouraging consumers to use more energy and penalizes them for helping consumers to use less, which is precisely the wrong economic signal twith regard to lowering consumers’ energy bills and reducing GHG emissions.

There is growing recognition of the need to reform utility revenue mechanisms by separating energy sales from revenue. Many major industrial energy consumers  have embraced such policies.

States in the Northeast are undertaking proceedings to implement sales adustment mechanisms that break the link between earnings and sales in order to remove the disincentive to investments in energy efficiency.