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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...
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Utility Incentive Reform: Decoupling

When implemented properly, decoupling is a win-win for utilities and consumers. It enables the utilities to make investments in strong efficiency programs that help customers reduce the amount of energy usage for which they are billed. This translates to savings for customers, and with decoupling in place, this drop in sales volume no longer cuts into utilities’ profits.

 

By aligning utilities’ and consumers’ interests through decoupling, states can take full advantage of demand-side resources and their co-benefits– including greenhouse gas emissions reductions, lower energy costs, and decreased imports of fossil fuels.

 

These mechanisms are also an important feature of the sweeping energy reforms currently taking place in the Northeast. Massachusetts' Department of Public Utilities issued a  decision requiring decoupling for all gas and electric utilities. This decision complements the energy procurement reforms embodied in the Green Communities Act of 2008 and the state's effort to take advantage of clean and demand-side resources. (More about the Green Communities Act and MA Energy Reform)

A decoupling mechanism was recently passed as part of a rate case for one of Connecticut's major utilities. (See What's New.) Decoupling for all of the state's electric and natural gas utilities is mandated in Connecticut's comprehensive energy reform legislation passed in 2007.

 

ENE participated in the Connecticut and Massachusetts proceedings, and is supporting similar efforts in Maine and Rhode Island. Decoupling mechanisms also have been adopted or are under consideration in several states across the country, including Oregon, California and Maryland.