Decoupling mechanisms-paying for conservation
In 1988, the National Association of Regulatory Utility Commissioners issued a policy statement that said [open quotes]ratemaking practices should align utilities' pursuit of profit with least-cost planning.[close quotes] This policy coincided with then-current thinkingg at a number of state commissions about the much-touted goal of encouraging utilities to invest in conservation, or demand-side management (DSM) programs, rather than in generating resources to meet system load requirements. Besides utility concerns about recovering conservation program investments, regulators also notices a built-in [open quotes]disincentive[close quotes] to investment in the traditional ratemaking format: If profit is tied to sales, then utilities will always shy away from aggressively promoting conservation. Or so the thinkin went. [open quotes]Decoupling mechanisms[close quotes] were born to remove this disincentive. A number of states have implemented these mechanisms, while several others are investigating the issue. One chief drawback of the mechanisms is that if sales go down, rates go up to cover the shortfall. (Of course, rates go down if sales exceed forecasted levels.) A major problem has been that rate increases have occurred at exactly the wrong time, during economic slowdowns when utilities are struggling to retain price-sensitive customers and residential ratepayers are least likely to bear with quiet stoicism the burden placed on family budgets. Decoupling is seen by some as a step backwards in the move to competitive regulatory reforms that seek to encourage utilities to behave like free-market companies. Indeed, the newest decoupling mechanisms face serious challenge.
- OSTI ID:
- 6306173
- Journal Information:
- Public Utilities Fortnightly; (United States), Vol. 131:14; ISSN 0033-3808
- Country of Publication:
- United States
- Language:
- English
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POLICY AND ECONOMY
ENERGY
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