Any State Can Do It: Decoupling Utility Profits from Energy Demand

What if I told you that we already have the tools we need to reduce our nation’s electric and natural gas energy consumption in hand, and that those tools reside, not with the Federal Government, but with each State. Wouldn’t that be something? And in many places it doesn’t even require legislation.

Well, here I am, and that is exactly what I want to tell you.

I was speaking with a fellow with the Environmental Integrity Project in Indiana the other day. The EIP, by the way, is doing great work making sure that those who have suffered due to <a href =""> coal ash dumping </a> speak up with comments as the Government finalizes its rules on how to regulate that industry. Our discussion ranged about, then hitting upon strategies for reducing carbon emissions and other wastes resulting from runaway energy consumption. I was a bit surprised to find that he was unaware of the meaning of the term “decoupling” in utility jargon.

Utilities are unlike other companies. They are by and large monopolies in their service areas. The reason is that it’s uneconomic to have two companies stringing wires or laying pipes, and then splitting the customer base. You’d end up with no utility service at all. So we’ve made a pact with the devil. We allow utilities to operate as monopolies, but we regulate their profits through a local agency, usually called the Public Utilities Commission or some such, in each State.

Historically, PUCs have granted profits to the utilities based upon the amount of sales, i.e. the amount of energy their customers consumed. So the utilities had great incentive to increase energy use, and very little motivation to help customers reduce their energy bills. But it doesn’t have to be that way. And in fact, several States, Washington, Oregon, and California for example, have already “decoupled” some utility profits from energy sales, and connected them instead with energy conservation goals.

In rough terms, here’s how it works: At the beginning of a given finance period, the PUC authorizes a target “rate of return” on the utility’s capital investments. If the utility sells less energy than expected because of conservation (and not because of mild weather or economic slowdown), then the rates are increased slightly to reach the target revenue level. Profits go up. If the utility sells more energy than expected because of lack of conservation, then the rates are lowered slightly to hit the revenue target, and profits diminish. Done properly, the utilities make more profit with less risk, and consumers use less energy at less cost.

Decoupling saves energy, lowers consumer bills, and reduces carbon emissions. It tends to be “ideologically neutral” since it amounts to a win-win for all involved. In fact, decoupling in Oregon started when some of the largest utilities went to the PUC and REQUESTED decoupling! It puts the condition of the bottom line into the utility’s hands, and removes the uncertainties associated with weather and raw energy prices.

If you are looking for a local campaign with global impact, you could do no better than organizing to petition your PUC to decouple the utilities in your State from the gross sales of energy. Consumers will thank you, the planet will thank you, and, if you work it right, even the utilities will thank you!

Paul Birkeland lives in Seattle, WA, US, and develops Strategic Energy Management Systems for government, commercial, and industrial organizations through Integrated Renewable Energy.

Photo: En:Wikipedia