Decoupling limitations & Solutions: Decoupling Part 3
When would decoupling be “anti-consumer?”
If the future means selling less power, then less rate revenue means recovering past investments in coal power plants (now stranded assets) becomes impossible. Investors will not earn their allowed returns. Time to remove utility returns from the MONOPOLY board! Decoupling solves this problem, and that’s exactly why some consumer advocate groups don’t like it. Some claim the utilities made bad long term investments, so their investors should suffer the consequences of continuing to buy coal! Maybe, but keep in mind, customers always bear the burden of the bad decisions made by the regulated monopoly. Others rightly claim that decoupling alone only guarantees returns for the utilities and does nothing to lower rates for consumers.
Decoupling alone does not encourage utilities to value demand management over production. It only makes them indifferent to energy efficiency or alternative energy sources like DG. Decoupling alone merely protects the utility investors from loss. In fact, decoupling alone might lead executives to care less about efficient operations, because the mechanism does nothing to encourage energy conservation.
According to the study on decoupling by the Institute for Energy Research, Maine’s failed decoupling policy resulted in small customers’ bill increase, while their consumption fell. New York tried a decoupling experiment in the 1980’s for eight utilities. “Four [decoupled utilities] saw conservation related expenses rise 370 percent, but the four that did not [have decoupling] saw even higher increases.”
The fact is, in utilities without decoupling, rate payers bear the weight of all utility investment decisions, and raising rates to recover lost income from decreasing kWh use will eventually backfire. Because customers can not choose between competitors, the status quo utility world will continue to increase electricity rates even as consumption decreases. At that point, residential storage plus solar becomes a very competitive alternative.
Even though decoupling allows utilities to recover revenue at the authorized rate, regardless to whether or not consumption increases or decreases, it also creates a “true-up” amount in future rates to account for actual kWh consumption. Decoupling opens the doors to new opportunities for cooperation between power supplier and power user. The utility could provide power users with services and equipment, like smart meters, that could allow for real-time tracking of costs that help utilities manage peak hours and consumers save money. Cooperation with solar/storage customers can lead to grid stabilization and security. Incentives like energy efficiency rebates will continue to reduce consumption and save all customers money.
When California added incentives to decoupling in 2007, “allowing them to split the savings with customers whenever energy use falls below state targets,” the utility was motivated to sell less power. The Atlantic quoted Peter A. Darbee, the chairman, CEO, and President of Pacific Gas & Electric who said, “all of a sudden you’ve unleashed the power of these huge organizations to work with you rather than against you.” By using less energy, rate payers win in the long run. The “California Energy Commission calculated that the state’s efficiency efforts had preempted the need for 24 large-scale power plants and saved state consumers $56 billion.” (The Atlantic, Oct. 2009) That’s billions in capital investment that does not need to be passed onto rate payers.
State policies must ensure utility financial incentives help rate payers become more cost effective, create opportunities for energy savings, and encourage distributed generation. For example, California’s decoupling policy sets up revenue adjustment mechanisms for programs like efficiency, low income assistance, research and development, and renewable energy programs.
Should New Mexico pass an increase in the RPS to 50% by 2030, it should also include a healthy DG carve out. Consider decoupling as the first step to leading the nation in renewable energy production, job creation, and energy exporting. Since California’s RPS cannot be met within its borders, importing renewable energy from New Mexico, a state rich in land and sunshine, is definitely an opportunity on the table.
The grid landscape will change drastically in the next ten years. Decoupling shifts the direction from obvious pitfalls to cooperation and solutions. The question is, do we prefer a functioning electric service provider and a healthy growth of the renewable energy economy over the status quo?
Say yes to the decoupling mechanism.
If you want to support our efforts to introduce decoupling to New Mexico, please support us here.