Decoupling Utilities to Encourage Conservation

July 18, 2008 substation

Historically speaking, American utility regulators have set rates for utility services based on an anticipated sales volume. The idea behind the practices was initially to ensure enough revenue for the utility to cover its expenses in providing the power and fuel to its customers.

However, artificially setting the rates essentially eliminated any customer incentives to conserve energy—or better yet, create their own—because any reduced consumption would result in an increased rate the following year.

Spurred on by the fuel shocks of the 1970s, though, states began enacting legislation to separate, or decouple, price of fuel from anticipated utility budget. California was the first, in 1981 [pdf], and now over 30 other states have adapted “decoupling” measures. Massachusetts is currently considering the practice as well, making the state a surprisingly late entry in to the field, given its green reputation.

While I like the idea of decoupling, as it encourages both customers and utilities to be as efficient as possible, it also has some potential to put taxpayers on the hook for any utilities that are unable to adapt to the competitive market. Still, if self-generated energy becomes appealing enough, public utilities as we know them might become a thing of the past.