Under traditional utility regulatory practices, the more electricity a utility sells, the greater its profits. In an address to the American Public Power Association’s Business and Financial Conference, Jim Lazar spoke about revenue regulation, or decoupling, which breaks that link between utility sales of electricity and revenues, while continuing to send customers economic price signals.

Rates that reflect long-run marginal costs, including societal costs like emissions, encourage economic efficiency. Recognizing that efficiency results in lower sales volumes, Mr. Lazar outlined the key features of lost margin recovery methods, with emphasis on decoupling. A well-designed revenue regulation mechanism can eliminate revenue instability issues, allowing utility management to concentrate on meeting efficiency goals, controlling costs, and the quality of customer service.

Mr. Lazar’s presentation draws on the paper “Decoupling Case Studies: Revenue Regulation Implementation in Six States.”