The Basics of Decoupling: A Superior Solution to the Throughput Incentive
Under traditional utility regulatory practices, the more electricity a utility sells, the greater its profits—this is the “throughput incentive.” In a webinar of the National Conference of State Legislatures (NCSL), Richard Sedano spoke about revenue regulation, or decoupling, which ensures that utilities have a reasonable opportunity to collect approximately the same revenues that they would under conventional regulation, independent of changes in sales volume, while continuing to send customers economic price signals. Mr. Sedano provides a practical, in-depth look at the nuances of decoupling and other alternatives to the throughput incentive, and shares the issues regulators should consider when designing a decoupling mechanism. Decoupling is advantageous because it stabilizes utility revenue, accommodates aggressive energy efficiency programs, and can delay general rate cases and their associated expense. Utility performance incentives complement revenue regulation, as they can align utility incentives with public policy.