Two new RAP publications describe the basics of revenue decoupling, outline how it can be achieved step-by-step, and ultimately underscore the flexibility utility regulators have to tailor decoupling to their state.
One of the books, Decoupling Design: Customizing Revenue Regulation to Your State’s Priorities, is a newly-published work. It breaks down the process of decoupling into the specific decisions regulators need to make when moving toward a decoupled revenue regulation system.
The other book, Revenue Regulation and Decoupling: A Guide to Theory and Application, is an update of an earlier work from 2011. The update includes six case studies, detailing decoupling regimes in place for utilities in California, Idaho, Maryland, Wisconsin, Massachusetts, and Hawaii.
“Decoupling is different from traditional regulation. Together, these publications demystify decoupling and spell out the finer points of this form of regulation,” said Richard Sedano, principal and U.S. program director and one of the authors of Decoupling Design: Customizing Revenue Regulation to Your State’s Priorities. “We think these publications highlight the varied options that states have and ultimately illustrate that decoupling is not hard, just different, and that regulators can learn from experience and need not reinvent the wheel,” he said.
The two books are available online and in hard copy.
Many states have adopted utility decoupling, or revenue regulation, which breaks the link between electricity sales and revenues to the utility. Originally, it was conceived as a way to make utilities indifferent to annual sales volumes by addressing the net revenue volatility associated with weather, changes in local economic conditions, and energy efficiency programs. More recently, it has been recognized as a primary tool to deal with potential revenue shortfalls from deployment of distributed energy resources. But whatever the context, perhaps its most important virtue lies in its risk-mitigation benefits for both utility and consumer.
Decoupling Design: Customizing Revenue Regulation to Your State’s Priorities
The design process of a decoupling mechanism contains a number of decision points that address policy and stakeholder priorities. This publication lays out how to make decoupling design decisions that best complement the facts on the ground and the goals of each state, each commission, and its stakeholders.
The book breaks out the issues that regulators will face, and the decisions they must make, into three broad categories: deciding what’s covered by decoupling, how utility revenue should be adjusted, and how to select refunds and surcharges. It also looks at additional customer considerations.
Revenue Regulation and Decoupling: A Guide to Theory and Application
This guide explains the fundamentals of revenue regulation and its adjunct, decoupling. It lays out the operational theory that underpins decoupling, explains the calculations used to apply a decoupling price adjustment, and then offers refinements to basic revenue regulation and decoupling. The book also includes the case studies from five states.