In a new paper issued today, the Regulatory Assistance Project (RAP) examines the revenue regulation practices of six utilities in different states and distills key elements for state utility regulators to consider when designing these mechanisms. Decoupling Case Studies: Revenue Regulation Implementation in Six States also provides a framework states can use to measure success.
Traditional utility regulatory practices create an environment in which the utility earns more profit by selling more electricity. Revenue regulation, or decoupling, breaks the link between utility sales of electricity and revenues, while continuing to send customers economic price signals.
“As customer-side resources such as energy efficiency and distributed solar PV proliferate, revenue regulation becomes even more important to manage utility revenues and remove barriers to adoption of these clean and cost-effective resources,” said Janine Migden-Ostrander, RAP principal and co-author of the report.
The report draws on the experience of six utilities, including Pacific Gas and Electric Company, Idaho Power Company, Baltimore Gas and Electric Company, Wisconsin Public Service Company, National Grid – Massachusetts, and Hawaiian Electric Company. Each case study examines how the state approached issues such as authorized revenue requirement, rate of return, costs excluded from the revenue regulation mechanism, reconciling actual revenue with authorized revenue, and related complementary policies.
“There is no one-size–fits-all approach to revenue regulation,” said Rich Sedano, RAP principal and director of US programs. “Regulators in each of the jurisdictions developed revenue regulation mechanisms specific to the state’s policy objectives and preferences for implementation.”
A common thread connects each of the case studies. “Each utility has an energy efficiency obligation,” added Migden-Ostrander. “Increasing market penetration alone is not enough to justify revenue regulation. It should be linked to comprehensive energy efficiency and distributed generation policies.”
RAP’s earlier publication, Revenue Regulation and Decoupling, provides a fundamental review of decoupling mechanisms and the associated policy considerations.