1 / 12

Wisconsin Public Utility Institute

Wisconsin Public Utility Institute. Exploring Revenue Decoupling For The Energy Industry -A Utility Perspective James F. Schott November 6, 2007. Objective of Decoupling.

almira
Download Presentation

Wisconsin Public Utility Institute

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Wisconsin Public Utility Institute Exploring Revenue Decoupling For The Energy Industry -A Utility Perspective James F. Schott November 6, 2007

  2. Objective of Decoupling • To remove the utility’s incentive to increase sales between rate cases and the disincentive to support/encourage energy efficiency

  3. Two Fundamental Questions • Do the existing incentives work? • I. e., without decoupling, do utilities try to encourage sales/discourage efficiency? • Are they effective? • Are the “side effects” of decoupling worse than the “cure”?

  4. Do Incentives work? • “Neither [Peoples Gas or North Shore] has any history of promoting or designing significant energy efficiency programs for its residential customers.” • Initial Brief of Illinois Attorney General, ICC Docket No. 07-0241, p. 71. • Difficult to prove • No utility wants to admit that it is not a good corporate citizen • Most utilities are already doing some energy efficiency

  5. Decoupling: Lite, Full or just right • Decoupling lite • Rates are adjusted to recover lost revenues from verified energy efficiency due to specific programs • Full decoupling • Rates are adjusted to recover actual costs over actual sales volumes (e.g., “formula rates”) • True decoupling • Rates are adjusted to recover authorized margin from last rate case

  6. Decoupling light • Pros • Ties “benefits” of decoupling to actual actions of utility or specific programs – a true quid pro quo • Cons • Costly and time consuming to determine savings due to specific programs • Narrow application

  7. Full decoupling • Rates are adjusted to recover actual costs over actual sales volumes • “Actual” costs includes return on equity • Pros • Minimizes rate cases • Achieves decoupling objectives • Cons • Essentially a “guarantee” of return on equity

  8. True Decoupling • Pros • Achieves decoupling objectives • Continued incentive to control costs • Cons • “Side Effects”

  9. Decoupling variations • Fixed Decoupling lite • Adjust rates based on “locked in” agreed annual “energy efficiency” • Weather normalized decoupling • Factor out impact of weather on sales before adjusting rates

  10. What are the “side effects”?

  11. “Side Effects” of “True Decoupling” • Normalizes for weather • All energy efficiency is recognized • Eliminates need to forecast sales • Including need to determine correct normalization period • “Phantom” side effects • ROE is guaranteed – NOT • No incentive to save costs - NOT

  12. Decoupling is good public policy and sound ratemaking. The “side effects’ are either not harmful or immaterial.

More Related