Three ways to decouple electric-utility revenues from sales

Utility energy efficiency programs hurt shareholders because these programs reduce electricity use, and this reduction lowers revenues by more than costs are cut. Utilities and their regulators have adopted various methods to deal with these net lost revenues. The two most widely used methods include explicit calculations of the revenues lost because of the energy and demand reductions caused by the utility`s programs, and decoupling of electric revenues from sales. Decoupling first breaks the link between utility revenues and kWh sales. It then recouples revenues to something else, such as growth in the number of customers, the determinants of changes in fixed costs, or the determinants of changes in electricity use. This paper explains and compares three forms of decoupling:revenue-per- customer (RPC) decoupling, RPC decoupling with a factor that allows for changes in electricity use per customer, and statistical recoupling. We used data from five utilities to see how the three methods perform in terms of electicity-price volatility and ease of implementation. We discuss the strengths and limitations of each approach, emphasizing the tradeoff between simplicity and price stability.