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STATE: DECOUPLING ENDS DISINCENTIVE FOR ENERGY EFFICIENCY

Posted by Tom Plant on Sep 28, 2012

Electric utilities have long been the vehicle for implementing energy efficiency programs.  This is only logical: They deliver electricity, track usage, and communicate with the consumer on a monthly basis.  Utilities are best positioned to identify inefficiencies as well as cost-effective investments for greater energy efficiency.

Trouble is, utilities have no business interest in making their customers more energy efficient. Utilities earn their revenue by selling kilowatt-hours – the more, the better.

Decoupling wasn’t designed to promote energy efficiency, but rather to make revenues for the utility more predictable.  However, it has become an effective way of achieving efficiency targets.  By removing the disincentive for utilities to invest in efficiency – since lower consumption won’t reduce the revenues they need to support their investments – they are more receptive to efficiency programs.  Since 1982, per capita energy consumption in decoupled California has remained largely flat, while the rest of the country grew at a rate of 2% per year.

A number of states, such as Arizona, have decoupled their utility systems, in whole or in part, either permanently or on a pilot basis. Other states have decoupled either electric or natural gas utilities, but not both.

Decoupling alone isn’t sufficient to cash in on efficiency.  Other elements include energy efficiency resource standards, “must buy” requirements for efficiency, or incentive and financing programs that put efficiency measures in head-to-head competition with generating resources. 

Consumer advocates sometimes weigh in against decoupling efforts, because they guarantee utility revenues at the expense of the consumer.  Other advocates say a new approach may be needed to take account of electrification of transportation. 

But most agree that the business model of utilities needs to move away from one that rewards building of power plants to one that delivers energy services in a way that is secure, clean, and affordable – that is, advanced energy.

Topics: Industry News