Three ways to decouple electric-utility revenues from sales Page: 4 of 13
This report is part of the collection entitled: Office of Scientific & Technical Information Technical Reports and was provided to Digital Library by the UNT Libraries Government Documents Department.
The following text was automatically extracted from the image on this page using optical character recognition software:
Decoupling can be considered a two-part mechanism. The first part breaks the link
between utility revenues and kWh sales. The second, more difficult part "recoupies" revenues
to something else, such as growth in the number of customers, the determinants of changes in
fixed costs, or other factors beyond the direct control of the utility. Recoupling establishes a
evei of allowed revenue for the utility. This allowed revenue may or may not differ materially
:rom actual revenues (which the utility continues to collect from its customers on a per-kW and -
Decoupling mechanisms are typically designed around one of two principles. Allowed
revenues are intended to track either fixed costs or actual revenues. The first approach tries to
link utility revenues to utility costs by indexing allowed revenues to various measures of
inflation, productivity, and so on. With such methods, allowed revenues might differ
substantially from actual revenues, which will cause nontrivial changes in electricity prices. The
second approach tries to link utility revenues to actual revenues with less regard for utility costs.
This approach is designed to mimic current regulation so as to minimize electricity-price changes
between rate cases.
Decoupling operates in four states, California, Washington, New York, and (until late
1993) Maine, and is being considered in Colorado. Florida. Kentucky, Montana, and
Washington, DC. In California and New York, the decoupling methods are designed to track
fixed costs (Marnay and Comnes 1992). California's Electric Revenue Adjustment Mechanism
(ERAM) and associated attrition mechanisms are complicated. They require annual
determinations of allowed financial, operational, and rate-base attrition. Although complicated,
ERAM "has had a negligible effect on->ate levels and has, for PG&E, actually reduced rate
volatility" during the 1980s (Eto, Stoft, and Belden 1994).
A cost-based decoupling system need not be complicated. New York uses similar, but
less complicated methods than does California. Potomac Electric Power Company (1993)
proposed a very simple attrition mechanism based on changes in the national Consumer Price
Utilities in Washington and Maine use RPC decoupling, an approach that seeks to track
actual revenues more than costs. Utilities in Florida, Montana, and Oregon have proposed
decoupling mechanisms designed to follow revenues. Statistical recoupling, which also tracks
revenues, is being considered in Colorado and Florida.
Decoupling establishes an allowed revenue, different from actual revenues. These
differences between allowed and actual revenues have led to nontrivial year-to-year changes in
electricity prices in Washington and Maine. Although this price volatility was caused by unusual
weather and economic conditions, serious questions were raised in both states about the viability
of decoupling (Hirst 1993). Indeed, decoupling no longer operates in Maine. We therefore focus
our examination on the ability of decoupling mechanisms to yield stable electricity prices. We
examine the price-volatility caused by RPC decoupling, RPC decoupling with a sales-per-
customer adjustment, and SR using data from five utilities.
Here’s what’s next.
This report can be searched. Note: Results may vary based on the legibility of text within the document.
Tools / Downloads
Get a copy of this page or view the extracted text.
Citing and Sharing
Basic information for referencing this web page. We also provide extended guidance on usage rights, references, copying or embedding.
Reference the current page of this Report.
Hirst, E.; Blank, E. & Moskovitz, D. Three ways to decouple electric-utility revenues from sales, report, December 31, 1994; Tennessee. (https://digital.library.unt.edu/ark:/67531/metadc673300/m1/4/: accessed April 25, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.