Writing from the Eco:nomics conference last week, David noted that at least one utility CEO is pretty down on decoupling:
Michael Morris, CEO of American Electric Power ... said "I'm not a decoupler. If my revenues go down, they go down."
David appropriately questioned whether AEP is really so agnostic with respect to falling revenues. But Morris does raise a larger, quite accurate point. Namely, many electric utilities aren't decouplers. Given the prominence that decoupling has come to play in many state and federal policies, it's worth taking the time to understand why.
Decoupling is often framed as a way to get rid of the utility disincentive created by energy efficiency. With large fixed costs, small reductions in revenue can have big impacts on equity returns. This has historically made many utilities work really hard to incentivize inefficient use of their services, from special all-electric rates to exit fees, declining-block pricing schedules, and standby tariffs. (Don't worry about the jargon -- the unifying feature of all of the above is that they penalize any customer who has the temerity to invest in energy efficiency.) It has also made the regulated electricity industry the biggest opponent of sensible energy use.
Eliminate the "coupling" of revenues and equity returns -- so the theory goes -- and you eliminate utility hostility to efficiency.