electric utilities
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AEP wants rate increase to make up for revenue loss
Remember when Mike Morris, CEO of American Electric Power, said this?
[he] said "I'm not a decoupler. If my revenues go down, they go down."
The West Virginia arm of his utility is now asking for a series of rapid rate increases: 18.5 percent this year, 14.5 percent next year and 13.2 percent in 2011.
Why, pray tell?
In part, because:
The company had predicted it would sell $248.5 million in power to other electric utilities between July 2008 and this June, but those sales have almost disappeared. Revenue generated from those sales -- electricity unused by AEP customers -- keeps rates down.
So if AEP's revenues go down, they go down. But then they file a three-year, double-digit rate increase to make up for lost ground. "Not a decoupler" indeed.
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Why electric utilities like coupling
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.
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Umbra on replacing a boiler
Dear Umbra, When changing boilers for heating a house for the next 30 to 40 years, should we choose gas or electric? We have gas now and want to go from 80 percent efficient to 95 percent efficient. About 60 percent of our electricity comes from Missouri River hydro and 40 percent from coal. We […]