Revenue decoupling for utilities offering demand side management programs

An IndEco article

By: Eric Buan

Revenue decoupling separates, or decouples, a distributor’s revenue from its sales of energy; distributors receive the same revenue regardless of how much energy they sell to their customers.

The use of decoupling to protect a distributor against lost revenues due solely to CDM initiatives would be an example of partial decoupling. In this case, distributors are protected only from revenue losses due to decreases in energy use attributed to customer participation in CDM programs. All other causes for fluctuations in revenue, such as changes in customer counts, declines in average energy use or changes in weather, are not protected against.

This type of partial decoupling might function by requiring a distributor to initially set rates in a manner that accounts for forecasted decreases in energy use due to customer participation in CDM programs. Any variations between the forecasted and actual decreases in energy demand would be periodically ‘trued-up’ through use of a rate rider applied to the bills of customer classes targeted by the CDM programs.

The periodic true-up to rates might occur on an annual basis to coincide with the annual requirement for a distributor to verify energy savings due to their CDM initiatives. In this case, the use of partial decoupling would not be unlike the filing of an annual LRAM claim – the only difference would be that the rates originally set during the rates case would already reflect forecasted energy losses due to customer participation in CDM programs.

From the viewpoint of a distributor, the use of partial decoupling (if rolled-out as described above) would have the benefit of requiring comparatively smaller rate riders than those required for LRAM claims, especially if LRAM claims were filed for multiple years.

Related information

The Ontario Energy Board's 2010 proceeding on revenue decoupling
IndEco's report on declining average customer use of natural gas