Decoupling Utility Revenues and Sales: Anti-consumer. . .anti-poor

1
Decoupling Utility Revenues and
SalesAnti-consumer. . .anti-poor

• Presented by
• Roger D. Colton
• Fisher, Sheehan Colton
• Public Finance and General Economics
• National Low-Income Energy Consortium (NLIEC)
• June 2008

2
Four types of decoupling

• Sales (or full) adjustment charge
• Conservation and load management (CLM) adjustment
  charge
• Margin-per-customer (revenue-per-customer)
  adjustment charge
• Rate design changes

3
Problems with Sales Adjustment Charge

• Guarantees a utility its profit.
• Allows for recovery of reduced sales completely
  unrelated to efficiency investments.
• Reduces customer incentive to pursue energy
  efficiency w/o utility.
• Ignores matching principle.

4
Sales Adjustment ChargeTwo fundamental
regulatory problems

• Purpose of ratemaking is not to allow recovery of
  particular expenses.
• Purpose of ratemaking is to allow a reasonable
  opportunity to earn return on investment.
• For example, postal rate increase does not yield
  utility rate increase.
• Sales adjustment charge does not remove
  disincentive to energy efficiency.
• Rate of return is based in large part on growth
  in earnings.
• K D / P g (ROE dividends/price growth)

5
Problems with CLM adjustment charge

• Disputes are almost guaranteed
• what savings have been generated (incentive for
  utility to over-estimate).
• What savings are attributable to the utility
  program.
• Removes part (but not all) of disincentive, but
  creates no affirmative incentive.
• Creates an incentive to cream skim (and to avoid
  hard-to-serve customers, high cost efficiency).
• Classic case of single-issue ratemaking
• Impedes cost-effectiveness of non-utility
  efficiency investments.

6
CLM adjustment charge Example of lack of
matching

• Energy efficiency reduces consumption to
  payment-troubled low-income customers.
• Utility receives lost revenue adjustment based
  on estimated energy savings.
• Utility experiences other changes that positively
  affect earnings but that are not accounted for
• Lower bad debt (but no expense adjustment).
• Lower arrears (working capital) (but no expense
  adjustment).
• Higher off-system sales due to freed-up capacity
  (but no revenue adjustment)

7
Problems with margin-per-customer adjustment
charge

• Allows utility to triple-dip
• Utility keeps added revenue through new customer
  growth.
• Utility keeps revenue through higher sales.
• Utility is given revenue through lost revenue due
  to conservation.
• Margin per customer over-compensates utility for
  customer growth given decreasing use per
  customer.
• Margin per customer looks only at revenue, not at
  expenses.

8
Customer adjustment charge Example of triple
dipping

• Utility adopts incentive program to promote
  increased efficiency of new air conditioners.
• Utility receives
• New revenues from increased use of air
  conditioners.
• More profit due to increased investment in plant
  to serve new air conditioners.
• Recovery of lost revenue attributable to
  reduced usage had the new air conditioner been
  energy inefficient.

9
Problems with rate design changes

• Reduces risk without reducing rate of return.
• Regressive most adverse impact on low-use,
  low-income customers.
• Increases bills by cost allocation
• Moves capacity costs caused by high-use (high
  peaking) customers to low-use usage tiers.
• Anti-conservation

10
Recommendations

• Absolute opposition to
• Sales adjustment charge.
• Margin-per-customer adjustment charge.
• Increased fixed charges.
• Increased charges on first usage tiers (multiple
  ways for this to happen).
• If a CLM charge, only allow if ROE is below
  authorized ROE.
• Independently operated energy efficiency
  utility (e.g., Energy Efficiency Vermont).
• Mandated low-income programs.

11
For more information

• http//www.fsconline.com
• News
• Library

12
For more information

• roger_at_fsconline.com