Decoupling: Rats, Cheese and the Economics of Efficiency and Distributed Generation

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Decoupling Rats, Cheese and the Economics of
Efficiency and Distributed Generation All in a
Climate Context

• Seth Kaplan, Director Clean Energy Climate
  Change Program
• Conservation Law Foundation
• Restructuring Roundtable
• September 27, 2007

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The Big Context Climate
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More Specific Context Climate Load Growth

• Even with major new clean generation without
  big push on efficiency, we cant meet even modest
  CO2 emission reduction goals

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And even more specific Context Scenarios from
recent ISO-NE Scenario Analysis and Synapse
Companion Analysis
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Decoupling as logical next step in allowing the
rat to smell the cheese of Demand Resources
Move to Performance Based Rates, restructuring
shifted utility business model further
Need to align utility interest with demand
reduction changing the equation on DG
Launch of DSM/SBC, shareholder incentives
creation of dueling incentives
1987-1989 1994-1999 Now-Future
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The Key Questions

• Can Demand Resource provision become the most
  profitable and core part of a TD utility ?
• Can we avoid the delay inherent in waiting until
  rate plans are finished and full rate proceedings
  are undertaken to implement decoupling?
• Can Customers be shown immediate economic benefit
  from decoupling?
• Arguing long run benefit will just get you
  quote of possibly apocryphal Keynes line about
  how in the long run we are all dead

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One technical slide mostly stolen from Marty
Kushler of ACEEE

• DecouplingEssentially, truing up for actual
  sales above or below forecast
• NOTE INCREASING THE FIXED CHARGE COMPONENT OF
  THE BILL IS NOTDECOUPLING !!!
• Direct lost revenue compensation
• DIRECT LOST REVENUE RECOVERY HAS SEVERAL
  DISADVANTAGES, AND HAS FALLEN OUT OF FAVOR
• Vulnerable to gaming
• Leads to very contentious reconciliation hearings
• Doesnt do anything to address the utility
  disincentive regarding broader energy efficiency
  policies (e.g., codes and standards),
• Nor does it diminish the general utility interest
  in pursuing load-building
• CLF conclusion Decoupling, removing throughput
  disincentive is essential predicate to creating
  positive DSM/DR incentives