The Odd Decouple

The single most cost-effective step for promoting conservation?

This is good news: according to NW Current, more and more utilities are becoming interested in “decoupling“—which could be the single most cost-effective step I’ve heard of for encouraging conservation.

Here’s how decoupling works. Utility rates are pretty tightly regulated: rate structures are dictated by utility commissions and the like. Traditionally, rate structures link a utility’s profits to its sales: the more a utility sells, the greater its profits. But that creates a huge disincentive for conservation: if utilities get people to cut their consumption, they cut into their own earnings. In fact, a private utility that tries to get its customers to use gas more efficiently could actually run the risk of a shareholder lawsuit.

Under decoupling, though, utility rates are structured so that a utility’s profit margins can rise when consumption falls. (In other words, a utility’s earnings are “decoupled” from its gross sales.) This simple change can make it profitable for utilities to promote conservation. And as a result, decoupling aligns the utility’s incentives with the incentives of its customers: everyone has an incentive to use energy more efficiently. Northwest Natural, an Oregon gas company, has been operating under a decoupled rate structure since 2002. One result—it’s shifted staff from marketing (trying to get people to buy more gas) to customer service. Whee!

Decoupling is one of those nifty little ideas with a huge potential payoff for a seemingly insignificant change. It doesn’t take much to make decoupling a reality—it relies on a simple alteration to the rules, rather than regulatory strictures or costly upgrades to technology. So it’s nice to see it catching on.

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