In February of this year, in Cascadia Scorecard 2005, we argued for an innovation in state utility rules called “decoupling.” The idea has since made impressive strides; and the next great advance may come in, of all places, Yakima, Washington. (More on that in a moment.)

In a nutshell, decoupling is a way to allow electric and gas utilities to prosper by helping their customers to save money. Utilities are not like other companies. Their profits are dictated by state utility regulators, based on complicated formulas. Since profits rise with sales, investments in improving efficiency can drain away profits. By decoupling sales from earnings, however, utility regulators can write Cascadia’s long-term energy efficiency into utilities’ bottom lines and turn utilities—precisely the organizations that have the requisite know-how and capital– into vanguards of clean energy.

  • For example, when Puget Sound Power and Light (now Puget Sound Energy) operated under a decoupling rule from 1991 to 1996, it turned itself from a laggard to a leader in energy efficiency. In its first decoupled year, the company’s efficiency programs saved almost as much electricity as they had saved during the three previous years combined. In its second year, it boosted savings another 60 percent and single-handedly accounted for 40 percent of all electricity savings in the Northwest states—outdoing even the regionwide federal Bonneville Power Administration, at half the cost.

    (You can read more of the case for decoupling in Cascadia Scorecard 2005 (pdf, Page 56) and in this post from last November.)

    Clearly, the potential benefits of decoupling revenues from sales, and thereby aligning the interests of consumers with the interests of producers, are enormous. There may not be any reform in energy  policy that matters as much while being equally unknown.

    What’s the latest on decoupling? Recently, I asked Ralph Cavanagh, co-director of the energy program at Natural Resources Defense Council in San Francisco (and perhaps the world’s leading expert on decoupling). He gave an encouraging rundown.

    For starters, the state of California has completely decoupled rates for all its investor-owned utilities (that is, private as opposed to government-owned utilities) for both natural gas and electricity. This sweeping victory, finalized early this year, led to the launch on September 22 of what Ralph says he believes to be the most aggressive program in the history of the utility industry to help customers save energy, lower their bills, and reduce pollution emissions.

    Since 2002, Oregon‘s gas utility NW Natural has operated under decoupled rates on a trial basis. After a formal evaluation of the program’s effects, the Oregon Public Utility Commission simplified NW Natural’s decoupled rates in August and approved them for the next four years.

    Idaho Power is preparing to bring a decoupling proposal before the Idaho Public Utilities Commission and may submit it by the end of this year.

    Later this month, the Washington Utility and Transportation Commission (WUTC) will consider a proposal to decouple rates for Portland-based PacifiCorp’s Washington service area, which includes and surrounds Yakima. Decoupling would make a huge difference to PacifiCorp’s behavior. Ralph argues, in testimony prepared to support the proposal, “a reasonably aggressive five-year energy efficiency investment program in its Washington service territory would automatically inflict almost $21 million in losses on PacifiCorp’s shareholders, regardless of the cost-effectiveness of the electricity savings.” Without decoupling, PacifiCorp, like most utilities, has been halfhearted about efficiency, even if it is legally obligated to encourage it.

    WUTC will hold hearings on decoupling PacifiCorp’s rates in Yakima on Thursday, December 1, at 6:00 pm, in hearing room B33 in the Yakima County Courthouse. If you live in the area and have PacifiCorp as your power company, please consider attending and speaking in favor of the NRDC proposal. Public voices can be influential at such hearings, because so few citizens take an interest and speak. (Let me know if you’re interested in speaking and we’ll provide you with background information.)