Most economists agree that revenue decoupling eliminates utilities’ incentives to encourage overconsumption of energy, but critics argue that decoupled utilities have no incentive to promote energy efficiency. This paper models the repeated game between regulator and utility and shows that decoupled utilities have greater equilibrium utility demand-side management (DSM) investment in the presence of DSM-related shareholder incentives. It then shows empirically that decoupling is historically associated with significant residential electricity consumption reductions, augmented DSM spending levels, and increased DSM investment efficacy.
ACEEE (American Council for an Energy-Efficient Economy) (2011). State Energy Efficient Policy Database. American Council for an Energy-Efficient Economy. Accessed Oct2011. http://www.aceee.org/sector/state-policy.
2.
ArimuraToshi H.LiShanjunNewellRichard G.PalmerKaren (2012). “Cost-Effectiveness of Electricity Energy Efficiency Programs.” The Energy Journal33(2): 63-99. http://dx.doi.org/10.5547/01956574.33.2.4.
3.
BlankLarryGegaxDoug (2011). “Objectively Designing Shared Savings Incentive Mechanisms: An Opportunity Cost Model for Electric Utility Efficiency Programs.” The Electricity Journal24(9): 31-40. http://dx.doi.org/10.1016/j.tej.2011.10.010.
4.
BorensteinSeverinBusseMeghanKelloggRyan (2012). “Career Concerns, Inaction and Market Inefficiency: Evidence from Utility Regulation.” The Journal of Industrial Economics60(2): 220-248. http://dx.doi.org/10.1111/j.1467-6451.2012.00478.x.
5.
BrennanTim (2008). 'Night of the Living Dead' or 'Back to the Future'? Electric Utility Decoupling, Reviving Rate-of-Return Regulation, and Energy Efficiency. RFF Discussion Paper No. 08-27. http://dx.doi.org/10.2139/ssrn.1272664.
6.
Bureau of Economic Analysis (2011). Regional Data: GDP &Personal Income. U.S. Department of Commerce. Accessed Nov2011. http://www.bea.gov/iTable/iTable.cfm?reqid=70\&step=1\&isuri=1\&acrdn=.
7.
C2ES (Center for Climate and Energy Solutions) (2013). Decoupling Policies. http://www.c2es.org/sites/default/modules/usmap/pdf.php?file= 7016.
8.
CicalaSteve (2015). “When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation.” The American Economic Review105(1), 411-444. http://dx.doi.org/10.1257/aer.20131377.
9.
ECW (Energy Center of Wisconsin) (1997). Market-Based Utility DSM Programs. Report, Aug1997. http://www.ecw.org/publications/market-based-utility-dsm-programs.
10.
EEI (Edison Electric Institute) (2013). Alternative Regulation for Evolving Utility Challenges: An Updated Survey. Prepared by Pacific Economics Group Research LLC. http://www.eei.org/issuesandpolicy/stateregulation/Documents/innova-tive_regulation_survey.pdf.
11.
EIA (U.S. Energy Information Administration) (2011). Form EIA-826 Data Monthly Electric Utility Sales and Revenue Data. Department of Energy/Energy Information Administration. http://www.eia.gov/cneaf/electricity/page/eia826.html.
12.
EIA (U.S. Energy Information Administration)(2011). Form EIA-861 Final Data File for 2010. Department of Energy/Energy Information Administration. Accessed Nov2011. http://www.eia.gov/cneaf/electricity/page/eia861.html.
13.
EPA (Environmental Protection Agency) (2007). Aligning Utility Incentives with Investment in Energy Efficiency: A Resource of the National Action Plan for Energy Efficiency. Environmental Protection Agency. http://www.epa.gov/cleanenergy/documents/suca/incentives.pdf.
14.
EtoJosephStoftStevenBeldenTimothy (1994). The Theory and Practice of Decoupling. Lawrence Berkeley Laboratory. https://publications.lbl.gov/islandora/object/ir%3A99157/datastream/PDF/download/citation.pdf.
15.
GillinghamKennethNewellRichardPalmerKaren (2009). “Energy Efficiency Economics and Policy.” Annual Review of Resource Economics1(1): 597-620. http://dx.doi.org/10.1146/annurev.resource.102308.124234.
GraniereRobert J.CooleyAnthony (1994). Decoupling and Public Utility Regulation. The National Regulatory Research Institute Report NRRI 94-14 Aug1994. http://nrri.org/pubs/electricity/94-14.pdf.
18.
HarbaughRick (2006). Prospect Theory or Skill Signaling? Indiana University, Kelley School of Business, Department of Business Economics and Public Policy Working Papers No. 2005-06.
19.
HayesSaraNadelStevenKushlerMartinYorkDan (2011). Carrots for Utilities Providing Financial Returns for Utility Investments in Energy Efficiency. American Council for an Energy-Efficient Economy Report Number U111. http://www.aceee.org/sites/default/files/publications/researchreports/U111.pdf.
20.
HurleyDougTakahashiKenjiBlewaldBruceKallayJenniferMaslowskiRobin (2008). Costs and Benefits of Electric Utility Energy Efficiency in Massachusetts. Synapse Energy Economics, Inc Final Report. August2008. http://www.synapse-energy.com/Downloads/SynapseReport.2008-08.0.MA-Electric-Utility-Energy-Efficiency.08-075.pdf.
21.
IEE (Innovation Electricity Efficiency) (2013). State Electric Efficiency Regulatory Frameworks. http://www.edisonfoundation.net/iee/documents/iee_stateregulatoryframe_0713.pdf.
22.
IMF (International Monetary Fund) (2012). World Economic Outlook Data. Accessed Mar 2012.
23.
JaffeAdam B.StavinsRobert N. (1995). “Dynamic Incentives of Environmental Regulations: The Effects of Alternative Policy Instruments on Technology Diffusion.” Journal of Environmental Economics and Management29(3): 43-63. http://dx.doi.org/10.1006/jeem.1995.1060.
24.
JohnsonWilliamKitamuraYuichiNealDerek (2000). “Evaluating a Simple Method for Estimating Black-White Gaps in Median Wage.” American Economic Review90(2): 339-343. http://dx.doi.org/10.1257/aer.90.2.339.
25.
JoskowPaulMarronDonald (1992). “What Does a Negawatt Really Cost? Evidence from Utility Conservation Programs.” The Energy Journal13(4): 41-74. http://dx.doi.org/10.5547/ISSN0195-6574-EJ-Vol13-No4-3.
26.
KihmSteven (2009). ”When Revenue Decoupling Will Work And When It Won’t.” Electricity Journal 22(8): 19-28. http://dx.doi.org/10.1016/j.tej.2009.07.014.
27.
LazerJimWestonFrederickShirleyWayne (2011). Revenue Regulation and Decoupling: A Guide to Theory and Application. The Regulatory Assistance Project (RAP) Jun 2011. www.raponline.org/document/download/id/902.
28.
League of Conservation of Voters (2010). National Environmental Scorecard 09: Second Session 111th Congress. http://scorecard.lcv.org/sites/scorecard.lcv.org/files/LCV_Scorecard_2010.pdf.
29.
League of Conservation of Voters (2011). Past Scorecards. http://scorecard.lcv.org/scorecard/archive.
30.
LeshPamela G. (2009). “Rate Impacts and Key Design Elements of Gas and Electric Utility Decoupling: A Comprehensive Review.” Electricity Journal22(8): 65-71. http://dx.doi.org/10.1016/j.tej.2009.07.014.
31.
LoughranDavid S.KulickJonathan (2004). “Demand-Side Management and Energy Efficiency in the United States.” The Energy Journal25(1): 19-41. http://dx.doi.org/10.5547/ISSN0195-6574-EJ-Vol25-No1-2.
32.
MoskovitzDavidHarringtonCherylAustinTom (1992). “Weighing decoupling vs. lost revenues: Regulatory considerations”. The Electricity Journal 5(9): 58-63. http://dx.doi.org/10.1016/1040-6190(92)90096-P.
33.
NARUC (National Association of Regulatory Utility Commissioners) (2007). Decoupling of Electric &Gas Utilities: Frequently Asked Questions (FAQ). http://www.naruc.org/Publications/NARUCDecouplingFAQ9\_07.pdf.
34.
National Weather Service Climate Prediction Center (2012). Degree Days Statistics. Accessed Feb2012. http://www.cpc.ncep.noaa.gov/products/analysis\_monitoring/cdus/degree\_days/.
35.
NRDC (National Resource Defense Council) (2014). Gas and Electric Decoupling. Accessed June2014. http://www.nrdc.org/energy/decoupling/.
36.
U.S. Congress. 110th Congress, 1st Session. H.R. 6, Energy Independence and Security Act of 2007. Washington, Government Printing Office, 2007.
37.
U.S. Congress. 111th Congress, 1st Session. H.R. 1, American Recovery and Reinvestment Act of 2009. Washington, Government Printing Office, 2009.
38.
WolakFrank A. (1994). “An Econometric Analysis of the Asymmetric Information, Regulator-Utility Interaction.” Annales D'économie et de Statistique.34: 13-69.
39.
ZarnikauJay (2012). “The many factors that affect the success of regulatory mechanisms designed to foster investments in energy efficiency.” Energy Efficiency5(3): 393-410. http://dx.doi.org/.10.1007/s12053-011-9139-1.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
