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The Effects of Electric Utility Decoupling on Energy Efficiency

Jenya Kahn-Lang

Year: 2016
Volume: Volume 37
Number: Number 4
DOI: 10.5547/01956574.37.4.jkah
View Abstract

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. Keywords: Decoupling, Demand-side management, Energy efficiency, Electric utility regulation

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