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Journal of Regulatory Economics

, Volume 38, Issue 1, pp 49–69 | Cite as

Decoupling in electric utilities

  • Timothy J. Brennan
Original Article

Abstract

Distributing electricity to users has been covered through the charge per kilowatt-hour for electricity used. Conservation advocates have promoted policies that “decouple” distribution revenues or profits from the amount of electricity delivered, claiming that usage-based pricing leads utilities to encourage use and discourage conservation. Because decoupling separates profits from conduct, it runs against the dominant finding in regulatory economics in the last 20 years—that incentive-based regulation outperforms rate-of-return profit guarantees. Even if distribution costs are independent of use, some usage charges can be efficient. Price-cap regulation may distort incentives to inform consumers about energy efficiency—getting more performance from less electricity. Utilities will subsidize efficiency investments, but only when prices are too low. If consumers fail to adopt energy efficiency measures that would be individually beneficial, decoupling can increase welfare, but only if all energy revenues are separated from use, not just those associated with distribution.

Keywords

Decoupling Price caps Electricity Energy efficiency Conservation 

JEL Classification

L51 L94 Q41 

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Public Policy and EconomicsUniversity of MarylandBaltimoreUSA
  2. 2.Resources for the FutureWashingtonUSA

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