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With the shift toward electrification, decoupling remains key for driving decarbonization

(ACEEE blog, 17 Aug 2020) States across the United States are increasingly prioritizing electrification of transportation and buildings to meet their decarbonization goals. Utilities are an important driver of this investment, so it’s critical that their business incentives be aligned with the public policy goals of an affordable, reliable, decarbonized and efficient energy system.

To keep costs down for electric customers and avoid inefficient utility spending, we need to remove utilities’ incentive – embedded in traditional cost of service regulation – to increase sales and deemphasize energy efficiency investments. Decoupling, which does just that, will be more crucial than ever in an era of electrification to ensure that we grow utility investment in the clean energy economy in a smart, efficient way.

Having decoupling in place while pursuing beneficial electrification can help keep costs of electrification down, make decarbonization goals more achievable, and secure the benefits of electrification for customers. Utility regulators in states across the country should preserve, adopt or update decoupling policies as needed to meet decarbonization goals that require beneficial electrification alongside energy efficiency.

Why decoupling?

Under traditional regulation, utility revenues are largely based on sales – the more they sell, the more they earn. Energy efficiency decreases sales and thus revenues, so utilities are effectively disincentivized to pursue it. Decoupling makes utilities indifferent to sales by providing them with revenues at the level approved by the regulator, regardless of how much they sell. 

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ACEEE blog, 17 Aug 2020: With the shift toward electrification, decoupling remains key for driving decarbonization