1. Decoupling: Rats, Cheese and the Economics of Efficiency and Distributed Generation – All in a Climate Context
Seth Kaplan, Director Clean Energy & Climate Change Program
Conservation Law Foundation
Restructuring Roundtable
September 27, 2007

2. The Big Context: Climate

3. More Specific Context: Climate & Load Growth
Even with major new clean generation – without big push on efficiency, we can’t meet even modest CO2 emission reduction goals

4. And even more specific Context: Scenarios from recent ISO-NE “Scenario Analysis” and Synapse “Companion Analysis”

5. Decoupling as logical next step in allowing the “rat to smell the cheese” of Demand Resources
Move to Performance Based Rates, restructuring shifted utility business model further
Need to align utility interest with demand reduction – changing the equation on DG
Launch of DSM/SBC, shareholder incentives – creation of dueling incentives
Now-Future

6. The Key Questions
Can Demand Resource provision become the most profitable and “core” part of a T&D utility ?
Can we avoid the delay inherent in waiting until rate plans are finished and full rate proceedings are undertaken to implement decoupling?
Can Customers be shown immediate economic benefit from decoupling?
Arguing “long run benefit” will just get you quote of possibly apocryphal Keynes line about how “in the long run we are all dead”

7. One technical slide – mostly stolen from Marty Kushler of ACEEE
•Decoupling–Essentially, “truing up” for actual sales above or below forecast
NOTE: INCREASING THE FIXED CHARGE COMPONENT OF THE BILL IS NOT“DECOUPLING” !!!
•Direct lost revenue compensation
DIRECT LOST REVENUE RECOVERY HAS SEVERAL DISADVANTAGES, AND HAS FALLEN OUT OF FAVOR
Vulnerable to ‘gaming’
Leads to very contentious reconciliation hearings
Doesn’t do anything to address the utility disincentive regarding broader energy efficiency policies (e.g., codes and standards),
Nor does it diminish the general utility interest in pursuing load-building
CLF conclusion: Decoupling, removing throughput disincentive is essential predicate to creating positive DSM/DR incentives