GreenDel Alert 698: Are you ready to be “decoupled?”

Final Deliberations” on “decoupling” are scheduled before the Delaware Utility Service Commission at 10:00 am on December 21, 2010.
Read what Rep. Kowalko has to say

If you are concerned, here’s who to contact:

Your state Senator and Representative:  Contact information

The Utility Service Commission: 302.736.7500, arnetta.mcrae@state.de.us

Governor Markell: 302.577.3210, Jack.Markell@state.de.us

The “Public Advocate:” 302.577.5077, public.advocate@state.de.us

This week the Delaware Utility Service Commission is to take up, and presumably enact, a new-to-Delaware concept of electricity billing called “decoupling.”  Some folk have asked us about this, so here goes:

“Decoupling” would blurr the between how much electricity you use and how much you pay for it.  Use less, and Delmarva Power can charge you more anyway, through a backdoor.  It could be called “screwed regardless.”

“Coupling” is one of those things we tend to take for granted.  Buy ten gallons of gas at the pump and it costs ten times as much as buying one gallon.  Imagine a new “decoupled” gas sales system where you pump gas, then a little roulette wheel in the pump, remotely controlled by BP or Exxon, sets the price according to the phase of the moon, the results of the recent elections, and the profit objectives of various corporations.

It’s not hard to see why sellers would like the notion of being able to charge more money for less product.  But how can a scheme like this have political momentum?

The Delaware General Assembly passed a bill mandating “decoupling,” Senate Bill 106, signed by Governor Markell on July 29, 2009. An amendment from Senator Harris McDowell, Delmarva Power’s long-time agent in the General Assembly, said:

“Decoupled rate design mechanisms will be implemented by no later than December 2010 for regulated natural gas and electric utilities such that delivery rate structures provide for an appropriate, cost-based level of revenue recovery which will remove disincentives to investment in demand response programs and conservation and improved efficiency of energy use.”

“Demand response programs, conservation and improved efficiency” should mean less use of electricity.

Then, Rep. John Kowalko, and some others, realized what they had done and repealed the “decoupling” mandate with House Bill 378, which includes:  “… decoupled rate mechanisms have been rejected in some circumstances after public debate and consideration by regulatory agencies as not being in the best interest of the ratepayers.” But, McDowell was able to amend HB 378 in the Senate to state: “Delivery rate structures for regulated natural gas and electric utilities shall be designed to avoid unnecessary impediments to the Energy Efficiency Resource Standards under this Chapter.”

The key lies in the “remove disincentives” phrase. Consider:  Delaware has very high electricity usage compared, even, to other states in the region, let along more energy-efficient places such as Europe and Japan.  This is because the sellers of electricity have controlled policy, paying lip service to conservation and efficiency while aggressively increasing sales.

There’s nothing surprising about this — most business try to increase their sales, “growth” being the great god of our economy.  Why would Delmarva Power want to sell less of its main product, reducing profits?  They don’t, of course.  For an analysis of Delmarva Power proposals, see
Alert 544: Green Delaware’s analysis of Delmarva Power’s “Blueprint for the future”

The theory behind “decoupling” is that if you let Delmarva Power make as much money selling less electricity as it can make by selling as much or more electricity, the “disincentive” to conserve will be gone and Delaware will more easily be able to make real progress towards energy efficiency.  This is a reasonable theory and many enviro types have supported “decoupling.”  The problem is, of course, that the devil is in the details.  Delmarva Power is the master of these details and the pols, enviros, and Utility Service Commissioners mostly don’t get them.

Here is “decoupling” discussion from the Utility Service Commission.  Like most of what the USC does, it reflects the views of Delmarva Power, not consumers.

Green Delaware’s view:  Progress towards greater energy efficiency is essential.  It’s always been a central Green Delaware focus.  But people need to be able to live and pay their bills.  Done right, efficiency programs can contribute to both greater efficiency and lower bills.  But this will never happen if Delmarva Power’s profits come first.  So far as we can tell, the public interest has not been represented at all in the “Delaware Way” insider deal-cutting on “decoupling.”  The so-called “Division of Public Advocate” seems silent per usual.

Rep. John Kowalko (Newark), Chair of the House Energy Committee, is fully aware of both the need to conserve energy and the need to protect ratepayers from utility ripoffs.  He had this to say in a recent email:

December 21, 2010 is an important day on the calendar for Delmarva Power’s ratepayers. It is the day that a Public Service Commission will vote to permit or disallow implementation of a two part Modified Fixed Variable rate design “decoupling” mechanism. Decoupling would help Delmarva to make up revenue lost due to weather fluctuations, effective energy efficiency efforts or individual household conservation. With electricity usage already dwindling due to the recession, utilities are scrambling to craft a sustainable and stable revenue stream that will satisfy investors and shareholders. Joseph Rigby, CEO of Pepco Holdings Inc., the parent company of Delmarva Power and Light testified to that effect at a recent seven hour PSC hearing on the ongoing rate increase request that I attended. More accurately, he stated that the issue of “decoupling” approval was one of the most serious issues facing the shareholders and investors in his company. Without any hint of sarcasm I can attest to the fact that he did not mention the ratepayers or consumers interests in the matter.
I have attended tens of hours of hearings, meetings and workshops on the subject and cannot recall any substantive testimony criticizing decoupling or referencing its potential adverse effects. It has, so far, been a presentation by proponents and self-interested parties of a one-sided view of the benefits of decoupling implementation to the utility and its shareholders while minimizing the cost and lack of benefits to the ratepayers. Over the course of this debate I have explored and investigated scores of articles and points of views on “utility revenue decoupling” hoping that I would find or be presented with evidence that there was an advantage to the ratepayer for any cost increase due to decoupling. Unfortunately that has not been the case. The added fact that Delmarva is also seeking a revenue decoupling implementation for its Natural Gas customer base, to be implemented four months after the electric implementation, strikes me as presumptive and premature and also not justified as a customer benefit albeit a customer expense.
Although the DPSC staff, the Division of the Public Advocate and DP&L have all endorsed this proposal for the electric customer the final vote rests with the PSC commissioners. The hearings on the Natural Gas request have not yet been completed and still DP&L is crafting an implementation timeline for both decoupling mechanisms. Some commissioners have questioned whether it is necessary to move forward on this approval prior to 2014 when Delmarva has said it will have completed its “smart meter” installation. It is entirely within the purview of the PSC to deny implementation approval until that time and should be considered as a responsible alternative.
Further muddying the discourse is Delmarva’s message that “decoupling removes the disincentives for utilities to promote energy efficiency programs that help customers use less energy, making them a better partner with their customers”. This message seems to imply a threat to not support or encourage energy efficiency and that would be irresponsible behavior bordering on immoral. The company has continuously stated that “Decoupling is revenue neutral”, while failing to separate the reality that it is revenue neutral for the company but not “cost neutral” to the customer.
In addition there are some key considerations in the matter that have not been adequately discussed or presented as viewpoints opposing implementation of decoupling.

The Modified Fixed Variable (MFV) Rate Design as a form of Revenue Decoupling proposed by Delmarva will in no way incentivize the consumer to conserve or reimburse them for energy efficiency upgrade costs. In fact, even without Decoupling approval the customers can still take advantage of energy usage reductions and save the same monies Utilities can already utilize the existing process to recoup delivery, infrastructural, capital and other revenues that are insufficient with a rate increase request placed before the PSC. Lower usage customers will see an increase in parts of their bills regardless if they have been upgrading their energy efficiency, conserving or simply not using appliances because they cannot afford their bills. There is no guarantee that decoupling will not result in a bigger profit margin for Delmarva and Pepco Holdings Inc and there is a guarantee of a set amount of revenue for DP&L. During the proceedings it was basically conceded that conservation opportunities offered by DP&L to its customer base would be available after full installation of the “smart-meters” due to be completed by 2014.
Utility revenue decoupling mechanism implementations are relatively new in other states and the specific MFV rate design form of Decoupling requested by Delmarva is even more rarely the case. It would be appropriate and responsible for the Public Service Commission to deny Delmarva’s application at this time and revisit it in 2014. This would enable a reasonable time to study the performance of different types of Decoupling mechanisms in other states and allow the Delaware ratepayer to experience what conservation and efficiency advantages might be available to them by then. The normal rate increase application process before the PSC would protect Delmarva’s shareholders and investors until then.
John Kowalko
State Representative 25th District
Chairman, House Energy Committee
134 N. Dillwyn Rd.
Newark, De. 19711
john.kowalko@state.de.us

Final Deliberations” on decoupling are scheduled before the Utility Service Commission at 10:00 am on December 21, 2010.

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