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Decoupling: Characteristics and Impacts
- 1. Decoupling: Characteristics and Impacts Presentationto The Energy Resources and the Environment Committee gy Summer NARUC Committee Meetings Sacramento, California By Wayne Shirley July 20, 2010 The Regulatory Assistance Project China ♦ European Union ♦ United States Website: http://www.raponline.org
- 2. Regulatory Assistance Project Nonprofitorganization founded in 1992 by experienced energy regulators RAP s RAP's primary mission is to advise utility regulators and other public officials on regulatory and competitive utility policies to improve the overall economic and environmental performance of the electric and natural gas sectors Funded by U S DOE & EPA, the Energy U.S. EPA Foundation, ClimateWorks and other foundations 2
- 3. Revenue Decoupling: p g TheBasic Concept Basic Revenue-Profit Decoupling has two primary components: 1. Determine a “target revenue” to be collected in a given period • In the simplest form of revenue decoupling (sometimes p p g( called “revenue cap” regulation), Target Revenues are always equal to Test Year Revenue Requirements • Other approaches have formulas to adjust Target Revenue over time 2. Set a price which will collect that target revenue • This is the same as the last step in a traditional rate case – i.e. Price = Target Revenues ÷ Sales
- 4. The Decoupling Transformation: TraditionalRegulation Revenue = Price * Units Sold
- 5. The Decoupling Transformation: Decoupling Revenue _________ Price= Units Sold U i S ld Website: http://www.raponline.org 5
- 6. The Essential Characteristic ofDecoupling Decoupling: Precise Revenue Recovery = Fluctuating Prices Traditional Regulation: T diti lR l ti Constant Price = Fluctuating Revenues $116,000,000 $116 000 000 $116,000,000 $116 000 000 Actual Revenues $0.1167 $115,800,000 $115,600,000 $0.1162 $115,400,000 $0.1157 $0 1157 $115,200,000 $115,600,000 Actual Revenues Rate Case Price $115,400,000 $0.1162 $0.1157 $0 1157 $115,200,000 $0.1152 $115,000,000 $114,800,000 $0.1167 $115,800,000 Rate Case Revenues 1 Actual Revenues 2 Rate Case Price $0.1147 3 Rate Case Rev. Req. 4 Rate Case Price Revenues = Price * Sales $0.1152 $115,000,000 $114,800,000 Decoupled Price 1 Adjusted Revenues 2 $0.1147 3 Adjusted Price 4 Rate Case Price Price = Target Revenues ÷ Sales
- 7. Case Study: y Rate DesignsAnalyzed Price Type Non-Seasonal Inclining Block Rate Design Total Billing Total Revenue Determinants Rate Customer Charge $ 19,484,784 4,871,196 $ 4.00 Block 1 (First 200 kWh) $ 47,640,783 898,696,181 $ 0.0530110 Block 2 (Next 500 kWh) $ 109,014,161 1,395,256,018 $ 0.0781320 Block 3 (Greater than 700 kWh) $ 63,067,176 709,610,240 $ 0.0888758 Demand $ - - $ - Non-Seasonal Flat Rate Price Type Total Billing T l Billi Determinants Total Revenue Average U A Usage Per Customer Rate Customer Charge $ 19,484,784 4,871,196 $ 4.00 Energy Charge $ 219,722,120 3,003,562,439 $ 0.0731538 Demand D d $ - $ - $ - Non-Seasonal Flat Rate Price Type Total Billing Determinants Total Revenue Customer Charge $ 239,206,904 239 206 904 Energy Charge $ - Demand $ - Rate 4,871,196 4 871 196 $ 3,008,433,635 $ $ - $ 49.11 49 11 - 617
- 8. Scenario: Aggressive EE Offsetting AllEnergy Growth Scenario Inputs Customer Growth Rate Percent of Growth Offset by Demand-side Reduction Demand side Block 1 Block 2 Block 3 3.00% 100.00% 100.00% 100.00% 100 00%
- 9. Revenues Lost to eveues ost Demand-side Reductions Effect of Non‐Normal Weather on Decoupling Adjustment ($s) $8,000,000 $4,000,000 $0 ‐$4,000,000 Non weather ecoupling Revenues Non‐weather Decoupling Revenues ‐$8,000,000 Weather‐related Decoupling Revenues ‐$12,000,000 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct
- 10. Bills for DifferentUsers With Different Rate Designs Monthly Bills for 150 kWh Customer ‐ No Decoupling ‐ No EE $ $180.00 $160.00 $140.00 $120.00 $100.00 $100 00 $80.00 $60.00 $40.00 $20.00 $‐ $155.13 $144.10 $79.47 $52.14 $59.67 $61.63 $61.60 $14.99 $18.01 $14 99 $18 01 150 kWh Block Rates No EE Average User Flat Rates No EE 1500 kWh SFV No EE
- 11. Savings for CustomersWho g Reduce Usage by 20% Three Year Savings for Customers who reduce usage by 20% $1,200.00 $1,027.95 $1,000.00 $858.17 $800.00 $600.00 $ $379.51 $400.00 $200.00 $352.99 $218.62 $85.82 $64.06 $64 06 $89.93 $89 93 $21.86 $ $‐ 150 kWh Block Rates Average User Flat Rates 1500 kWh SFV
- 12. Three Year Impacton Customers Who Do Not Reduce Usage Three Year Decoupling Impact on Non‐Participant Customers $160.00 $150.53 $150.52 $140.00 $120.00 $100.00 Block Rates Bl k R $80.00 $61.92 $60.00 $61.91 Flat Rates SFV $ $40.00 $20.00 $‐ $18.82 $18.81 $0.00 150 kWh 150 kWh $0.00 Average User Average User $0.00 1500 kWh 1500 kWh
- 13. Weather : A VolatileSales Variable… Effect of Non‐Normal Weather on Sales (kWh) 325,000,000 325 000 000 225,000,000 125,000,000 125 000 000 25,000,000 (75,000,000) Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Weather Impact Weather Affected Sales Weather Normal Sales
- 14. …and Revenue Variable Effect of Non‐Normal Weather on Decoupling Adjustment ($s) $8,000,000 $4,000,000 $0 ‐$4,000,000 Non weather Decoupling Revenues Non‐weather Decoupling Revenues ‐$8,000,000 Weather‐related Decoupling Revenues ‐$12,000,000 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct
- 15. Thanks for youAttention Questions? Contact: wshirley@raponline org wshirley@raponline.org Website: www.raponline.org