Dive Brief:
- The Los Angeles Department of Water and Power (LADWP) and Glendale Water and Power (GW&P) are two of the first publicly owned U.S. utilities to decouple revenue from electric sales. LADWP did so in 2012, while GW&P's decoupling will take effect July 1 this year.
- Decoupling revenue from sales means the utility will get guaranteed revenue approved by their government board independent of sales, thereby incentivizing the utility to increase energy efficiency efforts.
- LADWP and GW&P made the move to deal with revenue recovery risks and the incompatible incentives of increasing energy efficiency versus increasing electric sales.
- 25 private utility companies across the U.S. use decoupling. Seven of ten states that lead in energy efficiency investment have companies that use decoupling.
Dive Insight:
A lack of awareness and a corporate culture that puts profit before energy efficiency are the main obstacles to more utilities adopting decoupling, said Lisa Xue of the Natural Resources Defense Council (NRDC).
Although decoupling could lead to lower profits in the short term, the shift in focus to greater efficiency and guaranteed revenue in low sales periods provides financial stability and energy savings that benefit the utility and the customer.
Credit agencies support the policy as it will improve financial stability and operating results through greater efficiency.