Can ‘Decoupling’ Utility Sales, Profits Deliver Cleaner Energy?

Tom Johnson | July 16, 2014 | Energy & Environment
Consumer advocates argue decoupling will only drive up customer bills, already far too high in New Jersey

Credit: Amanda Brown
Ev Liebman, associate state director for advocacy for the AARP.
Not many disagree with the state’s efforts to promote energy efficiency and renewable sources of power, but how to do so remains in dispute.

To some, the state should encourage utilities to invest in those initiatives through ‘’decoupling,’’ a process that breaks the link between the amount of energy sold to customers and a utility’s profits.

The rationale behind decoupling is that it gives utilities a bigger incentive to invest in alternative-energy programs — provided it does not hurt the bottom line — by allowing them to recover lost revenue if they can demonstrate they’re saving their customers money.

Decoupling is already occurring in the state, albeit only on a small scale. New Jersey Natural Gas and South Jersey Gas have programs in place to incent consumers to reduce the amount of gas they use, thus reducing the amount the utilities need to deliver to their customers. By most accounts, the programs are effective and work well.

Clean-energy advocates indicate that decoupling also is used other states, including California and Massachusetts, with equally good results.

The question whether decoupling should be deployed widely among other utilities in New Jersey, however, is more controversial — as evidenced by a working group set up by Sen. Bob Smith (D-Middlesex), the chairman of the Senate Environment and Energy Committee.

For the most part, the group — comprising clean-energy advocates, business lobbyists, and energy officials — reached consensus on only one point: If the state is to reach its aggressive goal of reducing greenhouse-gas emissions by 80 percent by 2050, the business model for utilities will have to change significantly. Ironically, that assessment was also published in a report by an industry trade association last year.

“The potential of meeting the requirements of the Global Warming Act are clearly linked with distributed generation and decoupling,’’ said Doug O’Malley, director of Environment New Jersey and a co-chair of the working group. Distributed generation refers to power produced and consumed locally, unlike big, centralized power-generating stations.

Not so fast, say others.

“Decoupling can result in New Jersey consumers, already hard pressed under the weight of the seventh-highest electric rates in the nation, saving more only to pay more,’’ argued Ev Liebman, associate state director of AARP and a member of the working group, in comments submitted to the Senate panel.

Like others worried about decoupling, Liebman noted that there are a number of reasons for reduced revenue that are outside the control of the utility, including weather and economic events, such as the recent recession. If decoupling occurs, she said it could reward utilities and punish consumers for loss of revenue completely unrelated to energy efficiency or renewable sources of power.

Division of Rate Counsel Director Stefanie Brand also said decoupling is not the best way to provide incentives to utilities to invest in energy efficiency or renewables.

Brand noted there already are incentives for utilities to invest in those programs, indicating that Public Service Electric & Gas has or will invest more than $1 billion in solar programs and $300 million in energy efficiency. New Jersey Natural Gas has invested more than $100 million in energy efficiency and South Jersey Gas almost $50 million, she said in comments to the committee.

That does not include the money customers pay to support renewable energy programs, according to Brand. By 2028, those costs could exceed $6 billion, she said.

“Rate Counsel does not believe that there has been a demonstration that decoupling would be more effective at encouraging utilities to invest in energy efficiency than simply paying to do so,’’ Brand said.

The New Jersey Utilities Association said its members have yet to take a unified position on decoupling, which most likely depends on the details of whatever proposal, if any, emerges from the Legislature.

“Decoupling is an important issue that the utility companies are reviewing and taking very seriously,’’ said Andrew Hendry, president of the association. “There are
different forms it can take with different ramifications.’’

O’Malley conceded selling decoupling to legislators and the Christie administration is not going to be easy.

“There’s a real concern this will be a cash cow for the utilities,’’ he said. “This will be a difficult issue to tackle at the least.’’