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Issue Summaries

 Rate Reform/DeCoupling 

Background

Natural gas utilities send bills to customers each month that include the actual cost of the natural gas delivered to those customers. By law, utilities are not permitted to mark up or profit from these costs. The consumer bill consists of the exact amount the utility was charged for the natural gas, as well as charges associated with delivering natural gas and serving customers.

Typically, the amount of money that utilities collect from customers to cover their fixed costs of doing business (maintaining pipeline safety, answering customers’ calls, preparing bills, etc.) is tied to the volume of natural gas they deliver. In this traditional rate structure, utilities have the opportunity to earn a state-regulated profit after they deliver enough natural gas to cover their business operating costs.

Some utilities have found, however, that their promotion of energy efficiency has resulted in significantly lower natural gas consumption, which reduced their earnings and profitability.

Several innovative natural gas utilities have worked with their state regulators to reform the way their rates are set up—in essence, separating or “decoupling” the utility’s recovery of fixed costs from the volumes of natural gas delivered. Typically, de-coupling programs are tied to energy efficiency programs that help customers reduce their natural gas consumption. Such programs align the interests of customers and utility shareholders by lowering customer bills and increasing energy efficiency.

AGA Viewpoint

AGA supports greater incentives for energy efficiency within the natural gas industry, while maintaining the financial health of local distribution companies, through the use of revenue decoupling and other nonvolumetric rate designs.

In 2004 and 2008, AGA teamed with the Natural Resources Defense Council (NRDC) to encourage state utility regulators to consider innovative ways to remove unintended obstacles to greater energy efficiency by changing the way that natural gas utility rates are structured. A national organization representing state regulators (NARUC) agrees, and has passed two resolutions that encourage state public utility commissions to review and consider the AGA/NRDC approach.  The American Recovery and Reinvestment Act of 2009 appropriated $3.1 billion to those states that implement rate designs, such as decoupling, that ensure that utility financial incentives are aligned with helping their customers use energy more efficiently.

The Alliance to Save Energy and the American Council for an Energy-Efficient Economy are among the organizations that have endorsed decoupling or other utility rate reform efforts that seek to promote energy efficiency without penalizing gas utilities.

Additional Information: American Gas Association (www.aga.org/rates)

AGA Contacts: Cynthia Marple, (202) 824-7228, cmarple@aga.org; Paula Gant, (202) 824-7226, pgant@aga.org

 

 
 

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