Revenue Decoupling for Electric Utilities: Impacts on Prices and Welfare

Arlan Brucal () and Nori Tarui
Additional contact information
Arlan Brucal: Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science

No 202011, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: Revenue decoupling (RD) is a regulatory mechanism that allows adjustments of retail electricity rates so that the regulated utility recovers its required revenue despite fluctuations in its sales volume. The U.S. utility data in 2000-2012 reveals that RD is associated with more than 10% higher electricity prices in two years after RD is implemented relative to similar non-decoupled utilities---an impact significantly higher than previously thought. Theoretically, unexpected sales declines would lead to higher electricity prices while unexpected sales increases would lead to lower prices. RD adjustments have yielded both refunds and surcharges, but the data indicates that electricity prices demonstrate downward rigidity and statistically significant upward adjustments for the utilities subject to RD. Together with the likely negative impacts of RD on low-income(as opposed to high-income) households, this analysis indicates the limitations of decoupling, and fixed-cost recovery practice in general, which involves adjustments in volumetric electricity rates.

Keywords: utility regulation; revenue decoupling; electricity sector (search for similar items in EconPapers)
JEL-codes: L94 Q41 Q48 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-ene, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.economics.hawaii.edu/research/workingpapers/WP_20-11R.pdf First version, 2020 (application/pdf)

Related works:
Working Paper: Revenue Decoupling for Electric Utilities: Impacts on Prices and Welfare (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hai:wpaper:202011

Ordering information: This working paper can be ordered from
http://www.economics ... esearch/working.html

Access Statistics for this paper

More papers in Working Papers from University of Hawaii at Manoa, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Web Technician ().