PUCO Opens Investigation of Decoupling, Similar Rate Designs

The Public Utilities Commission of Ohio has opened a generic proceeding regarding the "throughput incentive" faced by electric distribution companies, and whether to pursue decoupling, a lost revenue adjustment mechanism, or other mechanism to mitigate this incentive (10-3126-EL-UNC).

PUCO's order initiating the proceeding said that the throughput incentive, "works counter to Ohio's policy goals of competition, increased energy efficiency, and encouraging distributed generation."

Though the incentive's impact on energy efficiency is obvious, the Commission did not describe how the throughput incentive works counter to "competition." Even defining competition broadly as to include alternative forms of electric service (e.g. distributed generation), it seems that mitigating the throughput incentive is just as likely to act as a barrier to the adoption of distributed generation as maintaining the barrier would, since customers investing in distributed resources will face a reduced opportunity to recoup savings through reduced distribution charges if they are forced to pay higher fixed rates for distribution service.

Though decoupling in most states is not an issue which impacts the retail market, the negotiated nature of the electric security plans, currently in place at each Ohio investor-owned utility, requires vigilance from retail suppliers with respect to decoupling given that generation and distribution rates are negotiated as a package.

Indeed, each electric security plan currently contains some provision for a lost revenue adjustment. Notably, such as at the AEP Ohio companies, the utilities levy a nonbypassable surcharge on customers to fund the utilities' offering of services to meet energy efficiency and peak demand reduction goals, though such services are typically also offered by competitive providers (either retail suppliers or energy efficiency service providers). In addition to the costs of the utility programs themselves, the utilities may in some cases recover lost revenues from reduced throughput through the nonbypassable rider.

PUCO's order initiating the review of decoupling sets forth several questions for public comment, and does not provide any draft or similar strawman regarding an approach for eliminating the throughput incentive.