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Florida Approves Decoupling Mechanisms

Fortnightly Magazine - March 15 1995

Florida Power Corp. has won approval for a three-year experiment to remove existing disincentives to investment in conservation programs by "decoupling" residential revenues from sales for ratemaking purposes. The mechanism permits customer surcharges and refunds if revenue levels vary from targeted levels.

The new mechanism relies on a per customer revenue target figure based on the allowed revenue and average residential customer count used in the company's last rate case. The target is then adjusted to account for projected per customer revenue growth and changes in personal income. According to the utility, the adjustments assign more of the economic risk to shareholders. Customer surcharges or refunds are permitted if revenue levels vary from targeted levels, but will only be implemented to the extent that company earnings remain within a specified range.

The Florida Public Service Commission (PSC) said the plan will remove disincentives for utilities to invest in conservation by modifying the relationship between sales and earnings without putting ratepayers at an unfair disadvantage. It explained that shifting to ratepayers the risk of lost sales due to successful conservation programs and weather fluctuations was balanced by the potential benefits of lower system costs and greater rate stability, especially during severe weather. The PSC also found that adjustments for general economic factors, such as changes in personal income, would shield ratepayers from higher rates during an economic downturn (em a concern that has plagued decoupling programs elsewhere. Re Florida Power Corp., Docket No. 930444-EI, Order No. PSC-95-0097-FOF-EI, Jan. 18, 1995 (Fla.P.S.C.).

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