Rate case risk in a climate of declining sales.
A review of electric and natural gas rate cases decided over the past 12 months shows state utility regulators struggling to balance the interests of ratepayers and investors in an economy that continues to put pressure on both. A major factor in many cases was a decline in actual retail energy sales—whether attributable to the depressed economy or efforts to promote conservation and energy efficiency.
Decoupling plans offer a remedy for such shortfalls in sales. Decoupling plans serve to sever the link between energy sales and the rate case revenue requirement, so that utility earnings won’t suffer, even as consumers conserve energy. Decoupling plans allow regulators to promote energy efficiency and conservation without imposing undue financial risk on utilities and their investors. Yet they also introduce a new complication in retail utility rate cases. Decoupling tends to shift rate case risk from investors to customers—a result that some consumer advocates say should require a downward adjustment to the authorized target rate for ROE.