Decoupling 101
Posted by laura on 01 Aug 2007 | Tagged as: Maryland
Decoupling essentially works like this: The profits a utility company receives are separated (un-coupled) from the amount of kilowatt hours produced. Right now in Maryland (and most states) power companies earn more money the more energy they produce (the more coal they burn, the more kilowatt hours they push onto the grid). Therefore, the companies make more money when more energy is consumed. Clearly, this is not going to usher in a new era of energy efficiency.
With Maryland energy bills hitting record-highs recently, it’s time for Maryland to consider something new. In 1999, lawmakers passed a degregulation bill. They capped utility rates for seven years at pre-1999 levels and hoped that competition among energy providers would drive down prices. But, when the caps expired last year, Constellation Energy (which owns Baltimore Gas and Electric) proposed a 74% increase- and the Maryland Public Services Commission approved it! And now, people are demanding action on energy policy like they never have before.
Recently, the Public Services Commission decided to try decoupling to increase Maryland’s energy efficiency. Decoupling would remove the disincentive for the utilities to pursue and encourage energy efficiency projects. Instead of having profits that are dependent upon total kilowatt hour produced, the power company rates profits of a certain amount are guaranteed by the state. If Maryland consumers use less energy, the power companies would make up the difference with a flat distribution charge. So, this means a few things: 1) Rates will not change much. Marylanders will not experience the 75% rate hikes- rates will remain relatively stable. 2) Efficiency projects, that in the past meant less kilowatt hours produced and therefore lower projects, can occur more readily without disrupting the profits of the company. In fact, power companies realizing that they can earn more by producing less may even embrace energy efficiency projects everywhere- saving homeowners and power companies money.
There are a lot of problems with the way our energy system is managed today. Can decoupling be part of the solution? O’Malley seems to think so. What do you think?
For more information and a more in depth analysis of the issue, see this daily kos post by A Siegel.
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5 Comments »
on 01 Aug 2007 at 2:30 pm 1.Carrie said …
That’s a really good, unbiased summary of de-coupling. I’ve only heard one side of the argument before, but I think this really raised some good questions – It’s not as straight forward as I thought it was. Thanks for the post!
on 01 Aug 2007 at 3:13 pm 2.Steve said …
This is an excellent post.
Has my head been in the sand and I missed this issue of “decoupling” or has it not made it to the light of day in the media? Did the Post or the Sun report on this? Are their editorial boards up on this?
And while on the subject of coal, if O’Malley is for this, maybe he’d also be for removing the tax break that goes to power companies that purchase coal mined in Maryland.
on 19 Aug 2007 at 3:53 pm 3.Alternative Energy Stocks said …
Why Energy Efficiency is a Hard Sell…
Two months ago, I was talking to an experienced entrepreneur who was exploring business models to provide geothermal heat pumps to households. At first blush, it seems like a great idea. Geothermal heat pumps often have payback periods of u…
on 28 Aug 2007 at 12:31 pm 4.Chris Ruder said …
At first blush- decoupling sounds great. I am still having a hard time understanding how the power company will grow profits and shareholder value. I live in Chicago and am trying to think how Exelon, a publicly traded company) could do this. Can you give some more detail?
Thanks,
Chris Ruder
on 02 Sep 2009 at 11:25 am 5.Johannes said …
Thanks for very interesting reading!!
In Sweden the profits on selling kWh is very low. Anyone commercial party can buy electricity from an open energy market and sell to consumers. The energy producers are, according to law, not allowed to have any advantage when it comes to selling energy to consumers, rather they provide energy to the open energy market and then sell energy that they have bought from the open energy market to end consumers.
So, for any energy producer it is extremly hard to make money on sales towards consumers. They compete with small energy sales companies that make energy trade a business.
In parallell, many energy efficiency companies are being evolved. They offer consumers energy analysis and suggest cost saving projects, in which they provide technology and competence.
So, from a consumer point of view, you first have to contribute profits to energy sales companies AND then contribute profits to energy efficiency companies. What is it then that the consumers are after? Not kWh, right? Rather they want a function or a business value fullfilled for as little cost (and environmental effect) as possible.
My question is, do you know of anyone that has built into their offering and business model the whole consumer need; to provide energy AND efficiency, with a focus on providing end business value, not kWh OR energy efficiency.
THanks
Johannes