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Iowa Utilities Board Rejects Rate Decoupling

In some states where consumers are conserving gas and using more efficient appliances, the reduced gas consumption cuts into the net income of local distribution companies (LDC) and it's necessary to decouple distribution revenue from throughput or gas consumption to preserve utility revenue.

That's not the case in Iowa, according to the state's Utilities Board.

The board looked at annual reports from 1995 to 2005 for each of the four rate-regulated gas utilities in the state. Data showed that average residential usage had declined and total gas purchases had declined while winters were generally warmer than normal. "The data does not show a direct correlation between net operating income and declining customer usage as a result of energy efficiency programs to date," the board wrote in its order on the inquiry into the effect of reduced usage on rate-regulated gas utilities.

Some utilities and regulators have embraced rate decoupling as a means of aligning the interests of conservation/efficiency and preservation of LDC revenues (see Daily GPI, June 14).

While not finding them to be currently necessary or particularly attractive when implemented on a wholesale basis, the board left the door open to rate-decoupling and other mechanisms, should they be found to be necessary on a utility case-by-case basis in the future.

"A review of the decoupling mechanisms suggested by the participants shows there was not a general consensus supporting use of decoupling mechanisms or a single type of mechanism," the board wrote in its Monday order. "[T]he board will encourage each utility to review its circumstances and determine if increased energy efficiency and reduced customer usage have caused, or are likely to cause, a decline in net operating income."

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