Energy Sector

Last Updated: November, 2016

Under the present rate structures in U.S. energy markets, utilities' revenues depend on the amount of energy they produce and deliver to consumers. This system discourages utilities from enacting conservation and efficiency measures because they would decrease sales, and therefore revenues. "Decoupling" is a regulatory mechanism that removes the pressure on utilities to sell as much energy as possible by eliminating the relationship between revenues and sales volume. Under this system, revenues are "decoupled" from sales and are instead allowed to adjust so that utilities receive fair compensation regardless of fluctuations in sales. There are various ways to decouple rates, all with the same purpose of separating revenue from sales volume. For more detailed information on revenue decoupling policies please click here.

At present, 23 states and the District of Columbia have decoupling policies in place. Of these, 14 states offer decoupling to both their electric and gas utilities; four states offer it only to natural gas utilities and five states and the District of Columbia offer decoupling only to the electric utilities.

Decoupling is one of many incentives for utilities to invest in energy efficiency. To promote greater energy efficiency, decoupling policies should be combined with other policies that incentivize energy efficiency, including Energy Efficiency Resource Standards (EERS) which require utilities to meet energy-saving targets with customer efficiency programs. For more information about EERS, please click here.