Chutzpah Award -- "Decoupling" Revenues from Actually Having to Deliver Services

I read this article three times to see if it made any sense, and it still does not, except as an incredibly ballsy attempt by a member in good standing of the corporate state to get more revenues out of its customers by government fiat.

A major shift in business is occurring at Arizona Public Service Co. and other regulated utilities in the state.

APS, Southwest Gas and other utilities are beginning to ask regulators to "decouple" their prices from the volume of their sales, which proponents said will encourage conservation.

If approved by the five-member Arizona Corporation Commission, decoupling would allow APS to collect a certain amount of revenue per customer regardless of how much energy was sold.

It would wipe out utilities' incentive to sell more power and be akin to a fast-food restaurant paying loyal customers to go on a diet.

Wow, what a fabulous business concept!   It's obviously a holdover from some horrible past wherein we pay for services based on, you know, actually getting those services.  End the tyranny of giving consumers something in return for their money!  In the modern corporate state, everyone knows a corporation earns revenue in proportion to how much influence it has with the government, and how much that government can be cajoled to let the company take by fiat from consumers.  Silly old me, actually charging people in my business for camping when they actually camp.  I should have been running to the government to get them to let me charge everyone in the country whether they camp or not.  By all means, let's let McDonald's decouple taking your money from actually giving you a Big Mac in return.

Seriously, beyond the fact that this concept is obscene, it makes zero sense even against its stated goal of conservation.   They are basically talking about shifting the consumer's marginal cost for electricity to zero.  How in the hell is that going to spur conservation?  Charge me the same amount each month for gas whether I drive or not, and that is going to cause me to drive less??

Apparently, in the weird mental world of utilities, conservation only results form utility subsidies of  efficient appliances.  So the big benefit here is utilities can somehow better afford their subsidies for more efficient appliances.  Left unexplained is why anyone would want to buy even a subsidized such device once their marginal cost for electricity goes to zero.  This is such a typical government-think, assigning much more value to government intervention and choice of winners in balancing supply and demand than they do to the operation of markets and prices.

Here is an idea -- just freaking stop subsidizing this stuff.  See, problem solved.   We now no longer need a new pricing model.  Either a conservation makes sense for the end user to invest in or it doesn't.  Here is an example they cite

An example of how APS promotes efficiency is found at the 250-student Metropolitan Arts Institute in Phoenix, which replaced $23,000 in lights last year. APS contributed $20,000 to the project.

The school said it saves about $2,000 a month in energy costs with the new lights and recovered its costs for the project in two months.

The new lights use less energy and produce less heat, reducing the air-conditioning needed.

Why the hell is our utility using my money to subsidize this particular institution?  If the numbers are right, the investment, without a subsidy has a 12-month payback.   Very respectable.  So why does this even need to be subsidized in the first place? Why is my money needed to give the Arts Institute a 1.5 month payback instead of a 12-month payback?

This is a total ripoff.  I can't possibly believe they are even considering giving this to these guys.

  • Craig

    Decoupling is a national phenomenon. It is a direct result of states' increasingly requiring utilities to provide energy-conservation advice (and, sometimes, even labor and materials) to their customers. It's working, too -- per-household power consumption is dropping in many areas. This, of course, is in direct conflict with the utilities' mission to sell more energy, but is necessitated by left-wing fears of peak this and peak that and man-made global warming.

    What else, in a quasi-fascist arrangement, are the utilities to do?

  • Craig

    I wrote "quasi" fascist arrangement because mentioning fascism is always problematic.

    But, as I think on it, dammit, it *is* fascist. The utilities are told by the state what they may sell and for how much.

  • Abtin Forouzandeh

    This is the key sentence: "It would wipe out utilities' incentive to sell more power..."

    The utilities want to earn more money, but they can only do that by selling more power. Selling more power requires that they produce more power. Producing more power means building more power plants.

    My guess is that it is nearly impossible to build new power plants in AZ.

    How do you increase revenues when prices are tightly controlled by the state and production capacity is capped by regulatory fiat? You either persuade the state to raise prices or you persuade the state to allow you to build more capacity. Rationally, you will choose to pursue the path perceived to cost less.

    Clearly, utilities believe it will cost them less to lobby the government to increase prices. This is due their being able to obfuscate the discussion with rhetoric about the virtues of conservation.

    Of course, advocates genuinely interested in the environment and conservation get what they want too (or at least they think they do). Decoupling prices from production creates the perverse incentive for the utility to shut down production capacity and eliminate both fixed and marginal costs, since doing so will maximize profits.

    Even customers might support such decoupling, expecting that they will use more electricity without having to pay for it. They will ignore the fact that all their neighbors are thinking the same thing, but that someone, somehow, has to pay.

    And when the brown outs start rolling through AZ in some future summer, the utilities, bureaucrats, and politicians will all join together and declare that not enough has been done to advance conservation. They will say it is a failure of the market to cut energy consumption, that greed drives people to hurt the common good. They will say that it would take too long to build new power plants, and so the solution will be more conservation. And they will produce more ridiculous statistics (like the one in the article saying conservation is cheaper than new production) in support of the argument that more plants should be shut down.

  • Smock Puppet

    > Apparently, in the weird mental world of utilities, conservation only results from utility subsidies of efficient appliances.

    Not buying into the idea that anyone at the utility believes this preposterous claim.

    AM buying that they think the critical-thought-addled libtard idiots on your PSC are going to buy it.

    Not the same thing by a decent margin.

  • Smock Puppet

    > The utilities are told by the state what they may sell and for how much.

    Explain, anyone, anyone, Bueller, please: how is it that utilities can't do the exact same thing that the phone companies were required to do decades ago, and decouple the maintenance and ownership of the lines from the operation of the process?

    The maintenance and ownership of the lines is, admittedly, a somewhat monopolistic situation.

    Who I buy my power from need not be. The various power companies need to pump a certain amount of "electrical water" up the hill into the reservoir. After that, it's just a matter of me turning on my spigot, and it getting properly metered.

  • http://classicjapanesesongs.blogspot.com Brandon Berg

    That article is written very badly and doesn't accurate describe what decoupling actually is. It's not a flat fee for unlimited usage. There's a better description here. Basically it allows utility companies to raise rates as overall usage declines in order to meet a target ROI.

    The point is to reduce utility companies' disincentive to promote energy-saving technologies. Why people are looking to utility companies for this, I have no idea.

  • Smock Puppet

    > I can’t possibly believe they are even considering giving this to these guys.

    Rosabelle, BELIEVE!!

    > Why people are looking to utility companies for this, I have no idea.

    The People'$ Champion$ are alway$ hard to under$stand. In the end, we mu$t have faith that they will receive proper guidance from their leader$ and the variou$ media organization$ who$e job$ it i$ to properly advi$e them a$ to their option$.

    Thi$ i$ the way it i$.

  • ArtD0dger

    I'm not sure why you would express surprise at this, Warren. The "all you can eat buffet" model, which eliminates the marginal increase in cost of consumption with respect to price, has long been favored by any business that can get away with it.

    Want to watch TV? You pay a flat fee to the cable or satellite company regardless of how seldom you actually turn the set on. Cell phone? Flat fee, independent of how much you talk. (Unless you go for a pre-paid phone, which I highly recommend.) Internet service? Flat fee. Netflix? Every damn little internet business wants you to sign up to be a "member" rather than charging per transaction. Don't even get me started on health care. Utilities just missed the boat by getting locked into this old-fashioned metered-usage model, and now they want in on the gravy train.

    Providers know that eliminating the marginal cost of consumption can dramatically increase the equilibrium demand for their goods and services, which in turn increases their revenues so long as something (e.g., the government) prevents competitors from siphoning off the lowest consumers. That it also kills both conservation incentives and the price signal mechanism is of no consequence to them. That this is apparently of little concern to our political class speaks volumes about their priorities.

    My understanding is that mandated flat rate pricing is baked into all of the "network neutrality" proposals, and that this will be the sop to the ISPs to get them to buy into that monstrosity -- at the expense of the consumer, as usual.

    Maybe we should also have a flat fee tax system. You know, a single amount everybody pays yearly in order to be a member -- er, citizen -- eligible to receive unmetered government services.

  • M

    Utility analyst speaking here:

    With decoupling investor-owned utilities are granted an authorized rate of return on the book value of plant in service. If natural gas or coal prices rise, the marginal costs are passed straight through to consumers. Likewise, if there's a hot summer or cold winter and a utility burns additional coal and gas, customers are charged for this variable cost. Consumers see the correct price signal to reduce consumption but the utility does not earn above its regulated rate of return as a result of events that it cannot control.* Note that shareholder dollars are still at risk here--if O&M runs over budget then shareholders eat the excess costs. General rate cases no longer are concerned with the kilowatt-hour rate and instead focus on setting the proper O&M target that a utility must achieve.

    Decoupling better aligns the incentives between customers and utilities. In a world in which the political class sets ridiculous "renewable portfolio standards," it is much easier to achieve those targets when fewer new power plants in total need to be constructed.

    *Utilities can and do hedge commodity price risk, but this is highly discouraged to prevent utilities from using their balance sheets to finance speculative trading operations a la Enron.

  • Bart Hall (Kansas, USA)

    "Decoupling" is also what several states -- Oregon in particular -- wish to do with fuel tax. As people opt for more fuel-efficient vehicles there are presumably fewer gallons purchased, therefore lower fuel-tax revenue for the state. To accomplish such decoupling they must monitor and tax miles driven.

  • http://www.babytrollblog.com Mark Alger

    Used to be you could get a rise out of a utility's customer service folk by dropping the "M" bomb on them -- monopoly.

    Well! They fixed that, din't they?

    M

  • GoneWithTheWind

    I have worked for two utilities. You cannot imagine how much of your money they spend subsidizing phony schemes to conserve. All they need to do to get their pet project funded is include the word "conserve" in there somewhere. It's more then just the money spent to subsidize these schemes. Every utility has a cadre/mob/army of workers under the dubious title of "conservation" to manage these schemes. Probably 10%-20% of your utility bill is wasted on phony conservation schemes.

  • Sol

    Actually, considering this is Arizona we're talking about, isn't it likely they are reading the writing on the wall with respect to solar power and trying to preserve the scraps of their business model?

    That is to say, if solar power really does become reasonably affordable, suddenly a lot of people out there are only going to want power from the utility as a backup measure. Solution? Charge every customer a fixed fee.

  • Rob

    We need to pay more attention to who we elect to the Ariz Corp Commission.

  • JIMC5499

    They did this "decoupling" in Pennsylvania, that's why I have a $17.00 service charge to go along with the $9.00 of water that I actually used.

  • MikeinAppalachia

    "Why the hell is our utility using my money to subsidize this particular institution?"

    I don't know the particulars, but this was probably a result of APS being ordered to run a "Demand Control" or "Demand Reduction" program in some prior rate proceeding. Such a requirement is one of the Darlings of various intervenors in a typical "rate case". The theory goes something to the effect that if the utility can limit increases in future demand-lighting and AC usage during peaks-then it can avoid capacity increases in generation and transmission/distribution and/or high peaking costs. "Avoided Costs" are then claimed by such proponents at very high levels such that the subsidies then appear to be a savings in PV terms. "Efficient lighting", insulation, heat/cooling storage, and direct control ("Smart Grid") of users HVAC are typical applications. Facilities who depend on public giving or varible government grants are typical participants as they can claim an inability to devote funds to such efforts without some kind of subsidy.

  • Zach

    So, after the feds were done convincing the people to upgrade HVACs, insulation and windows because "it will save you money on utilities in the long run", now the state says "yeah, not so much"?

  • IgotBupkis, President, United Anarchist Society

    >> M: a utility burns additional coal and gas

    Ahhh, bat puckey. I suppose it may vary from state to state, but I don't believe it.

    There's already a fixed mechanism in there for doing this in MY electric bill:
    ELECTRIC FUEL ADJUSTMENT
    This charge is the electric consumption multiplied by the fuel adjustment rate.
    Fuel adjustments for electric, natural gas and liquid propane are based on the actual prices xxx pays for fuel without any mark up.

    The "Fuel Adj. Charge" in my latest bill? $10.45
    The charge for actual electric use in MLB? $6.44

    Considering that they've been doing this since the 1970s, I'm willing to bet that just about EVERY state has adopted this.

    And it solves the problem far better than fully decoupling the bill.

    Your excuse is a crock of... you know.

  • IgotBupkis, President, United Anarchist Society

    .

    > That is to say, if solar power really does become reasonably affordable,

    Yeah, and if pigs fly, then the demand for reinforced umbrellas will become phenomenal!!

    You planning on investing in reinforced umbrellas?

    'Cause "solar power" becoming "reasonably affordable" is just SLIGHTLY less likely.

    Here's something not-so-techie written two years ago, about how utterly ludicrous the idea is --

    No, it's not "unlikely".

    No, it's not "difficult".

    It's physically impossible.

    You will flap your arms and ignore the Law of Gravity about the same time Solar Power becomes "reasonable affordable". They are about the same possibility.

    .

  • Smock Puppet

    > We need to pay more attention to who we elect to the Ariz Corp Commission.

    That or encourage more lynchings of government bureaucrats.

    I realize this latter option has become somewhat disfavored in the last century, but I'd point out that the disfavoring of it does sync unfortunately well with the endless expansion of government.

    Perhaps the correlation is more significant than is often believed...?

    Hmmmmmmm....?

  • James H

    "We need to pay more attention to who we elect to the Ariz Corp Commission."

    Uh-oh, you just now realized this? We just had an election last year. We barely dodged total destruction, but it's still not good. Two out of the three "solar team" candidates got elected, if I recall. They ran strictly on forcing utilities to ramp up solar to much higher levels of their total generation. They pretty much said this in their TV commercials, along with telling us that we had to elect all three of them for this to happen. We only ended up electing 2, but who knows if any of the others on the commission will side with them at the wrong time.

  • Jay

    The concept of subsidizing conservation will only work for a very few reasons; reduce the amount used so you can sell that excess to someone else at higher rates, or reduce the amount used and increase rates. Their reasoning is bogus.

    Here in British Columbia residents are encouraged to lower useage so that the surplus can be sold to Washington and California at much greater rates than allowed domestically. Subsidizing energy efficiency makes sense.

    Could the Arizona utilities be exporting power elsewhere at higher rates? Otherwise, just another money grab.

  • Nandkishore

    Why not consider consumption based tariffs, as we do in water supply projects in Rajasthan India? The higher the consumption, the higher rate is charged, for domestic as well as institutional consumption. The rate almost goes up six times for thrice above norm consumption. The basis for domestic/house connections could be the number of persons in a household. It would definitely encourage conservation. The additional revnue generated could then be used for subsidizing "green initiatives" if you will!