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Decoupling Design: Customizing Revenue Regulation to Your State’s Priorities

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Janine Migden-Ostrander, Richard Sedano
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The design process of a decoupling mechanism contains a number of decision points that address policy and stakeholder priorities. This paper, the third in a trilogy of RAP work on the topic of decoupling, lays out how to make decoupling design decisions that best complement the facts on the ground and the goals of each state, each commission and its stakeholders. The paper points to certain pathways that RAP recommends, including (1) symmetry in over- and under-recoveries, (2) exclusion of costs recovered through separate tariff riders, to avoid over-collection of costs, (3) reduction in equity ratio, rather than an adjustment of the return on equity, to reflect lower risk and (4) performance requirements to foster energy efficiency, the development of distributed resources and quality service levels.