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Understanding Decoupling: Saving More by Using Less

What it means for you

By: | June 29, 2016 7:18 pm

Not many companies want to sell you less of something. It’s just not the way businesses usually stay in business. Yet when it comes to buying electricity and natural gas service, you see offers from Xcel Energy that encourage you to use less energy, which helps you save money on your energy bill. These offers include discounted energy audits , savings on LED lights or rebates for replacing old appliances, for new heating and cooling equipment, or for business lighting retrofits. All of these programs were created to help you use less energy. And that’s a good thing because these conservation and efficiency efforts help contribute to a cleaner environment.

Remote home control system on a digital tablet or phone.

However, a large portion of an energy company’s fixed costs – like power plants, employee labor, trucks, and all those pipes, poles and power lines – are traditionally paid for through customers’ bills based on how much energy is being consumed. This traditional model is at odds with the conservation and energy efficiency goals of Xcel Energy and our customers. One way to solve this disconnect is through a concept called decoupling.

So, what is decoupling?

Decoupling breaks the connection between an energy company’s electric or natural gas sales from the company’s revenues so there is not an incentive to try to sell more energy in order to generate more revenue to cover fixed costs. As the “How Decoupling Works” chart shows, decoupling adjusts rates to smooth out fluctuations over time to match the revenue that is authorized by a regulatory authority (in Minnesota, the Public Utilities Commission).

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Minnesota’s decoupling programs

The Minnesota Legislature authorized decoupling programs for public utilities in 2007 and pilot programs approved by the PUC are already in place with two natural gas providers, CenterPoint Energy and Minnesota Energy Resources.

Xcel Energy was the first electricity service provider to propose a decoupling pilot program. It was approved by the PUC in 2015 and began in January 2016 for Xcel Energy’s Minnesota electric customers. The three-year pilot program allows Xcel Energy to make a decoupling adjustment up or down for residential and small business customers once a year to make up for a shortfall or correct for surplus in non-fuel revenue. The “Decoupling Pilot Program Timeline” shows the program beings with a baseline comparison starting January 2016 and the first decoupling adjustment will appear as a line item on customer bills in mid-2017.

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What will it mean for you?

You might ask what impact decoupling will have on you as a consumer paying your bill. The short answer is, not much. Over time there isn’t a large impact on a customer’s bill. In fact, if customers use less energy their bill will go down.

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In the “Decoupling Example” chart, the red portion of the bar graph represents customer charges resulting from the amount of electricity used. These are called consumption based charges and make up the largest portion of a customer’s electric bill. On your bill, these consumption based charges include your Energy Charge and Fuel Cost Charge among others. When you use less electricity, you reduce consumption based charges and can still save money, even with a decoupling adjustment. Check out this example Xcel Energy residential customer bill that includes decoupling.

What it means for energy efficiency and energy conservation

The new decoupling policy ensures Xcel Energy remains focused on helping our customers conserve energy, which is one of the easiest and lowest cost ways for customers to measurably reduce energy consumption and to save money on their bottom line energy costs.

Find out more about decoupling at xcelenergy.com.

Related

“The Evidence Is In: Decoupling Spurs Energy Efficiency Investment.” Natural Resources Defense Council, 04 Apr. 2016.

Paul

A self-professed energy nerd, Paul loves to explore how technology trends are bringing convenience and surprising benefits to our lives.

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