Two Cases Gone Awry
Julie Lieberman is a financial and economic consultant with over thirty years of experience in the energy industry. She is a testifying expert and has authored research reports and articles in regulatory and non-regulatory venues on transmission planning, gas utility decarbonization, cost of capital, hedging practices, and utility ratemaking. She holds a licensed CPA (Texas), and a FINRA licensed securities professional (Series 7, 63, and 79). She credits her colleagues Ron Amen and John Taylor who reviewed and commented on the draft article.
Decoupling mechanisms and weather normalization mechanisms have long been regarded in utility rate and regulatory proceedings as risk-mitigating revenue stabilization mechanisms due to their ability to provide stable cash flows and insulate the utility and its customers from significant changes in sales volume.
Under traditional regulation, a utility's profitability depends on its sales volume. The decoupling mechanism insulates the utility's revenue from changes in sales volume, by adjusting the utility's revenues for the difference between sales (based on actual volumes times the applicable rate) and the utility's authorized revenue under the decoupling mechanism.
Weather normalization mechanisms (WNAs) neutralize the effect of weather on utility revenues by providing an adjustment for deviations from normal weather. This adjustment benefits the utility when weather is warmer than normal and benefits the customer when the weather is colder than normal.
Both decoupling and WNAs protect both the utility and its customers from the impacts of extreme weather and provide cash flow certainty to the utility. Decoupling mechanisms insulate utility revenues from changes in sales volume, regardless of whether they occur due to weather, energy efficiency, conservation, or economic activity.