A Short Primer on “Decoupling”

Yesterday my colleague Myron Ebell commented on a story that had appeared on the New York Times (France Resists a Power Monitoring Business,” 21 July 2009, David Jolly), about how French regulators intended to collect payment from a company that facilitates energy efficiency in homes and businesses.

Myron extracted this quote from the article:

“At this rate, it will soon be obligatory in France to consume large quantities of electricity, or face taxes and fines, and maybe imprisonment, too,” the antinuclear group Sortir du Nucléaire said in criticizing the decision,”

And he noted, “Another reason why I love the French.”

To which I responded in an email,

This isn’t dissimilar from “decoupling” utility bills from energy consumption, which the CPUC claims is “largely responsible” for California leading the nation in energy efficiency. In this instance, it seems that French regulators are making the middleman pay, instead of the customer, assuming the news report is accurate-which it likely isn’t. I have a tough time believing that the NYT reporter knows the French regulatory regime for electricity pricing well enough to draw such a distinction.

According to Waxman, decoupling is not mandated in the energy efficiency provisions of the American Clean Energy and Security Act, but that’s debatable (the text appears to make decoupling a precondition for receiving federal energy efficiency funds, although it leaves the decision up to state regulators).

Reading this exchange, it’s not necessarily clear what “decoupling” means, so I’ll spell it out. A provider of electricity makes money based on how much electricity it sells. So if the government forces consumers to become more energy efficient, the utilities lose money, because people need less electricity. Utilities, however, are very large companies, whose business model is almost entirely predicated upon federal and state political decisions. That is, utilities are big-time donors to politicians who need money to win elections so they can keep on wasting taxpayer money. As such, politicians who want to appease their “green” base by forcing consumers to become more energy efficient also want to appease their friends in the utility business. That’s why California politicians “de-coupled” energy consumption from the price of electricity. By freeing the price of electricity from the forces of supply and demand, California politicians ensure that utilities get paid, no matter how energy efficient consumers in the Golden State become.