Skip Navigation LinksDecoupling

Electric Utility Regulation

Executive Summary

     There are a handful of alternatives and options for "regulating" electric utilities. Some of them have been in use in New Mexico for many decades:

Deregulation:  Deregulation relies on "free market competition" to keep electricity rates in check.
State Regulation:  New Mexico & most other states actively manage their electric utilities via state commissions - in NM's case, the NM Public Regulation Commission. 
Decoupling: PNM & other regulated utilities generate AND distribute electricity.  Decoupling schemes let utilities recover some of their fixed distribution costs by imposing an added customer fee that is independent of how much electricity the customer uses.
Electrical co-ops: There are sixteen rural electric distribution cooperatives in New Mexico. Established to provide electricity to rural customers, co-ops were created with the help of massive Federal subsidies. Municipal Utilities: Farmington, Gallup, and Los Alamos have utilities that belong to the city or town. Government Facilities:  Some large government facilities have enough "clout" to be able to negotiate with multiple utilities for the best deal.

Micro-Grids & Community Solar: Micro-grids & community solar systems are able to generate power & distribute it to a relatively small area or neighborhood.
Off-Grid Solar: This option has been available to sun-drenched New Mexican homeowners for decades.

Here's a useful summary of Electric Utility Regulation approaches: Electricity Regulation in the US (PDF)
Here's a SunPaper article about "regulating" PNM:   PNM's Future (PDF)

 

Considerations

  • Large electric utilities are often granted state-sanctioned monopolies.

  • Electric utilities have a business model based on generating & selling electricity - the more the better

  • Electricity rate charges often cover both "variable costs" which depend on how much electricity is used, and "fixed costs" which don't depend on how much electricity is used.

  • Energy efficiency initiatives reduce the demand for their "product", and cut their income & profits

  • Managing (regulating) electric utilities is challenging & loaded with political & economic issues.

Decoupling Overview

     "DECOUPLING" involves utilities and how they charge for their "product".  Like many electric utilities, PNM bills their customers based on how much electricity the customers use. That income compensates the utility for the actual cost of generating the electricity, and for the actual cost of the “grid”  infrastructure (power lines, poles, transformers etc) that it takes to “deliver” that electricity. And of course the utility must cover their “overhead” costs plus make a reasonable profit. When customers use less electricity for any reason, including energy efficiency, total utility revenues go down & utility profits suffer. The various “decoupling” proposals allow electric utilities to recover their “grid” costs separately from what they charge per kWh of consumption.  In theory at least, that can make electric utilities less resistant to energy efficiency initiatives.  But of course, the devil is in the details.

 

Decoupling Examples

     Varying degrees of decoupling are commonly used by some utilities.  For example, the Gas Company of New Mexico charges their customers for the amount of natural gas they consume AND they charge their customers one or more fixed fees which compensate the utility for some of its fixed costs (ie pipelines, compressors, local natural gas delivery lines and associated maintenance.  If you use very little natural gas in a given month, you'll still pay something to cover the associated infrastructure costs.
      The Albuquerque Bernalillo County Water Utility Authority bill includes a "Base Charge" that is independent of how much water you use, plus a "Commodity Charge" which is based on how much water you use.

 

Additional Information on Electric Utility Decoupling

     Decoupling proposals can be quite complicated.  Here are some links to sources of additional information on decoupling:

     Natural REsources Defense Council website page on decoupling 

          http://www.nrdc.org/energy/decoupling/ 
     Center for Climate & Energy Solutions website page on decoupling

          http://www.c2es.org/us-states-regions/policy-maps/decoupling/detail     
     National Renewable Energy Lab report on decoupling (downloads a PDF file)
          http://www.nrel.gov/docs/fy10osti/46606.pdf


Decoupling Proposals in New Mexico

     The latest serious effort to implement decoupling in New Mexico occurred as part of the 2011 PNM Rate Case.  The decoupling proposal was not included in the final 2011 Rate Case decision.  The NMPRC Commissioner at the time who carefully researched and advocated for a decoupling approach was Jason Marks.  His detailed 2010 PowerPoint Presentation on a decoupling proposal for New Mexico can be viewed below.

 Use the arrows at the bottom of the document window to scroll thru the PowerPoint Slides.
You can expand the window by clicking on the icon in the lower right-hand corner.