## Facts

- The New York Public Service Commission (PSC) initiated a generic policy proceeding to examine whether traditional electric delivery rate design discourages utilities from supporting energy efficiency, renewable technologies, and distributed generation.
- The PSC focused on volumetric delivery rates that link utility margins to kilowatt-hour sales, potentially creating a financial penalty when demand-reduction programs succeed.
- Utilities and stakeholders submitted comments on whether to “decouple” delivery revenues from sales volume and, if so, what form a revenue decoupling mechanism (RDM) should take.
- The PSC considered RDM structures that reconcile actual delivery revenues to an allowed revenue target through periodic true-up adjustments, including refunding over-collections and recovering under-collections.
- Utilities generally supported addressing throughput-related disincentives but argued that any RDM should be designed and adopted in individual utilities’ rate cases rather than through a single statewide template.

## Issues

1. Whether traditional volumetric electric delivery rates create material disincentives for utilities to support or implement energy efficiency, renewable technologies, and distributed generation.
2. Whether the PSC should adopt revenue decoupling as a general ratemaking approach, and whether implementation should occur through a uniform generic mechanism or utility-specific designs in individual rate proceedings.

## Decision

- The PSC determined that traditional delivery rate structures can create disincentives to utility support of state energy goals that reduce or shift load.
- The PSC endorsed revenue decoupling in principle as a suitable tool to reduce or eliminate the linkage between utility margins and sales volume.
- The PSC declined to impose a one-size-fits-all decoupling mechanism in the generic proceeding.
- The PSC directed that decoupling mechanisms be proposed, evaluated, and generally adopted in subsequent utility-specific rate cases, with design features tailored to each utility’s circumstances.
- The PSC stated that future rate cases should address key RDM design topics (including reconciliation frequency, treatment of exogenous factors, and customer-class allocation) and protect customers through transparent true-ups and appropriate refunds.

## Legal Principles

- A utility commission may treat throughput incentives created by volumetric delivery rates as a ratemaking problem when they conflict with state policies favoring energy efficiency, renewables, and distributed generation.
- Revenue decoupling mechanisms are a permissible ratemaking tool to reduce utility financial dependence on sales volume by reconciling actual delivery revenues to an approved revenue requirement.
- Decoupling is intended to be revenue-neutral relative to the approved revenue requirement, stabilizing recovery while requiring refunds of over-collections and allowing recovery of under-collections through defined adjustments.
- Generic policy determinations may establish commission expectations while reserving specific mechanism design for utility-specific rate cases where evidentiary development and tailoring are feasible.

## Conclusion

The PSC concluded that volumetric delivery rates can discourage utility support for load-reducing state energy objectives and adopted a commission-wide policy favoring revenue decoupling, directing utilities to implement appropriately tailored mechanisms through their individual rate cases with customer protections through transparent reconciliation and refunds.


Proceeding on the Motion of the Commission to Investigate Potential Electric Delivery Rate Disincentives Against the Promotion of Energy Efficiency, Renewable Technologies & Distributed Generation, No. 03-E-0640, 2007 WL 1185703 (N.Y. Pub. Serv. Comm’n Apr. 20, 2007)