Minnesota shows its leadership on two energy efficiency policies

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Map of the MidwestOn March 26, 2015, the Public Utilities Commission (PUC) ensured that Minnesota would continue to be a leader on energy policy. The ruling involved two key victories within the Xcel Energy rate case: denying an increase to the fixed charge on consumers, and moving forward with a full decoupling policy, an accounting tool used to move utilities past the model of simply selling more and more kilowatt hours. These are both significant steps toward a more efficient energy system for consumers and utilities.

Refusing an increase in Xcel Energy’s fixed charge sets a positive precedent for other utilities in Minnesota and across the country. Fixed charges allow utilities to recoup more of their costs through a stable revenue source that doesn’t go up or down. But these fixed charges are the same for every customer whether they use 1 kilowatt hour or 1,000 kilowatt hours. In other words, they drastically reduce any incentive a customer may have to conserve and use less energy. In addition to discouraging energy conservation, these charges are a step backwards for low-income and fixed-income consumers.

So then how do utilities ensure they are adequately recovering their costs? That’s where the decoupling decision comes in. At a basic level, decoupling is an accounting tool that ensures utilities collect the amount of revenue they’re allowed by state regulators—no more and no less. Decoupling helps to smooth out the fluctuations in revenue over time so that it matches the amount approved by regulators to provide affordable, reliable service. For example, if states have a decoupling policy in place, and actual electricity sales were higher than expected, the utility would lower rates slightly the next year to refund customers the extra money they paid. That’s in stark contrast to our current model where higher electricity sales simply mean more profit.

Both of these decisions were key steps toward creating a utility business model that can prioritize energy efficiency for the lowest cost resource that it is. We need a system where consumers and utilities have to be given the opportunity to make their energy systems more efficient without hurting their bottom line. Thanks to the PUC’s recent decision, Minnesota is once again providing a shining example of how to move us one step closer to that reality.

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