Revenue Decoupling
COST CONTROLCOST DISTRIBUTIONCUSTOMER AGENCY
Last Updated September 22, 2025
AT-A-GLANCE
IMPACT TIME HORIZON
Variable
POTENTIAL COST SAVINGS
Variable
CONTEXT AND BACKGROUND
Revenue decoupling policies remove the link between a utility's revenue and the amount of electricity that it sells to make the utility agnostic to investment in conservation measures and technologies that reduce electricity demand. Instead of earning more money from the more electricity it sells, a predetermined revenue sufficient to cover the utility's fixed costs is approved by regulators. At a regular interval, this authorized revenue is compared to actual revenue, and rates are adjusted to refund excess or recover the difference. This structure guarantees utility revenues, thereby rendering the utility less antagonistic toward third-party services and programs that are designed to reduce electricity sales volume.
Impact Time Horizon
How long it typically takes for changes to materialize in utility behavior or customer bills
VARIABLE
Removing the incentive to sell more electricity leads to utilities being less averse to pursuing cost-efficiency approaches like energy efficiency, distributed energy, and energy storage because these no longer reduce revenue. However, if implemented without mechanisms that incentivize utility focus on these programs, the presence of revenue decoupling on its own is unlikely to override other utility incentives that render these approaches less attractive solutions to utilities. The timeline of impacts is therefore likely to depend on the design of complementary mechanisms.
Potential Cost Savings
The level of cost savings that can reasonably be expected to result from this policy
variable
Revenue decoupling can unlock transformative energy efficiency programs and reduce utilities' incentives to build unnecessary new power plants. However, the design of decoupling mechanisms is complex — cost savings will vary based on design, and if structured poorly, they can even result in unintended and counterproductive outcomes.
Target Cost Drivers
The policy can help to ease customer cost pressures created by these drivers
Aging grid infrastructureFuel price volatilityExtreme weather/wildfiresLoad growthMisaligned utility incentives
REAL-WORLD EXAMPLES
These state examples illustrate how states have put the policy into practice, highlighting different design approaches.
Idaho
Idaho's revenue decoupling mechanism, implemented for Idaho Power, aims to remove the utility's disincentive to promote efficiency by stabilizing revenues independent of electricity sales. The program includes an annual true-up process with resulting surcharges or credits applied to customers' bills via a monthly rider. The decoupling mechanism began as a commission-approved pilot resulting from a settlement agreement and was subsequently made permanent as an ongoing regulatory mechanism rather than specific statewide legislation.
Minnesota
Minnesota's decoupling framework began with Minnesota Statutes Section 216B.2412, enacted in 2007 by the state legislature, which authorized the commission to consider and approve pilot decoupling programs and report findings. Permanent decoupling programs came later through regulatory approval. Xcel Energy (electricity) and CenterPoint Energy (gas) currently operate revenue decoupling programs. Both programs include annual true-ups.