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Revenue decoupling and energy consumption: Empirical evidence from the U.S. electric utilities sector

Author

Listed:
  • Victor von Loessl

    (University of Kassel)

  • Heike Wetzel

    (University of Kassel)

Abstract

Energy efficiency provides a substantial opportunity to tackle increasing greenhouse gas emissions. However, in traditionally regulated energy markets, energy providers maximize their profits by selling electricity or heat as long as their marginal revenue exceeds their marginal costs of production. This so called ’throughput incentive’ fundamentally restricts the motivation of utilities to invest in energy efficiency. This paper therefore investigates the relation between the regulatory policy revenue decoupling, that separates utilities’ revenue from sales fluctuations, and electricity customers’ energy demand and efficiency in the U.S. To address the research question at hand, we follow recent developments in energy demand function modeling and Stochastic Frontier Analysis (SFA) estimation techniques that allow to account for persistent as well as transient efficiency. The estimation results show a significant negative correlation between revenue decoupling and electricity consumption patterns.Furthermore, we find electricity customers have small transient inefficiency. However, results indicate an underlying persistent inefficiency across the entire electric sector.

Suggested Citation

  • Victor von Loessl & Heike Wetzel, 2019. "Revenue decoupling and energy consumption: Empirical evidence from the U.S. electric utilities sector," MAGKS Papers on Economics 201918, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201918
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    File URL: https://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2019/18-2019_vonloessl.pdf
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    More about this item

    Keywords

    Revenue decoupling; energy efficiency; stochastic frontier analysis; demand frontier function; transient and persistent efficiency;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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