Utilities Investors Should Know About 'Decoupling'

When it comes to utilities, some analysts make a fundamental mistake. They assume that a utility's profits are tied to sales of natural gas or electricity. In many states, any linkage between energy sales and utility margins no longer exists.

"Decoupling" is the term that state regulators use to describe the process that breaks that link. According to the National Association of Regulatory Utility Commissioners (NARUC), the rates that utilities charge are determined by the "cost of service" theory of regulation. Rates are set at a level sufficient to allow the utility to recover costs incurred in providing service to its customers on the basis of the operating experience of a typical 12-month period. The utility's revenue requirement is then determined by adding all the operating expenses plus an allowed return on investment....565 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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