REPORT: Performance-Based Regulation Can Modernize Pennsylvania’s Electricity Service, Drive Innovation, and Deliver Greater Benefits for Customers
Product of an industry-based working group outlines an outcomes-oriented regulatory framework that would align the behavior and financial interests of regulated utilities with public interest goals and consumer benefits
Washington, D.C., March 29, 2017 – Today, Advanced Energy Economy Institute (AEE Institute) issued a new report suggesting that performance-based regulation (PBR) can help Pennsylvania modernize electricity service, drive innovation, and deliver greater customer benefits.
Performance-based regulation (PBR) is a regulatory framework that attempts to align the behavior and financial interests of regulated utilities with public interest objectives and consumer benefits. It does so by rewarding utilities for achieving well-defined performance metrics (outputs), as opposed to providing incentives related primarily to capital investment (inputs).
The report, Performance-Based Regulation for Pennsylvania: An Opportunity for Pennsylvania to Drive Innovation in the Utility Sector, is available for download here.
This paper summarizes the collective thinking of a Working Group, facilitated by AEE Institute, that met over several months to develop recommendations regarding the potential for PBR in Pennsylvania. The Working Group included representatives of Bridge Energy Group, CLEAResult, Enbala, EnergySavvy, EnerNOC, Johnson Controls, Intel, Keystone Energy Efficiency Alliance, Navigant, Nexant, Oracle, Philadelphia Gas Works, Philips, Recurrent Energy, Schneider Electric, Siemens, SmartWatt, Smart Wires, Spirae, SunPower, and Sunverge. The whitepaper was also endorsed by several other members of Advanced Energy Economy, the business association affiliated with the AEE Institute: EnergyHub, FirstFuel Software, Lime Energy, and Resource Innovations.
“Interest in performance-based regulation is on the rise in several states, as regulators and utilities look for ways to modernize the regulatory structures that have governed the utility industry for decades. Technology is changing, and regulations need to catch up for customers to reap the benefits,” said Ryan Katofsky, vice president of industry analysis for Advanced Energy Economy (AEE), an affiliate of AEE institute, which acted as facilitator of the working group that developed the paper. “PBR can drive changes in the business model of utilities that will help them succeed for decades to come, while customers enjoy new services and the Commonwealth benefits from economic growth.”
Performance-Based Regulation for Pennsylvania is meant to serve as a starting point for discussions with stakeholders, including regulators, policymakers, utilities, advanced energy companies, and others. In the view of the Working Group, Pennsylvania has a unique opportunity to modernize its regulatory framework to facilitate industry evolution and the deployment of advanced technology solutions, creating economic opportunity for the state. The building blocks are in place to put Pennsylvania at the forefront of developing a 21st century energy system.
In addition to outlining the general PBR framework, the paper identified four categories of utility performance that should be considered for metrics: Customer Empowerment, Operational Efficiency and Reliability, Environmental Sustainability, and Market Innovation. The Working Group further identified six initial metrics that can be implemented quickly, and that taken together cover these four categories:
- Data Access: Consumer access to standardized and actionable energy consumption data; third-party access to system data
- Energy Efficiency: Quantifiable reductions in usage, including periods of peak demand
- System Efficiency: Combination of peak demand reduction and average system utilization
- Third-Party Resource Deployment: distributed energy resource deployments by third parties (including on behalf of customers)
- Interconnection: Volume and process speed of filling requests to connect resources to the electricity system
- Reach, Usage, Effectiveness, Feedback: An Integrated framework for customer empowerment metrics
”Utilities and their partners have a growing opportunity to empower customers, accelerate deployment of new technologies to market, and reduce energy bills,” said Doug Lewin, VP of Regulatory Affairs for CLEAResult. “Performance-based regulation can help make it happen while providing additional earnings opportunities for utilities that focus on innovation and customer empowerment.”
The Pennsylvania Public Utility Code gives the Public Utility Commission (PUC) authority to “use performance based rates as an alternative to existing rate base/rate of return ratemaking…” In additional, the Code empowers the PUC to consider performance factors, like the metrics outlined in this paper, in the setting of utility rates.
“The good news is that the Commonwealth is well positioned to build upon the good work it has done with energy efficiency, smart meter deployment, and, using the authority that already exists in statute, start down a path toward implementation of PBR,” said Eric Miller, policy counsel for the Keystone Energy Efficiency Alliance, AEE’s state partner in Pennsylvania.
As an indication that there is interest in Pennsylvania for pursuing PBR, on March 2, 2017, the PUC opened a proceeding on Alternative Ratemaking, seeking input from interested parties on a range of issues, including PBR. Initial comments are due May 31, 2017, and reply comments are due July 31, 2017.
About Advanced Energy Economy Institute and Advanced Energy Economy
Advanced Energy Economy Institute (AEE Institute) is a nonprofit educational and charitable organization whose mission is to raise awareness of the public benefits and opportunities of advanced energy. Advanced Energy Economy (AEE) is a national association of businesses that are making the energy we use secure, clean, and affordable. AEE’s mission is to transform public policy to enable the rapid growth of advanced energy companies. AEE and its State Partner organizations are active in 27 states across the country, representing more than 1,000 organizations in the advanced energy industry.
About Keystone Energy Efficiency Alliance
The Keystone Energy Efficiency Alliance (KEEA) is a non-profit, tax-exempt 501(c)(6) corporation dedicated to promoting the energy efficiency and renewable energy industries in Pennsylvania. KEEA advocates on behalf of energy efficiency and renewable energy professionals on the local, state, and federal levels. By representing the interests of the clean energy industry in Pennsylvania, KEEA is growing the market for energy efficiency and helping the Keystone State secure a prosperous, sustainable tomorrow. KEEAlliance.org