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Utility Dive: Performance Based Regulation — Seeking the New Utility Business Model

Posted by Herman K. Trabish on Jul 23, 2019
This Utility Dive "deep dive" reviews efforts to adopt performance-based regulation across the nation, shifting the utility business model to serve policy goals and consumer demand. The first of a two-part series, the piece quotes AEE's Danny Waggoner. See excerpts below and read the entire Utility Dive piece here.
As the push to upend traditional utility business models grows across the country, new leading efforts are showing results where others missed the mark. There is accelerating work to transform the utility business model through performance-based regulation (PBR).

Traditionally, utilities earn profits through regulator-approved rate increases that recover investment costs and add a margin of return. Many power sector stakeholders have unfulfilled ambitions to instead reward utilities for providing value to customers, for example through integrating more renewable resources and energy efficiency.

Setting multi-year rate plans with incremental rate increases in order to contain costs is "one of the two main components of PBR," Synapse Energy Economics Principal Associate Melissa Whited, who co-authored a 2015 PBR handbook, told Utility Dive. "Performance incentive mechanisms are traditionally, but not necessarily, a second component."

PBR is necessary to replace the traditional utility business model to one that serves policy goals and customer demand, advocates told Utility Dive. But instead of replacing the business model, leading PBR efforts are using regulatory proceedings to layer components of PBR for a more incremental, but nevertheless substantial, shift in objectives...

PBR has now been used or considered in 19 states and the District of Columbia since 2015...

...EAMs (earnings adjustment mechanism) layered onto New York's COSR (cost-of-service regulation), reward the utility for expanding energy efficiency. But REV policymakers "have gotten away from looking at high-level outcome-based metrics on overall energy usage and peak demand," Advanced Energy Economy Director Danny Waggoner told Utility Dive.

The REV vision was intended to incentivize utilities to use their system knowledge to benefit customers, he said, but EAMs were not "implemented in a way that gives flexibility to deliver high-level value," so it's difficult to measure success.

Read the entire Utility Dive piece here that includes several PBR examples across the states.


Topics: AEE In The News