This paper explores which regulatory models align utility profit with societal value under scenarios in which traditional, utility-owned solutions may not be optimal for customers. The cases in this paper offer insight into whether and how cost-of-service regulation and its alternatives (performance incentive mechanisms and revenue caps) can align utility shareholder values with societal values.
Electric Power Sector: New Utility Business Models
New York Public Service Commission (NYPSC) released a new order as part of its Reforming the Energy Vision, which includes ambitious language on performance-based compensation and improved rate design. Specifically, the NYPSC adopts an outcome-based approach to measuring performance, focusing on peak demand reduction and energy efficiency as key metrics to tie to revenue in the short term.
Performance-based regulation shifts utility focus away from capital investment and sales volume, putting focus instead on delivering value for customers—in the form of an affordable, reliable, and clean power system. Performance-based regulation has been gaining momentum in several states. To support those states and others considering this regulatory change, we have produced several papers and briefs that offer perspective on more of the details of performance-based regulation.
This white paper is the first in our Incentive Mechanism Design series, which offers perspective on how regulators might decide to design performance incentive mechanisms for success. The paper examines a straw proposal for a new performance incentive to motivate utilities to reduce peak demand–a driver of investment in the electricity system–improving the affordability and environmental performance of the electricity system.
This white paper is the second in our Incentive Mechanism Design series, which offers perspective on how regulators might decide to design performance incentive mechanisms for success. The paper explores different approaches to simplify the measurement of energy efficiency savings to better align utility incentives with efficiency outcomes. These metrics can be helpful for many states where utility revenue is linked to energy efficiency, but their programs are bogged down in tedious and controversial evaluation, measurement, and verification requirements.
This white paper is the first in our Incentive Mechanism Design series, which offers perspective on how regulators might decide to design performance incentive mechanisms for success. The paper examines California’s Risk-Reward Incentive Mechanism (RRIM) as a case study to show that, while counterfactuals may be appropriate as an adjustment mechanism, they can also lead to unfair outcomes and unnecessary regulatory conflict.
This chapter in Future of Utilities – Utilities of the Future explores the nature of the customer-grid interface from the point of view of the customer. Customers are reconsidering the compromises they make given their new options for distributed energy services. This chapter exposes the underlying nature of the transactions happening at the customer/grid interface. The chapter uses analogies from the commerce and finance world to describe the currency-like features of electricity, and proposes ways of integrating new transactions into a future “fractal” grid.
This report provides survey results on the future of the electric utility, according to over 400 U.S. electric utility executives. Results suggest utility executives feel the “existing regulatory model” is the greatest obstacle to the evolution of the utility business model. Virtually all utility executives see shares of renewables, distributed energy resources, and natural gas increasing, and they hope to expand their business models into customer energy management and storage. This SlideShare presentation highlights key findings from the survey.
The 3rd Annual Grid Modernization Index ranks and assesses all 50 states and Washingto, D.C. based upon the degree to which they have moved toward a modernized electric “Grid of the Future.” The Index measures states on a wide range of grid modernization policies, investments, and activities including state support, customer engagement, and grid operations.
This report explores key elements and variations of performance-based regulation and its advantages and disadvantages from the perspectives of utilities and customers. A unique feature of the report is its treatment of comprehensive, performance-based approaches to regulation in the context of a potential future with a high reliance on energy efficiency, peak load management, distributed generation, and storage.