Every utility regulatory model has embedded incentives. This list is intended to help state policymakers and other stakeholders pinpoint questions they can ask and answer to explore how incentives from cost of service regulation and performance regulation relate to today’s power system goals.
Utilities should consider two business models when considering their role as distribution system operators (DSO). In the first, the utility would represent a DSO and run the centralized system, with full visibility into available resources for real-time load balancing and responsibility for construction and maintenance, and be compensated on meeting policy goals. In the second, the utility owns the system, reveals its needs, with a separate DSO entity meeting those needs and integrating all assets including DERs.
The prospect of large grid modernization investment triggers a key question – is it worth it? As different states consider upfront investments in modernizing the grid, regulators need ways to ensure utilities maximize the potential benefits of grid modernization. This white paper provides program design considerations and metrics that can guide utility investment and increase the chances that customers get the most out of grid modernization efforts. A version of the paper was also published in Electricity Policy, and can be found here.
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.
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 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 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.
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. We have produced several papers and briefs that offer perspective on more of the details of performance-based regulation.
This paper presents case studies about performance management in publicly-owned utilities, drawing out concrete steps that can support municipal utilities, public utility districts, and cooperatives to adapt to changing technology and market trends. These steps – which involve taking “no regrets” actions, exploring evolutions in government, and considering more drastic action if performance lags – can enable POUs to deliver greater value to their customers.
This paper, an addendum to An Adaptive Approach to System Optimization, presents a series of case studies on various ways to integrate cost-effective distributed technologies that have run into outdated regulatory models. It identifies strengths and weaknesses associated with utility-owned and operated DERs, third-party-operated DERs, and customer-operated DERs.
This paper argues that the financial “value engine”—the difference between a utility’s return on investment and its cost of capital—drives shareholder returns. Regulators should use this value engine to align utilities’ financial motivations with delivering value to customers and society.