How to construct a service quality index in performance based ratemaking
Nothing will derail the movement to competition quicker than a falloff in service quality. During the uncertain transition to a more competitive electricity market, utility regulators should carry out their duty to ensure adequate service quality by adopting innovative performance tracking methods. Despite all the talk - and there is plenty of that - the restructuring of the electric utility industry is not yet upon us. But many state regulatory bodies - having already experienced restructuring in the telecommunications industry, in which many employed new regulatory models known under the rubric of performance-based regulation - are beginning to experiment with some form of PBR in the increasingly competitive electricity industry. PBR is usually undertaken on the assumption that, in a more competitive industry, a lighter regulatory hand coupled with the discipline of market competition will produce better results for both utility customers and shareholders. PBR, as an alternative to traditional base rate regulation, typically retains strict control over basic service rates for core customers, either by freezing prices or establishing a formula that restricts the utility`s ability to raise prices for these customer groups. The utilty is usually given significant pricing and marketing flexibility over more competitive services and the ability to retain earnings from these services. A hallmark of these alternative schemes is their multi-year nature: the utility is offered the opportunity to earn higher profits over, say, a two-to-five year period, in return for stricter regulatory controls on prices charged to core customers. The purpose of this article, based in large part on the telecommunications experience, is to describe why it is necessary to address customer service issues that are inherent in PBR and to provide the basic tools to create a customer service and reliability index that can be included in any alternative rate plan for a utilty.
- OSTI ID:
- 457698
- Journal Information:
- Electricity Journal, Vol. 9, Issue 3; Other Information: PBD: Apr 1996
- Country of Publication:
- United States
- Language:
- English
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