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Title: State Performance-Based Regulation Using Multiyear Rate Plans for U.S. Electric Utilities

Abstract

Electric utilities today must contain costs at a time when many need to modernize aging systems and all face major changes in technologies, customer preferences and competitive pressures.Most U.S. electric utility facilities are investor-owned, subject to rate and service regulation by state public utility commissions. Regulatory systems under which these utilities operate affect their performance and ability to meet these challenges. In this business environment, multiyear rate plans have some advantages over traditional rate regulation.The report focuses on key design issues and provides case studies of the multiyear rate plan approach, applicable to both vertically integrated and restructured states. Mark Newton Lowry and Matt Makos of Pacific Energy Group Research and Jeff Deason of Berkeley Lab authored the report; Lisa Schwartz, Berkeley Lab, was project manager and technical editor.The report is aimed primarily at state utility regulators and stakeholders in the state regulatory process. The multiyear rate approach also provides ideas on how to streamline oversight of public power utilities and rural electric cooperatives for their governing boards.Two key provisions of multiyear rate plans strengthen cost containment incentives and streamline regulation: 1. Reducing frequency of rate cases, typically to every four or five years 2. Using an attrition relief mechanismmore » to escalate rates or revenue between rate cases to address cost pressures such as inflation and growth in number of customers, independently of the utility’s own cost Better utility performance can be achieved under well-designed multiyear rate plans while achieving lower regulatory costs. Benefits can be shared between utilities and their customers. But plans can be complex and involve significant changes in the regulatory system. Designing plans that stimulate utility performance without undue risk and share benefits fairly can be challenging.This report discusses the rationale for multiyear rate plans and their usefulness under modern business conditions. It then explains critical plan design issues and challenges and presents results from numerical research that considers the extra incentive power achieved under different plan provisions. Next, the report presents several case studies of utilities that have operated under formal multiyear rate plans or, for various reasons, have stayed out of rate cases for more than a decade. These studies consider the effect of multiyear rate plans and rate case frequency on utility cost, reliability and other performance dimensions.« less

Authors:
 [1];  [1];  [2];  [2]
  1. Pacific Economics Group Research LLC (United States)
  2. Lawrence Berkeley National Lab. (LBNL), Berkeley, CA (United States)
Publication Date:
Research Org.:
Lawrence Berkeley National Lab. (LBNL), Berkeley, CA (United States)
Sponsoring Org.:
USDOE Office of Energy Efficiency and Renewable Energy (EERE)
OSTI Identifier:
1393635
Report Number(s):
LBNL-2001039
ark:/13030/qt4r13j347
DOE Contract Number:
AC02-05CH11231
Resource Type:
Technical Report
Country of Publication:
United States
Language:
English
Subject:
29 ENERGY PLANNING, POLICY, AND ECONOMY

Citation Formats

Lowry, Mark Newton, Makos, Matt, Deason, Jeff, and Schwartz, Lisa. State Performance-Based Regulation Using Multiyear Rate Plans for U.S. Electric Utilities. United States: N. p., 2017. Web. doi:10.2172/1393635.
Lowry, Mark Newton, Makos, Matt, Deason, Jeff, & Schwartz, Lisa. State Performance-Based Regulation Using Multiyear Rate Plans for U.S. Electric Utilities. United States. doi:10.2172/1393635.
Lowry, Mark Newton, Makos, Matt, Deason, Jeff, and Schwartz, Lisa. Mon . "State Performance-Based Regulation Using Multiyear Rate Plans for U.S. Electric Utilities". United States. doi:10.2172/1393635. https://www.osti.gov/servlets/purl/1393635.
@article{osti_1393635,
title = {State Performance-Based Regulation Using Multiyear Rate Plans for U.S. Electric Utilities},
author = {Lowry, Mark Newton and Makos, Matt and Deason, Jeff and Schwartz, Lisa},
abstractNote = {Electric utilities today must contain costs at a time when many need to modernize aging systems and all face major changes in technologies, customer preferences and competitive pressures.Most U.S. electric utility facilities are investor-owned, subject to rate and service regulation by state public utility commissions. Regulatory systems under which these utilities operate affect their performance and ability to meet these challenges. In this business environment, multiyear rate plans have some advantages over traditional rate regulation.The report focuses on key design issues and provides case studies of the multiyear rate plan approach, applicable to both vertically integrated and restructured states. Mark Newton Lowry and Matt Makos of Pacific Energy Group Research and Jeff Deason of Berkeley Lab authored the report; Lisa Schwartz, Berkeley Lab, was project manager and technical editor.The report is aimed primarily at state utility regulators and stakeholders in the state regulatory process. The multiyear rate approach also provides ideas on how to streamline oversight of public power utilities and rural electric cooperatives for their governing boards.Two key provisions of multiyear rate plans strengthen cost containment incentives and streamline regulation: 1. Reducing frequency of rate cases, typically to every four or five years 2. Using an attrition relief mechanism to escalate rates or revenue between rate cases to address cost pressures such as inflation and growth in number of customers, independently of the utility’s own cost Better utility performance can be achieved under well-designed multiyear rate plans while achieving lower regulatory costs. Benefits can be shared between utilities and their customers. But plans can be complex and involve significant changes in the regulatory system. Designing plans that stimulate utility performance without undue risk and share benefits fairly can be challenging.This report discusses the rationale for multiyear rate plans and their usefulness under modern business conditions. It then explains critical plan design issues and challenges and presents results from numerical research that considers the extra incentive power achieved under different plan provisions. Next, the report presents several case studies of utilities that have operated under formal multiyear rate plans or, for various reasons, have stayed out of rate cases for more than a decade. These studies consider the effect of multiyear rate plans and rate case frequency on utility cost, reliability and other performance dimensions.},
doi = {10.2172/1393635},
journal = {},
number = ,
volume = ,
place = {United States},
year = {Mon Jul 31 00:00:00 EDT 2017},
month = {Mon Jul 31 00:00:00 EDT 2017}
}

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