Six useful observations for designers of PBR plans

Journal Article · Mon Apr 01 00:00:00 EST 1996 · Electricity Journal

DOI:https://doi.org/10.1016/S1040-6190(96)80405-2· OSTI ID:457692

Comnes, G A ^[1]; Stoft, S; Greene, N ^[2]; Hill, L ^[3]

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1. Morse, Richard, Weisenmiller & Associates, Oakland, CA (United States)
2. Lawrence Berkeley National Lab., CA (United States)
3. Oak Ridge National Lab., TN (United States)

This analysis of performance-based regulation (PBR) analyzes nine PBR plans implemented or proposed by {open_quotes}early - adopting{close_quotes} US electric utilities. Its principal finding is that, unless PBR plans are aggressive through their setting of minimum terms, deadbands, and productivity offsets, PBR may be no better than existing cost-of-service/rate-of-return (COS/ROR) regulation. Regulators and utilities are considering performance-based ratemaking of monopoly and partially competitive utility services as a replacement for the COS/ROR approach. If properly structured, PBR strengthens a utility`s financial incentives to lower rates or costs relative to traditional regulation by weakening the link between a utility`s regulated prices and its costs. This decoupling is accomplished by decreasing the frequency of rate cases, employing external measures of cost for the purpose of setting rates, or a combination of the two. In the United Kingdom in recent years, incentive regulation has been adopted for various types of public utilities, including electricity and natural gas transmission and distribution companies, water companies and airports. In the US, comprehensive incentive regulation has made the greatest inroads in the telecommunications industry. For electric utilities, most rate incentives previously have been limited to those that target fuel purchases or performance of individual power plants. However, recent proposals have been made for the comprehensive incentive regulation of US electric utilities.

• OSTI ID: 457692
• Journal Information: Electricity Journal, Vol. 9, Issue 3; Other Information: PBD: Apr 1996
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING AND POLICY
ELECTRIC UTILITIES
REGULATIONS
MODIFICATIONS
COMPETITION