How Performance-Based Regulation for Utilities Can Go Wrong

Brian Reil, a spokesperson for the Edison Electric Institute, which represents investor-owned utilities, said “complex and highly technical” rate proceedings “rightfully benefit from involvement from stakeholders with specialized knowledge and expertise.” That includes costs borne by the state’s Public Utilities Commission and Utility Consumer Advocate’s Office. Regulatory commission staff members counter with their own analysis, as do intervenors that can include business customers, environmental groups and ratepayer advocates.

“In the mostly backward-looking world of cost of service ratemaking, more non-utility stuff means less-utility stuff, which means lower rates,” he said. “Is it better than cost of service? People thought it would simplify ratemaking, but there are all those metrics. The debate continues.” “At a high level, PBR cannot change ratemaking unless you specifically put the performance in a metric and that has become a great opportunity for stakeholders to bring all their favorite things into the discussion,” he said. “They are moving toward specific metrics and incentives for the utility.”

• “They are moving toward specific metrics and incentives for the utility.”
• “The stakeholders and the utility have been working on the PBR concept for years and understand the utility revenue model and where we’re going,” she said.
• As new DER technologies allow customers to provide more services to the grid, the “underlying core business of the utility will need to be reconsidered,” Cross-Call said.
• At the time, Phillip May, Entergy Louisiana’s CEO, published a statement calling Meta’s move to Louisiana “a game-changer for our state” and “a big win for our customers.” CR reached out to the company for comment but did not receive a response.
• State legislators could also make statutory changes that would tie the hands of the regulators in ways that would benefit consumers.

Communicate and educate Engage early and often with regulators, policymakers, ​ and stakeholders. State legislators could also make statutory changes that would tie the hands of the regulators in ways that would benefit consumers. This is certainly not the only instance of a regulator decreasing revenue for a major utility in recent years, but it’s rare enough that it stood out, at least to me — and, again, at a moment in which prices are even more politically salient than normal. Yes, those costs are only https://www.agence-enash.com/how-to-reformat-an-external-hard-drive-on-macos/ decreasing by a few dollars a month, but they are decreasing, when every other cost seems to be going up.

PJM’s Annual Auction Increases Capacity Price

Uneven incentives across functions can lead a utility to overinvest in one area, resulting in a decline in its overall performance that harms customers and the broader public interest. But gamesmanship by utilities, such as biased cost revelation— a utility proposing an inflated costs to the regulator that justifies a higher rate increase—and incomplete information, can result in the wrong benchmark. Regulators might require a performance-based regulation mechanism for a utility in response to a history of poor customer service or rapidly rising maintenance costs. At first glance, it seems clear that utilities will perform at a high level when facing these kinds of incentives. Performance-based regulation has the potential to strengthen utilities’ incentives to improve performance.

Reil of the Edison Electric Institute said the group provides “broad benefits to the customers of our member companies,” including assistance planning and response, security coordination and training programs. According to data shared by the state, that includes $464 paid by gas utility CenterPoint Energy Inc. to the Edison Electric Institute, $47,545 paid by Otter Tail Power Co. to the Lignite Energy Council and $337,000 paid by Great Plains Natural Gas Co. to the American Gas Association. New York passed a law in 2021 barring the use of ratepayer money from regulated utilities for trade association memberships, updating a 1979 law that said legislative lobbying could not be included in rate cases. Pomerantz’s group released a report in January calling on policymakers to enact “tighter, updated rules to prevent utilities from using ratepayer money for any political activity, broadly and clearly defined.” “Customers should pay for things that benefit them directly, not that benefit utility shareholders and their political agenda. An ongoing proceeding at the Federal Energy Regulatory Commission could change accounting rules to prevent electric and gas utilities from spending ratepayer money on political and lobbying activities, potentially including dues for trade associations that lobby for policy.

• Since 1977, the process of energy deregulation has been underway, and with it came an energy choice for consumers and increased competition between electric suppliers.
• The rate increases would help Duke Energy “improve reliability, strengthen the grid against outages from storms, and support North Carolina’s growth,” company spokesperson Jeff Brooks told CR in an email.
• But in some states, officials examining the causes and impacts of high bills are also digging into utilities’ accounting books — down to how much money they spend negotiating rates.
• “We gained a lot of support in the last year when people saw whose side TEP was on,” says Ziesche, who is part of the effort.
• New Regulatory Finance is an invaluable text for economists, accountants, CFOs, attorneys, regulators, or anyone involved in capital-related decisions.

But if policymakers want benefits of a technology compensated, they can provide incentives through policy mechanisms like rebates or tax credits. It is true that COSR does not recognize benefits like environmental costs that advocates for some new technologies want recognized, Faruqui said. Traditonal COSR and ratemaking work for utilities that keep the projected values of distributed technologies out of the process.

A Closer Look at U.S. Electricity Rate Trends

That means examining infrastructure costs, power generation, financing of debt and future expected growth — complicated issues and forecasts that all go into setting the https://tradeusanews.com/municipal-equipment-technique.html base rate for consumers. The details of regulatory proceedings fly under the radar for many consumers compared with the impacts of international wars and natural gas production cuts. In both the Northeast and California, rate increases were not caused by data centers.

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Along the way, the study finds an interesting empirical pattern that suggests what might be going on with these regulatory decisions. As the figure below shows, the real (inflation-adjusted) return regulators allow equity investors to earn has been pretty steady over the last 40 years, while many different measures of the actual cost of capital have been declining. Unlike most other inputs to utility operations, the cost of capital depends very much on the utility itself, in particular on its finances and risk. “PBR aims toward reward — profit — based on doing what customers want. But we can’t settle on PBR incentive and compensation levels without a benefit-cost analysis that shows benefits outweigh the costs and justify the incentives.”

Arizona Regulators Considering Big Rate Hikes for Two Utilities

The report found that trends in the nationwide average were heavily influenced by large rate increases in specific areas, as seen in the visual. – Going forward, utilities and their state regulators have committed to protecting retail customers from rate increases caused by new data centers. – Trends in the nationwide average are heavily influenced by large rate increases in specific areas, including in the Northeast and California, and in those jurisdictions, data centers were not the cause of such rate increases. Polling indicates that most customers are concerned about their bills and feel “powerless” in the face of rate increases. PURA not only rejected a rate increase requested by two of the state’s natural gas utilities, but actually lowered the profits those two utilities will be able to make next year, thereby lowering monthly bills for Connecticut residents. Electric and gas utilities last year requested a record-setting amount of rate increases, at $18.13 billion, marking the third consecutive year in which a new record was set.