WHITE PAPER
Ensuring Better Regulatory Outcomes – The Need for Careful Consideration of Performance-Based Ratemaking Policies
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Aligning Performance-Based Utility Incentives With Climate Goals
State legislators and energy regulators nationwide will need to guard against unintended consequences as they consider changing how utilities are compensated to encourage cleaner, safer, more efficient power. Traditional ratemaking encourages utilities to overinvest in facilities, underspend on operations and maintenance, and promote wasteful use of energy. Over a dozen states are exploring a performance-based ratemaking framework to align utility performance with greenhouse gas emissions goals and increased use of distributed energy resources.
“The notion is simple enough: Reward utility behavior and outcomes that are consistent with regulatory objectives and penalize those that are not,” Weissman said. “But designing effective incentives is far from simple. Performance-based ratemaking is not a substitute for regulation and oversight. If anything, its use puts greater onus on comprehensive study, analysis and enforcement.”
CSE energy policy adviser Steve Weissman explores the opportunities and potential pitfalls in a new white paper, Ensuring Better Regulatory Outcomes – The Need for Careful Consideration of Performance-Based Ratemaking Policies.
Steps To Designing & Implementing Effective Incentives
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Steps To Designing & Implementing Effective Incentives
“Truth-test” the assumptions of any reward/penalty system
Modify, reject, or approve with knowledge of risks
Continually evaluate performance and proactively optimize
About the author
A senior policy adviser at CSE, Steve Weissman teaches at the UC Berkeley Goldman School of Public Policy, created and directed the Energy Law program at Berkeley Law, and previously served as an administrative law judge and policy adviser for the California Public Utilities Commission.