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

Berkeley Lab published a report in 2016 that discussed two approaches to performance-based regulation (PBR) of electric utilities: multiyear rate plans (MRPs) and performance incentive mechanisms (PIMs).1 The authors described these approaches at a high level and in the context of growing levels of demandside management (DSM), distributed generation and other distributed energy resources (DERs). This report presents a more in-depth analysis of the multiyear rate plan approach to PBR for electric utilities, applicable to both vertically integrated and restructured states. The report is aimed primarily at state utility regulators and stakeholders in the state regulatory process. The approach also provides ideas on how to streamline oversight of public power utilities and rural electric cooperatives by their governing boards. We discuss the rationale for MRPs and their usefulness under modern business conditions. We then explain critical plan design issues and challenges and present results from numerical research that considers the extra incentive power achieved by MRPs with different plan provisions. Next, the report presents several case studies of utilities that have operated under formal MRPs or, for various reasons, have stayed out of rate cases for more than a decade. In these studies we consider the effect of MRPs and rate case frequency on utility cost, reliability and other performance dimensions. Appendices present further information on MRP plan design and some details of the technical work.