Increased Expectations for Utilities Arrive at Time of Declining Electricity Sales; a New Report from GE Shows Need for More Forward-Looking Regulatory Model: Results-Based Regulation Designed to Support Investments that Share Cost Savings with Consumers, Reward Utilities for Innovation and Efficiency, and Remain Affordable
The super storm Hurricane Sandy showed pretty conclusively what can happen when the power goes off and stays off. The anniversary of the storm is the background for GE to propose a new regulatory model for electric utilities that is intended to make them more responsive and invest more in the face of storms like Sandy.
An Emerging Regulatory Model: Results-Based Regulation
As regulators seek to meet current challenges without discarding the traditional objectives of regulation, a results-based model offers an attractive alternative. Results-based regulation is designed to support investments that share the cost savings with customers, reward utilities for exceptional performance, remain affordable by encouraging operational efficiencies and address emerging issues that impact the public good.
Results-based regulation creates a forward-looking contract to achieve desired objectives and provide incentives for delivering long-term value to customers. Key elements can include:
- Revenues set based on the regulator’s review of a forward-looking utility business plan.
- A multi-year revenue plan that provides an incentive for cost reductions.
- An earnings-sharing mechanism that enables customers to benefit from utility cost savings.
- Clearly defined performance metrics and incentives for delivering value to customers.
- Funding set aside for innovation projects.
The goal of this report is to advance conversations on the design of forward-looking regulatory models to meet today’s energy challenges. The authors of this paper include David Malkin, director of Government Affairs and Policy for GE’s Digital Energy business, and Paul Centolella, former utility commissioner and current vice president at Analysis Group, a leading economics consulting firm.
To download the report, view data visualization, watch a video, or to learn more about the authors, please visitGEdigitalenergy.com/regulation.