ScottMadden, Inc., one of North America’s leading management consulting firms specializing in energy, recently joined industry leaders as a sponsor and presenter at EUCI’s 17th Annual Rate Design conference. This event provided a unique platform for providers, regulators, and industry experts to assess the impact of increased renewables and enabling technologies on utility rate structures. One key topic being addressed was performance-based regulation (PBR)—what it is, why you should care, and implementation considerations.
The way we generate, distribute, consume, and pay for power today has been slowly evolving over the past decades. Customers are generating some of their own power, advanced metering structures allow for more sophisticated rate design, and large industrials—and even some residential customers—can actively adjust their demand in reaction to price signals and peak events. Because of these ever-changing customer capabilities and consumer preferences, some regulators are looking at new PBR-like mechanisms to incentivize utilities to respond to these changing needs.
Utilities must look for ways to recover enough revenue to provide a reasonable return for shareholders. States are looking at alternative ratemaking approaches, including PBR, to encourage consideration of third-party supply options, reduce the frequency of rate cases, and decouple cost considerations from load changes.
During the event, Rick Starkweather, partner at ScottMadden, and Mark Meitzen, senior consultant at Christensen Associates, explored this and more in their interactive workshop. Specifically, attendees learned how traditional cost-of-service ratemaking and PBR align with the principles of sound ratemaking and current regulatory objectives, how the need for PBR or other alternate ratemaking mechanisms is increasing due to broader implementation of distributed energy resources, and some of the elements of successful PBR mechanisms.
“The consideration of alternative ratemaking mechanisms like PBR by regulators has been spurred by a desire to improve utility performance, more closely align utility investments with public policy goals, and help foster technological progress, including providing more choices for customers,” explains Mr. Starkweather.
For more information on current industry trends or best practices in innovative pricing and the valuation of distributed resources operating in a modernized grid, contact us.
About ScottMadden’s Energy Practice
We know energy from the ground up. Since 1983, we have served as energy consultants for hundreds of utilities, large and small, including all of the top 20. We focus on Transmission & Distribution, the Grid Edge, Generation, Energy Markets, Rates & Regulation, Enterprise Sustainability, and Corporate Services. Our broad, deep utility expertise is not theoretical—it is experience based. We have helped our clients develop and implement strategies, improve critical operations, reorganize departments and entire companies, and implement myriad initiatives.