Connecticut residents are rightly frustrated with their electric bills.

Today, we have cleaner, cheaper, and more flexible energy technologies than ever before. Solar, batteries, energy efficiency, demand response, and advanced grid hardware and software can reduce costs, cut pollution, and improve reliability. Yet they aren’t being implemented as widely or rapidly as they should be, while costs continue to climb.

The reason isn’t a lack of technology. It’s the business model we use to run electric utilities. The major utilities in Connecticut still operate under a “cost-of-service” model. Designed in the early 20th century, it made sense when electricity systems were built around large power plants and analog technology. But today, that same model is holding us back.

There is good news. Connecticut has the solution at its fingertips: performance-based ratemaking. And in fact, this solution is at the finish line and ready for implementation, pending final regulatory approval.

Before explaining what performance-based ratemaking is, it’s important to understand the problem it’s designed to fix. Under cost-of-service regulation, utilities primarily earn profits by investing in capital infrastructure such as poles, wires, and substations. These capital expenditures are called the “rate-base.” Utilities are guaranteed their money back plus some percentage profit on it when invested prudently. Thus, a bigger rate base means more allowed earnings.