The Rocky Road to Performance-based Regulation in Connecticut

In the sometimes sleepy world of utility ratemaking, Connecticut is frequently making headlines over public disputes between the state’s utilities and their regulators.

PBR encompasses a wide range of regulatory approaches including financial incentives and penalties, performance metrics and scorecards, multi-year rate plans, and revenue decoupling, all aimed at achieving goals and outcomes not explicitly considered in traditional ratemaking.

“Under cost-of-service regulation, we see a real tension between the kinds of investments that earn utilities an allowed rate of return and those they pass on to customers as operating expenses,” Oliver Tully, director of utility innovation at the Acadia Center, told RTO Insider. “We see a situation where the high capital-cost investments may not be the ones that are actually best for ratepayers and the grid overall.”

Traditional regulation, Tully said, can lead to “a clear misalignment between the incentives that the utilities face when making investment decisions and the policy priorities that the states have, especially around clean energy, equity, greenhouse gas emissions and affordability.”

Some advocates have expressed concern that the pushback to Connecticut’s proceeding could discourage other states from considering the pursuit of comprehensive PBR.

Acadia’s Tully said that, while he views the Connecticut proceeding as “a model for other states to follow,” he has been disappointed by the utilities’ response and is “a little bit fearful of what this could mean for other states.”

To read the full article from RTO Insider, click here.