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Regulatory Inertia: Is Performance-Based Regulation a Possible Solution?

The ways we produce, supply, and use energy are changing. On that, regulators and utilities agree.

Take the action that’s occurred over the past few years on clean energy.  Currently, 29 states have renewable energy portfolio goals in place, and 13 states have renewable capacity targets greater than 50 percent by 2050. Plus, an increasing number of utilities are setting their own, often more aggressive, portfolio goals.

But the grid modernization needed to support these changes is often hampered by a regulatory process built for slower times. While most entities recognize that a faster and more fluid process for approving implementation of grid technology is needed, there is still no clear strategy for making that happen in all 50 states.

The Smart Electric Power Alliance (SEPA) launched the Renovate Initiative in 2019 to spur new ways to greenlight innovation in the industry.

In its recently released Best Regulatory Practices series on the subject, SEPA’s authors wrote, “Regulatory proceedings on grid investments and customer programs often take so long that relevant technology providing customer benefit has advanced before a commission assessment can be completed or decision can be reached.”

The authors note that current regulations and structures favor tried and true technologies, operations and approaches. But for new technologies and operating practices, “there is uncertainty about the processes to identify and quantify benefits and costs, outline the full range of investment and operating options, and communicate and align incentives with agreed goals for the benefit of all customers.”

How can this discrepancy be addressed?

SEPA’s three-part series uses a case study from Minnesota to illustrate how performance-based ratemaking has helped address the lag-time between proposals and approvals with tactics such as:

  1. Proactive legislative approval for regulatory reforms
  2. Alternative regulation, such as multi-year rate plans and
  3. Performance incentive mechanisms that reward achievement toward project and service goals.

While not the only strategy available, performance-based regulation appears to show promise for helping regulators and utilities keep pace with technological change.

The series is available for viewing online here (registration is required). As a member of SEPA, Landis+Gyr is taking an active role in this process and believes efforts like the Renovate Initiative will pay long-term dividends toward realizing grid modernization.

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