R Sheet on Performance Based Regulation

Key Points

Performance Based Regulation (PBR) for utilities was conceived a decade ago in the United Kingdom as a way to move away from cost-of-service utility regulation.
The United Kingdom developed a new model that eased the grid’s replacement of coal-fired power with more efficient wind energy and natural gas technologies
U.S. utilities should follow its example and use PBR as a tool to contain costs, rather than as a policy tool to justify future capital spending.

In the coming years, regulators should take the best ideas from the U.K. experience and adapt them to the American context. Britain’s advantage of a unified grid and accounting practice are unavailable to U.S. regulators.

What the U.S. industry does have is the ability to institute performance-based regulation in a multitude of jurisdictions with different climate, demographic and power infrastructure characteristics.

Image credit: zhao jiankang

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