Performance Incentives and Utility Regulation
As part of the Energy Efficiency 2013 Policy and Law Conference in Harrisburg, Pennsylvania, principal Rich Sedano spoke about applying performance incentives for energy efficiency. He outlined the role of incentive-based regulation in encouraging compliance, innovation, and states’ ability to achieve greater energy efficiency. By ensuring that the value to the public or the public interest is well in excess of the reward to the utility, regulators can motivate better outcomes, convey clear signals to regulated companies, and correct bad or misguided behavior. Employing examples from states around the US, Mr. Sedano outlined potential structures for measurement, performance, and reward, including shared savings, performance bonus, and ROE bonus. He also cautioned against the pitfalls of programs that pay too much or fail to align utility efforts with the reward, thus creating a false sense of entitlement.