This policy brief, a generic version of a memo provided for a state public utility commission, considers starting points for how to apply performance-based regulation and associated performance incentive mechanisms to distribution system investments by utilities.

Ensuring that such investments are cost-effective begins by outlining goals that a state utility commission might want to achieve regarding two core regulatory functions: ensuring distribution system reliability and controlling costs. Those goals can then be refined into performance criteria, which specify how the goals will be monitored or achieved from an operational standpoint. The final step is to settle on metrics to be used to measure progress toward those performance criteria, and thus outcomes consistent with the broader regulatory goals of ensuring reliability at a just and reasonable rate.