Incentive Regulatory Models for Electricity Distributors: A Review of Emerging Reforms

Thu Jun 23 13:16:00 EDT 2016
By Richard Druce et al.

NERA Vice President Amparo Nieto and Associate Director Richard Druce presented at the Advanced Workshop in Regulation and Competition during the 29th Annual Western Conference held by the Rutgers University Center for Research in Regulated Industries.

As part of the “Reforming the Energy Vision” (REV) initiative, the New York Public Service Commission has endorsed a set of revisions to the state regulatory policy for electricity distributors. A key objective is to spur innovation so that alternative cost-effective solutions to the traditional utility investment are taken into account when determining the right mix of resources. The new policy will rely on unconventional revenue streams associated with the development of distributed-level markets, as well as targeted incentive schemes to promote an efficient, modernized grid design and a number of environmental and social policy goals. The UK’s energy regulator has pursued similar goals, adopting a comprehensive, full-scale performance based regulation (PBR) approach electricity distribution—the RIIO (Revenue = Incentives + Innovation + Outputs) model. RIIO was built from 20 years of experience with the prior RPI-X approach.

In their presentation, “Incentive Regulatory Models for Electricity Distributors: A Review of Emerging Reforms,” Ms. Nieto and Mr. Druce described the main features of both RIIO and New York’s REV’s approach, and assessed their ability to meet regulatory goals such as transparency, information asymmetry, reduction of capex bias, and customer value, among others.