As the utility industry pursues transformative changes to the way it generates and distributes electricity, consumers are seeking greater engagement with their electric providers to address policy priorities like reliability and renewable energy technologies. In response, regulators are developing new strategies to make sure utility policies support these goals. Performance-based Ratemaking (PBR) incentivizes utilities to achieve specific performance metrics, such as improving reliability, data access, and energy efficiency. This is different from traditional Cost-of-Service (COS) ratemaking, which is tied to electricity sales and rate-base growth.
As Michigan moves toward PBR, we can learn from other states’ experiences where PBR mechanisms have been tested and put into action. These states have demonstrated that clear consensus goals, carefully implemented policies, and rigorous policy evaluation are key elements of mature PBR regulatory frameworks.
