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.

Michigan energy meter

About Our Analysis

This report examines how Performance-Based Ratemaking (PBR) has been used throughout the United States, identifying common themes that can help shape Michigan’s strategy. Our analysis found that at its core, the PBR development process is most effective when grounded in clearly established goals and a measured and inclusive stakeholder engagement process. Generating consensus around Michigan’s top priorities, employing pilot programs, and defining straightforward strategies for evaluating and modifying PBR mechanisms will ensure that PBR enhances the affordability, reliability, and sustainability of Michigan electricity.

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