Electricity Journal Study Documents Multiyear Rate Plan Benefits

Stronger performance incentives are a touted advantage of multiyear rate plans (“MRPs”), but few studies have documented their performance impact. PEG published an article in the June issue of The Electricity Journal on their recent study to quantify the impact of MRPs on power distributor productivity growth in Canada’s Alberta province. Four power distributors and two gas distributors there have completed two rounds of mandatory “generic” MRPs that are called performance-based ratemaking. PEG found that the productivity growth of Alberta power distributors was materially more rapid under MRPs than under cost trackers or frequent rate cases. Operation and maintenance, capital, and multifactor productivity trends were all considered. The study produced similar results for gas distributors. With support from utilities and consumer groups, Alberta’s utility commission has decided to continue MRPs and is currently finalizing details of its third generic plan. Please contact PEG president Mark Lowry for further details of the study.