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GE argues that moving to a so-called "results driven" regulatory model could better support the transition to an improved power system in the U.S. According to a new company report, the current model impedes a utility's ability to recover fixed costs and discourages much-needed capital investment.

Following Hurricane Sandy, GE says utilities are expected to improve their resiliency during severe weather events, replace aging infrastructure, integrate greater quantities of renewable and distributed generation ,and secure their systems against cyber and physical attacks. However, these expectations arise at a time of slowly growing, flat or declining electricity sales. This dilemma, GE says, is rooted in the fact that the rates of most electric distribution companies continue to be set under a model focused on the utility’s cost of service rather than on delivering value to customers.

“Tackling today’s emerging challenges is a daunting task for utilities, considering that most operate under a regulatory model set in the first half of the last century,” comments David Malkin, director of government affairs and policy for GE’s Digital Energy business. “If we wish to build out a modern grid - one that meets these challenges and delivers long-term value to consumers - then we must rethink how utilities are currently regulated.”

As regulators seek to meet current challenges without discarding the traditional objectives of regulation, GE says a results-based model offers an attractive alternative.

According to the company, results-based regulation is designed to support investments that share the cost savings with customers, reward utilities for exceptional performance, remain affordable by encouraging operational efficiencies and address emerging issues that impact the public good. The model creates a forward-looking contract to achieve desired objectives and provide incentives for delivering long-term value to customers.

GE says key elements of the new model could include the following:

- Revenues set based on the regulator’s review of a forward-looking utility business plan;

- A multi-year revenue plan that provides an incentive for cost reductions;

- An earnings-sharing mechanism that enables customers to benefit from utility cost savings;

- Clearly defined performance metrics and incentives for delivering value to customers; and

- Funding set aside for innovation projects.

GE says the goal of its new report is to advance conversations on the design of forward-looking regulatory models. A link to the full report can be found HERE.


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