NEW UTILITY BUSINESS MODELS: Utility and Regulatory Models for the Modern Era

This report examines the need for U.S. electric utility business models and regulatory frameworks to evolve to support a high-penetration renewable energy future. It proposes a spectrum of utility roles—ranging from minimal involvement to becoming comprehensive energy services providers—and suggests shifting from traditional cost-of-service regulation toward performance-based models like the UK's RIIO to align utility incentives with societal climate and efficiency goals.

• The National Renewable Energy Laboratory (NREL) RE Futures study demonstrates that it is feasible for renewable electricity generation to supply 80 percent of total U.S. electricity generation by 2050 while meeting hourly demand in every region.
• Transitioning to a high-penetration renewable energy future creates four primary implications for the grid: significantly higher levels of variable generation at the bulk power scale, increased penetration of distributed energy resources at the distribution scale, a greater need for grid flexibility in architecture and operations, and higher energy efficiency levels sufficient to eliminate load growth.
• Electric utilities face several pressures forcing business model changes, including aging infrastructure requiring an estimated $2 trillion in investment over 20 years, tougher environmental regulations, falling costs of renewable technology, and the risk of multi-billion dollar climate damage litigation.
• The report identifies a spectrum of three potential future roles for utilities: a 'wires company' with minimum involvement focusing on physical monopolies; a 'smart integrator' or 'orchestrator' that partners with innovative firms to coordinate services; and an 'energy services utility' that owns and operates all systems to deliver energy services.
• Traditional U.S. cost-of-service regulation is viewed as inadequate for the 21st century because it focuses on whether society paid the correct amount for past services rather than whether it is paying for desired future outcomes, and it provides few incentives for corporate efficiency.
• The UK's RIIO (Revenue using Incentives to deliver Innovation and Outputs) model is presented as a viable alternative that uses revenue cap and output-based incentive regulation over eight-year terms to reward operational efficiency and link financial success to public policy goals.
• The 'Iowa Model' is highlighted for its use of settlement agreements between utilities and regulators to provide long-term stability; specifically, MidAmerican utility maintained retail prices without change for 17 years (1995-2012) through this process.
• The report proposes a 'Grand Bargain' regulatory model that combines elements of RIIO and the Iowa model, utilizing negotiated multi-year agreements among utilities, commission staff, and stakeholders to address rates, environmental performance, and service goals consistently.

APA

Lehr, R. (n.d.). NEW UTILITY BUSINESS MODELS: Utility and Regulatory Models for the Modern Era. Energy Innovation. https://energyinnovation.org/wp-content/uploads/APP-UTILITIES.pdf

Chicago

Lehr, Ronald. NEW UTILITY BUSINESS MODELS: Utility and Regulatory Models for the Modern Era. Energy Innovation, n.d. https://energyinnovation.org/wp-content/uploads/APP-UTILITIES.pdf.

Wikipedia

{{cite report |last1=Lehr |first1=Ronald |title=NEW UTILITY BUSINESS MODELS: Utility and Regulatory Models for the Modern Era |publisher=Energy Innovation |url=https://energyinnovation.org/wp-content/uploads/APP-UTILITIES.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lehrndnew, author = {Lehr, Ronald}, title = {{NEW UTILITY BUSINESS MODELS: Utility and Regulatory Models for the Modern Era}}, institution = {Energy Innovation}, url = {https://energyinnovation.org/wp-content/uploads/APP-UTILITIES.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }