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

The document examines the transition of the U.S. electric power sector toward a high-renewable energy future, specifically referencing NREL's goal of 80 percent renewable generation by 2050. It identifies pressures such as aging infrastructure, environmental regulations, and flat load growth that necessitate a new 'social compact' between utilities and regulators. The authors propose a spectrum of utility roles—ranging from a minimal 'wires company' to a maximum 'energy services utility'—and suggest shifting from traditional cost-of-service regulation to performance-based models like the UK's RIIO, the Iowa settlement model, or a comprehensive 'Grand Bargain' to incentivize efficiency and decarbonization.

• The National Renewable Energy Laboratory (NREL) found that 80 percent of total U.S. electricity generation could be supplied by renewable technologies by 2050 while meeting hourly demand in every region.
• Transitioning to a high-penetration renewable future requires significant grid adaptations, including higher levels of variable generation at bulk power scale, increased distributed energy resources, greater grid flexibility, and energy efficiency levels sufficient to eliminate load growth.
• Electric utilities face severe financial and operational pressures, including an estimated $2 trillion in investment requirements over 20 years, primarily for generation resources, alongside weakening bond ratings and the risk of multi-billion dollar climate damage litigation.
• The report proposes three potential roles for utilities in a renewable future: a 'minimum' role as a wires company, a 'middle way' as a 'smart integrator' or 'orchestrator' that partners with innovators, and a 'maximum' role as an 'energy services utility' acting as an end-to-end aggregator.
• Traditional U.S. cost-of-service regulation is deemed inadequate for the 21st century because it focuses on inputs and accounting costs rather than outputs, providing few incentives for corporate efficiency or innovation.
• The UK's RIIO 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 the achievement of public policy goals.
• The 'Iowa model' demonstrates the benefit of a settlement-based process to reduce adversarial transaction costs, evidenced by a period of 17 years where retail prices did not change through negotiated agreements.
• The proposed 'Grand Bargain' model suggests a comprehensive, multi-year negotiated agreement between utilities and stakeholders to address rates, cost recovery, and environmental performance in a consistent manner.

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} }