How to Restructure Utility Incentives

The report advocates for a transition from traditional cost-of-service regulation (COSR) to comprehensive performance-based regulation (PBR) to better align utility incentives with modern societal and environmental goals. It proposes a 'Four Pillars Model' consisting of incentivizing cost efficiency, removing throughput incentives, equalizing incentives for capital and operating expenses, and incentivizing targeted outcomes. The document includes an overview of PBR tools and uses Hawaii's framework as a case study for implementation.

• Performance-based regulation (PBR) is presented as an alternative to traditional cost-of-service regulation (COSR) to resolve the mismatch between traditional utility incentives and modern policy objectives like decarbonization, social equity, resilience, and affordability.
• Comprehensive PBR is defined by four essential pillars designed to address the shortcomings of COSR: incentivizing cost efficiency, removing the throughput incentive, equalizing incentives between capital expenditures and operating expenses, and incentivizing targeted outcomes.

APA

RMI (2024). How to Restructure Utility Incentives. https://rmi.org/resources/how-to-restructure-utility-incentives-four-pillars-of-comprehensive-performance-based-regulation/

Chicago

RMI. How to Restructure Utility Incentives. 2024. https://rmi.org/resources/how-to-restructure-utility-incentives-four-pillars-of-comprehensive-performance-based-regulation/.

Wikipedia

{{cite report |author=RMI |title=How to Restructure Utility Incentives |date=12 July 2024 |url=https://rmi.org/resources/how-to-restructure-utility-incentives-four-pillars-of-comprehensive-performance-based-regulation/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rmi2024how, author = {{RMI}}, title = {{How to Restructure Utility Incentives}}, institution = {RMI}, year = {2024}, month = jul, url = {https://rmi.org/resources/how-to-restructure-utility-incentives-four-pillars-of-comprehensive-performance-based-regulation/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }