Virginia stakeholder group reviews performance‑based regulation tools; SCC explains gas decoupling under state law

A group convened by Virginia Energy spent a multi‑hour meeting reviewing performance‑based regulation options for the commonwealth92s utilities, spotlighting multiyear rate plans, performance metrics and incentives, earnings‑sharing, and the State Corporation Commission92s existing natural‑gas decoupling practice under Virginia law.

The meeting brought outside technical presenters together with utility representatives, consumer advocates and local government procurement officers to examine which toolsets could be used — and how — to align utility financial incentives with public policy goals such as meeting energy‑efficiency targets and protecting affordability.

Why it matters: the stakeholder group is preparing a report for the State Corporation Commission (SCC) and Virginia Energy that could shape whether and how PBR provisions are recommended for electric and gas utilities in Virginia. Changes to rate design, incentive structures and recovery mechanisms affect utility revenue, customer bills and the pace of utility programs such as energy efficiency and distributed resources.

Mark LaBelle, speaking for the Regulatory Assistance Project, framed PBR not as a single law or formula but as a set of regulatory tools that can be combined to change utility incentives without micromanaging operational choices. "PBR is a set of tools that state regulators can use to incentivize improved utility performance. But it's not a shortcut," LaBelle said, noting that jurisdictions typically combine multiyear rate plans, decoupling/revenue regulation, scorecards and performance incentive mechanisms.

LaBelle described tradeoffs regulators face. Multiyear rate plans ("stay‑out" periods between rate cases) can increase utilities' incentive to reduce costs because savings can be retained during the plan, but they also can create perverse incentives unless accompanied by clearly defined performance metrics and consumer protections. Earnings‑sharing mechanisms and trackers (riders) that soften multiyear exposure can reduce utilities92 cost‑cutting incentives, he said.

State Corporation Commission staff provided a practical example of how decoupling already operates in Virginia's natural gas sector under the state's CARE statutory framework. Brian Pratt of SCC explained that Code of Virginia §§56‑600 through 56‑602 authorizes natural‑gas conservation and rate‑making efficiency plans ("CARE" plans). Under approved CARE plans, utilities propose portfolios of energy‑efficiency programs, must show measured and verified savings, and may use a decoupling mechanism to separate ("decouple") delivery revenue recovery from sales volumes.

Pratt summarized the mechanics used in the existing gas programs. A base rate proceeding establishes a non‑gas (distribution) revenue requirement per customer; between rate cases a revenue normalization/adjustment filing compares the target distribution revenue to actual billed distribution revenue and true‑ups the difference through a tariffed rider. "The decoupling mechanism is really designed to ensure that the gas utility can continue to recover its fixed cost of service in an environment where gas sales and gas revenues may be declining due to the implementation of energy efficiency and demand‑side management programs," Pratt said. He added that utilities with approved CARE plans may earn performance incentives tied to independently verified economic benefits; staff described a common cap of up to 15% of verified benefits for the utility.

Presenters and participants emphasized that decoupling removes the mathematical link between sales and distribution revenue — reducing the utility92s disincentive to support efficiency — but does not by itself create a positive incentive for lower sales. Several stakeholders stressed that decoupling must be paired with clear, auditable metrics and material financial values for incentives to change utility behavior.

Stakeholders raised several recurring concerns:

- Metrics and materiality: Multiple commenters asked how to choose metrics that are tightly linked to policy goals and large enough ("material") to matter to utility management. LaBelle urged that incentives be sized to change behavior and not diluted across too many small measures.

- Riders versus base rates: Participants noted that a growing share of costs is recovered through riders; one presenter cited SCC staff materials saying roughly half of current utility costs are recovered through riders and that share could grow. Several speakers asked how to transition costs from riders into a multiyear base rate framework without undermining cost control or affordability.

- Affordability and timing: Several local government and consumer advocates emphasized electricity affordability alongside long‑term policy goals. Stakeholders asked whether multiyear rate plans, earnings sharing, and decoupling would accelerate or ease bill pressure in the near term.

- Virginia‑specific analysis: Multiple participants asked for a focused review of existing Virginia mechanisms (current performance incentives, the biennial review process, rider true‑ups, and the CARE plan tariffs for utilities that already use decoupling) so that recommendations reflect state law and practice rather than only national examples.

Administrative issues surfaced in stakeholder comments: large institutional customers reported that bill and procurement practices can be more complicated when supply and distribution are billed separately, a factor for public entities that process many accounts.

Next steps and deadlines raised during the meeting include a regulatory assessment template stakeholders were asked to complete (responses due March 19), an open public comment period with a provisional deadline for comments on a draft report (April 11), and three remaining working sessions (next meeting March 28; subsequent meetings to examine alternative tools and to review a draft report). The group also invited stakeholders to offer proposals for PBR schemes and said staff would circulate additional background materials and relevant tariff language for utilities that already use CARE decoupling.

The meeting combined policy framing from an industry technical nonprofit and technical explanation from SCC staff with a broad stakeholder discussion. Attendees repeatedly urged Virginia‑specific analysis, clear measurable metrics tied to prioritized policy goals, and careful sizing of incentives so performance mechanisms are legally robust and large enough to alter utility decisions.

A copy of the Regulatory Assistance Project92s paper on performance incentives and commission‑approved tariff language for existing Virginia gas CARE plans were cited during the meeting and are expected to be circulated by staff in follow up.