Rocky Mountain Institute briefed Virginia stakeholders on options, state case studies for performance-based regulation

Rocky Mountain Institute experts Janelle Wilson and Kara Goldenberg told a Virginia Department of Energy stakeholder work group that performance‑based regulation (PBR) can take many forms and offered U.S. state case studies to help Virginia evaluate options.

The presentation framed PBR as a toolbox rather than a single policy and distinguished incremental approaches — layering specific mechanisms onto traditional cost‑of‑service regulation — from comprehensive reform that restructures utility incentives more fundamentally. "PBR is not just one thing," Goldenberg said. "It's a collection of tools that can be used in many different ways." The presenters described a four‑pillar framework for comprehensive PBR: incentivize cost efficiency, remove the throughput incentive, equalize capital and operating incentives, and incentivize targeted outcomes.

Why this matters: Virginia stakeholders face a statutory process and an external deadline to prepare materials for the State Corporation Commission; the RMI briefing aimed to surface concrete tradeoffs and state examples so the stakeholder group can identify options to recommend.

RMI outlined specific regulatory tools tied to the four pillars. Multi‑year rate plans (MYPs) and shared‑savings mechanisms can promote cost efficiency; revenue decoupling is the typical tool to remove the throughput incentive; capitalization or targeted rules can reduce a CAPEX bias; and performance incentive mechanisms (PIMs), scorecards and metrics can be designed to drive outcomes such as interconnection timeliness, distributed energy resource (DER) performance, energy‑efficiency savings or transportation electrification. RMI also pointed participants to its Performance Incentive Mechanism (PIMs) database as a resource.

The presentation reviewed five state experiences as examples rather than templates. Hawaii: RMI characterized Hawaii as the closest U.S. example of near‑comprehensive PBR. Hawaii adopted a five‑year MYP, full revenue decoupling, a customer dividend in the revenue adjustment formula, an earnings‑sharing mechanism with a wide dead band, an extraordinary projects recovery mechanism for large capital projects, and a portfolio of PIMs covering DER interconnection, RPS achievement and other outcomes. RMI said early evaluations show limited shifts in cost trends and a decline in real rate base and capital expenditures in the first three years, while stressing the evaluation is ongoing.

North Carolina: RMI described a different path in which a stakeholder process (NERP) led to statute (House Bill 951) that prescribes a framework now being implemented. North Carolina's statute authorizes three‑year MYPs; caps year‑to‑year revenue increases in years two and three at 4 percent of the prior year; allows very narrow earnings‑sharing dead bands (±50 basis points) with 100 percent refunds to customers for earnings above the cap and no downside sharing; applies revenue decoupling only to the residential class and excludes estimated EV charging sales; and caps the aggregate value of PIMs at 1 percent of the first year revenue requirement (with some exceptions). RMI cautioned this statutory approach narrows regulators' flexibility to adjust poorly performing mechanisms.

Colorado, Minnesota and Maryland were summarized as incremental or mixed experiments: Colorado has piloted MYPs and decoupling and primarily uses PIMs; Minnesota has used MYPs with interim rates, true‑ups and extensive tracking metrics that could convert into PIMs; and Maryland's MYP pilot (BGE, Pepco, Delmarva) has been contentious, saw significant O&M overspend at one utility in the first plan, and prompted a lessons‑learned review by the commission.

RMI emphasized process design: stakeholder collaboration, clear goals and outcomes, careful design detail, safeguards (off‑ramps, reopeners, earnings‑sharing bands, evaluations), and staged learning. Presenters recommended a "diverge, emerge, converge" process to surface and prioritize outcomes before selecting tools and stressed building formal evaluation periods into MYPs and PIMs.

The briefing generated technical questions from stakeholders on examples to study (Hawaii, New York, Minnesota, the U.K. Totex model), typical MYP lengths (RMI said three to five years is common; Hawaii's is five), and safeguards such as reopeners and earnings‑sharing mechanisms. RMI committed to share slides and resources used in the presentation with the stakeholder group.

The presenters noted that not all PBR designs produce the same results; they urged Virginia stakeholders to define desired outcomes, assess the current incentive structure, and use that diagnostic to select appropriate tools. The session closed with RMI offering to provide further materials and links to their PIM database and other resources.