Massachusetts Sets Guidelines for Incentive Regulation

Citing a growing trend toward competition in the electric and gas industries, the Massachusetts Department of Public Utilities (DPU) has issued guidelines for the development of incentive regulation proposals by energy utilities in the state. The DPU ruled that proposed incentive plans should: 1) be consistent with existing regulation; 2) compliment the trend toward competition and a market-based approach to utility operations; 3) maintain system integrity, reliability, and customer-service standards; 4) strive to conform to existing policy objectives, including DSM and low income rates; 5) reward utility performance and cost savings, but also address recovery of

"exogenous" costs beyond the control of utility management; 6) avoid targeted incentives in favor of comprehensive results; 7) incorporate well-defined and measurable indicators of utility performance; 8) address the effect on investors perception of risk; and 9) conform to applicable accounting standards. The DPU stopped short of directing all utilities to develop an incentive regulation plan, but warned that those who did not would be required in a subsequent rate hearing to demonstrate efforts to achieve more efficient operations. Re Incentive Regulation for Electric and Gas Utilities, D.P.U. 94-158, Feb. 24, 1995 (Mass.D.P.U.).

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