How to develop balanced revenue-backed financing to manage the impacts of governmental mandates.
David Boonin is president of TBG Consulting. Contact him at firstname.lastname@example.org. The author gratefully acknowledges the contribution of Dr. Glenn George, now with NERA, to some of the ideas included in this paper.
Severe upward pressure on electric rates after a decade of stability has regulators, legislators, utility executives, consumer advocates, and myriad other stakeholders searching for solutions. Often this upward pressure on rates is associated with governmental mandates ranging from market-based supply requirements to renewable energy portfolios to mandates to build base-load power plants. In some regions, rate shock is occurring or is predicted, along with harsh economic and social impacts. The mandates often are a given. The challenge is meeting these mandates without the burden of large rate increases.
Revenue-backed financing (RBF) can mitigate many of these mandate-driven rate increases significantly. RBF programs must, however, be designed to eliminate the inefficiencies and inequities that can be associated with revenue set-aside programs. Without the proper incentives, either regulatory or market-based, these RBFs unintentionally may push the critical balance among the 3Rs of risk, responsibility and reward out of kilter, causing inefficiencies that threaten the sustainability of RBF generated savings.