Dealing with unfunded mandates in performance-based ratemaking.
John J. Reed is chairman and CEO at Concentric Energy Advisors, and Danielle S. Powers is vice president.
Regulators across the United States are placing increased emphasis and importance on smart grid programs, renewable and clean energy standards, transmission system upgrades, and environmental programs. Together, these initiatives will require electric utilities to invest unprecedented amounts of capital and incur increased operating expenses over relatively short periods. However, in many cases these additional investments aren’t covered in utilities’ existing rates—which makes them, in effect, unfunded mandates. The significant challenges associated with these exogenous costs calls for state regulators to re-examine current regulatory policies regarding recovery of capital costs and operating expenses.