MRPs were first widely used in the United States in the 1980s to regulate railroads and telecommunications carriers, industries beset by rising competition. Early adopters of MRPs in the U.S. electric utility industry included California and several northeastern states. Use of MRPs has recently grown among vertically integrated electric utilities in diverse states that include Arizona, Georgia and Washington. Greater use of MRPs for power distributors has been slowed by their requests for accelerated system modernization, which complicate plan design. MRPs are much more common for electric utilities in Canada and countries overseas. The impetus for adopting MRPs in these countries has often come from policymakers rather than utilities. What Is the Rationale for These Plans? America's investor-owned electric utility industry was largely built under cost of service regulation (COSR). This regulatory system traditionally adjusted rates that compensate utilities for costs of capital, labor and materials only in general rate cases. The scope of costs eligible for tracker treatment, which expedites cost recovery, has gradually enlarged and sometimes includes capital costs as well as energy expenditures. The efficacy of COSR varies with external business conditions. When conditions favor utilities (e.g., are conducive to realizing at least the target rate of return), rate cases are infrequent. Performance incentives are then strong and the cost of regulation is quite reasonable. When conditions are less favorable, rate cases are more frequent and more costs are tracked. Performance incentives can then be weak and regulatory cost can be high. These attributes of COSR are worrisome because business conditions today are often less favorable to utilities than in the past. MRPs are a different approach to regulation that is especially appealing when the alternative is frequent rate cases or expansive cost trackers. The regulatory process is streamlined and better utility performance can be encouraged due to stronger performance incentives and increased operating flexibility. Benefits of better performance can be shared with customers. Recent advances in MRPs such as efficiency carryover mechanisms and statistical benchmarking can "turbocharge" their incentive power and ensure benefits for customers. What Are Some Disadvantages of MRPs? MRPs are complex, and their adoption can involve extensive change to the regulatory system. It can be challenging to design plans that strengthen incentives without undue risk and share benefits fairly between utilities and their customers. Some kinds of business conditions (e.g., brisk inflation and declining average use) have proven easier to address using MRPs than others (e.g., capital spending surges). MRPs can invite strategic behavior and controversies over plan design. Case Studies This report discusses six case studies of utilities operating under MRPs: 1. Central Maine Power operated under a sequence of MRPs from 1996 to 2013. The plans afforded the company unusual marketing flexibil...

Performance‐based regulation (PBR) has been used for several decades to incentivize and regulate US energy utilities. Its popularity has been bolstered in recent years by mounting concerns over the impact that greenhouse gas (GHG) emissions from the production and consumption of natural gas and the generation of electricity have on the world's climate. In combination with other policy measures, PBR has helped to mitigate adverse climate impacts in part by reducing energy use and moving toward cleaner energy choices. Mounting climate concerns have caused PBR to change. In this article these authors provide a useful taxonomy of PBR tools and then discuss how PBR has grown and evolved.