Canadian utility group Fortis, Inc., owns a number of gas and electric utilities across North America. Two of these utilities faced ratemaking challenges that were impacting the level of rates paid by certain customers and the utilities’ future financial health.
In British Columbia, FortisBC (electric) and FortisBC Energy (gas) sought regulatory approval to have their electric and gas distribution rates adjusted using a performance-based regulation (PBR) methodology.
"Traditionally, utility rates are set by government regulators based on the cost of providing service," said Russell Feingold, Vice President of Black & Veatch Management Consulting, LLC, who leads its rates and regulatory services practice.
A PBR plan considers broader economic indicators, such as the consumer price index (CPI), as a measure of inflation to adjust the utility’s rate levels over a multi-year period, with certain offsets for expected productivity gains.
“Generally speaking, under this type of ratemaking methodology, as the CPI increases each year, the utility’s rates will increase on a proportionate basis,” Feingold said. “It is then up to the utility to manage its resources so that customers continue to receive safe, reliable and cost-effective utility services and the utility can achieve the financial performance expected by its shareholders.”