Building Effective Utility Performance Incentive Mechanisms

UTILITY PERFORMANCE INCENTIVE MECHANISMS JOE DAMMEL MINNESOTA ATTORNEY GENERAL S OFFICE NASUCA MID-YEAR MEETING JUNE 25, 2018 MINNEAPOLIS, MN

If you wish to make an apple pie from scratch, you must first invent the universe. - C. Sagan

If you wish to make a performance incentive mechanism from scratch, you must first invent the existing cost-of-service utility regulatory structure. - Not C. Sagan

BUILDING THE SANDBOX

BUILDING THE SANDBOX DEMAND DEMAND COSTS COSTS

BUILDING THE SANDBOX THROUGHPUT THROUGHPUT CAPITAL CAPITAL

RENOVATING THE SANDBOX RATES RATES THROUGHPUT THROUGHPUT EFFICIENCY EFFICIENCY RENEWABLES RENEWABLES GHGs GHGs CAPITAL CAPITAL DERs DERs

RENOVATING THE SANDBOX ALT COST REC ALT COST REC THROUGHPUT THROUGHPUT MYRPs MYRPs FUEL ADJ. FUEL ADJ. DECOUPLING DECOUPLING CAPITAL CAPITAL INCENTIVES INCENTIVES

RETHINKING THE SANDBOX COMPONENTS OF A PIM: PERFORMANCE METRIC TARGET FINANCIAL INCENTIVE

RETHINKING THE SANDBOX 1. ARTICLUATE GOALS 2. ID DESIRED OUTCOMES 7. EVALUATE & REPEAT 6. EST. INCENTIVES 3. ID METRICS 5. EST. TARGETS 4. EST. METRICS

RETHINKING THE SANDBOX 1. ARTICLUATE GOALS 2. ID DESIRED OUTCOMES 7. EVALUATE & REPEAT 6. EST. INCENTIVES 3. ID METRICS 5. EST. TARGETS 4. EST. METRICS

GOALS OUTCOMES METRICS HIERARCHY GOALS OUTCOMES METRICS

GOALS OUTCOMES METRICS HIERARCHY GOALS WHY WE REGULATE OUTCOMES WHAT WE WANT METRICS WAYS TO MEASURE

GOALS OUTCOMES METRICS HIERARCHY Goals Goals Goals Goals Outcome Outcome Outcome Outcome Outcome Outcome Outcome Outcome Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric

REGULATORY GOALS Why we regulate utilities. It is hereby declared to be in the public interest that public utilities be regulated as hereinafter provided in order to provide the retail consumers of natural gas and electric service in this state with adequate and reliable services at reasonable rates, consistent with the financial and economic requirements of public utilities and their need to construct facilities to provide such services or to otherwise obtain energy supplies, to avoid unnecessary duplication of facilities which increase the cost of service to the consumer and to minimize disputes between public utilities which may result in inconvenience or diminish efficiency in service to the consumers. Minn. Stat. s216B.01, Legislative Findings

REGULATORY GOALS Why we regulate utilities. It is hereby declared to be in the public interest that public utilities be regulated as hereinafter provided in order to provide the retail consumers of natural gas and electric service in this state with adequate and reliable services at reasonable rates, consistent with the financial and economic requirements of public utilities and their need to construct facilities to provide such services or to otherwise obtain energy supplies, to avoid unnecessary duplication of facilities which increase the cost of service to the consumer and to minimize disputes between public utilities which may result in inconvenience or diminish efficiency in service to the consumers. Minn. Stat. s216B.01, Legislative Findings

REGULATORY GOALS Why we regulate utilities. Customer Focus adequate and reliable services at reasonable rates Operational Effectiveness to avoid unnecessary duplication of facilities which increases the cost of service to the consumer Financial Performance consistent with the financial and economic requirements of public utilities Public Policy Responsiveness

REGULATORY GOALS Why do we regulate utilities? Operational Effectiveness Financial Performance Public Policy Responsiveness Customer Focus Outcome Outcome Outcome Outcome Outcome Outcome Outcome Outcome Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric

DESIRED OUTCOMES What do we want from utilities? Operational Effectiveness Financial Performance Public Policy Responsiveness Customer Focus Outcome Outcome Outcome Outcome Outcome Outcome Outcome Outcome Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric Metric

DESIRED OUTCOMES: CUSTOMER FOCUS Customer What do we want from utilities? Focus Outcome Outcome Metric Metric Metric Metric

DESIRED OUTCOMES: CUSTOMER FOCUS What do we want from utilities? Customer Focus Service Quality Reliability Metric Metric Metric Metric

PERFORMANCE METRICS How do we measure? A metric should be: Tied to policy goals, outcomes Quantifiable Verifiable Clearly Defined Under Utility Control

PERFORMANCE METRICS How do we measure? Reliability is an outcome, SAIDI is a metric. Customer service is an outcome, call answer time is a metric. DER penetration is an outcome, interconnection wait time is a metric.

PERFORMANCE METRICS How do we measure? Customer Focus Service Quality Reliability Call answer time SAIDI # SAIFI Complaints

A POTENTIAL HIERARCHY Operational Effectiveness Financial Performance Customer Focus Public Policy Return-on- Equity Service Quality Cost Control Grid Mod. Customer Satisfaction Asset Mgmt. DERs Rider Revenue Carbon Intensity Affordability Resiliency Productivity Empowered Customers Energy Eff.

THREE PATHS PIMs Traditional Modern Hybrid

THANK YOU Follow along at home! MNPUC docket no. 17-401 Questions? Contact Joe Dammel, joseph.dammel@ag.state.mn.us