Third Generation Performance-Based Regulation for Alberta’s Distribution Utilities

Categories: Performance-Based Ratemaking

January 20, 2023 - Mark Meitzen and Nicholas Crowley

In January 2023, Christensen Associates Energy Consulting experts Mark Meitzen and Nick Crowley filed testimony on behalf of EPCOR Distribution and Transmission, Inc., related to the company’s third generation performance-based regulation framework. The testimony included a calculation of industry total factor productivity (TFP) for the purpose of calibrating the Alberta Utilities Commission’s price cap, which adjusts the province’s distribution utilities’ permitted price growth each year over the performance-based regulation (PBR) term.

One of the key issues in the proceeding was the meaning of negative TFP growth in the distribution utility, and how this relates to the pricing of regulated companies. Dr. Meitzen and Mr. Crowley demonstrated the mathematics and intuition behind the price cap “inflation minus X” formula using FERC Form 1 data from a broad selection of distribution utilities in the United States. The testimony also included a discussion on the interaction of the price cap formula with various elements of the company’s PBR framework, such as the stretch factor, earnings sharing mechanisms, and the capital supplement known as K-bar.