INCENTIVE MECHANISMS FOR U.S. UTILITIES BENCHMARK SAMPLE
Company
AGL Resources
Consolidated Edison
Northwest Natural Gas
NSTAR
Piedmont Natural Gas
WGL Holdings Inc.
Original: 2010‐05‐27
Subsidiary
Commission
Incentive Mechanism
Additional Returns
Mechanism Information
Decision
Virginia Natural Gas (VNG)
Virginia State Corporation Commission
Performance Based Rate (PBR) Plan
Pivotal Utility Holdings
New Jersey Board of Public Utilities
Performance Based Rate (PBR) Plan
Consolidated Edison of NY (Electric)
New York Public Service Commission
Earnings Sharing Plan
Consolidated Edison of NY (Gas)
New York Public Service Commission
Earnings Sharing Plan
Orange and Rockland Utilities
New York Public Service Commission
Earnings Sharing Plan
1) Base rates to be frozen for five years beginning 1/1/06 2) base rates may be
adjusted for changes in taxation and for financial distress of VNG beyond its control 3) VNG will not seek further regulatory treatment of outstanding portion of the unrecovered acquisition premium 4) additional capacity construction 5) measures to reduce gas cost for 2006 1Q 6) project schedule and quarterly reports to Staff 7) stipulating parties may petition for termination of PBR if stipulations are not being observed.
No earnings restrictions
VA Order
Plan expired at the end of 2009. Five year rate freeze starting in 2004 that Earnings sharing in years four allowed company to retain 25% of earnings in excess of 11% ROE in years four and five of five year plan
and five of plan.
NA
In year one, incremental earnings are to be deferred for customers as follows: 50% of earnings between 11.15% and 12.15% ROE, 75% of earnings between Earnings sharing in excess of 12.15% and 13.15% ROE, and 90% of earnings above 13.15% ROE. In years an 11.15% ROE in year one, two and three as follows: 60% of earnings between 10.65% and 12.15% ROE, and a 10.65% ROE in years 75% of earnings between 12.15% and 13.15%, and 90% of earnings above a two and three
13.15% ROE.
NY Order
Earnings sharing in excess of Company may retain 100% of incremental earnings up to 10.7% ROE, and 50% 9.7% ROE
of earnings in excess of 10.7% ROE.
NY Order
Earnings between 11.4% and 12.4% ROE allocated equally between ratepayers and shareholders, earnings between 12.4% and 14% ROE are allocated on a 65%/35% basis between ratepayers and shareholders, and earnings over 14% are allocated on a 90%/10% basis between ratepayers and shareholders. Earnings in any rate year below the threshold could be used to offset earnings that are in excess in any other rate year. If earned ROE Earnings sharing in excess of exceeds 11%, ability to recover costs through the expense true‐up would be an 11.4% ROE
limited.
NY Order
Purchased Gas Adjustment Sharing Mechanism
Annual earnings tests are conducted each spring. By August 1st a utility must choose either an 80/20 customer/utility sharing or 90/10 sharing. If earnings are 100 basis points above allowed ROE, and the 90/10 sharing was chosen, 90% of those revenues are to be credited to a deferred account and returned Earnings at least 100 basis to ratepayers as part of the subsequent PGA filing. If earnings are 150 basis points above allowed ROE are points above the allowed ROE and 80/20 sharing is chosen, 80% of revenues shared
are returned to ratepayers.
NA
Northwest Natural Gas
NSTAR Electric
Piedmont Natural Gas Washington Gas Light
Oregon Public Utility Commission
All earnings outside of the ROE range are shared equally with ratepayers. Beginning 1/1/07 and annually through 12/31/12 the SIP will be implemented under which distribution prices are to be adjusted annually based on the change in the GDP‐Price Index minus 0.5% in 2007, 0.55% in 2008, 0.60% in 2009, 0.65% in 2010, 0.70% in 2011, and 0.75% in 2012. Such price changes are to be offset by further reductions in the company's transition rates. All amounts associated with the electric transition rate reductions are to be deferred and collected from customers at a later date with carrying charges at 10.88% per year.
MA Order
Massachusetts Department of Public Utilities
Earnings Sharing Plan and Performance‐ Earnings sharing outside of Based Simplified Incentive Plan (SIP)
8.5% to 12.5% ROE range
Public Service Commission of South Carolina (PSC)
Under PSC approval, company may adjust rates once per year if their earned Allows for rate adjustments if ROE is outside a band of plus or minus 50 basis points around the previously earned ROE is outside a 50 authorized ROE. Company must request a rate change by June 15 of each Natural Gas Rate Stabilization Act (RSA) basis point band
year in conjunction with their March 31 quarterly surveillance filings.
NA
Virginia State Corporation Commission
Performance Based Rate (PBR) Plan
Under the PBR plan base rates are to be frozen for four years ending 9/30/11. Earnings sharing above 10.5% During the freeze period incremental earnings in excess of 10.5% ROE are to ROE
be allocated 75% to ratepayers and 25% to shareholders.
VA Order
GI‐30
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Requête 3724‐2010
INCENTIVE MECHANISMS FOR CANADIAN UTILITIES
Commission
Enbridge Gas Distribution
Foothills Pipe Lines
FortisBC
Gaz Metro
Ontario Electricity Distributors
Terasen Gas Inc
Original: 2010‐05‐27
Ontario Energy Board
NEB
BCUC
Régie
Ontario Energy Board
BCUC
Incentive Mechanism
Incentive Regulation Plan; Earnings Sharing Mechanism
Additional Returns
Earnings sharing above allowed ROE
Decision
Five year plan starting in 2008 under which any rate adjustment will be limited by a revenue per customer cap. The annual distribution revenue per customer is adjusted by multiplying the inflation factor by the inflation coefficient. Earnings sharing mechanism‐the shareholder retains the first 100 basis points of normalized ROE above the notional allowed ROE while earnings in excess of 100 basis points above the notional allowed ROE are shared equally with customers.
OEB Decision
From 2003 to 2015 the amount of Incentive G&A Expenese to be included in the operating and maintenance budget shall be the previous year's amount multiplied by 1.03 (starting in 2003 at $12,978,000). Foothills and its shippers agree to share any amount by which the actual amount of the Incentive G&A Expenses is less than the agreed amount. In 2003 and 2004 Foothills will credit shippers 10% of the savings, 2005 and 2006 20%, 2007 and 2008 30%, 2009 and 2010 40%, and 2011 through 2015 50% of the incentive savings will be credited to the shippers.
Foothills Application
G&A Incentive Plan
Performance Based Rate (PBR) Plan
Mechanism Information
Annual gross operating and maintenance expenses before capitalized overhead are set by formula incorporating customer growth and inflation (BC CPI) minus a productivity improvement factor of 2% in 2007, 2% in 2008, and 3% in 2009. Annual capitalized overhead will be set at 20% of the BCUC approved gross operating and maintenance expense. Other components of revenue requirements are forecast 2% collar around the allowed annually. Earnings outside of the 2% collar of ROE will be shared equally between ROE; earnings outside collar customers and shareholders. The Company's portion of the incentive is subject to the Company meeting certain performance standards and BCUC approval. shared equally
BCUC Decision
Performance Incentive Mechanism
Gaz Metro will file an application every year with the Régie to set rates. This application will compare the projected cost of service with the results of a price cap formula which applies an escalation factor equal to inflation net of a predetermined X factor to the price cap for the preceeding year and an adjustment for a portion of the volume variations. If the projected cost of service is inferior to the reference formula the company will retain a portion of the difference in the form of an authorized incentive return. If the projected cost of service is greater than the referenc formula, rates will be set on the projected cost of service but the company will offset the excess with productivity gains or reimburse 50% of the excess up to a certain level if they are not offset by productivity gains.
Incentive Mechanism Settlement
3rd Generation Incentive Rate Plan
No earnings sharing mechanism
Rebasing of rates based on the following components: 1) Inflation factor‐Canada GDP IPI for final domestic demand 2) Productivity factor‐fixed at industry total factor productivity trend percentage per year for term of plan 3) Stretch factors‐
differentiated based on distributor efficieny, distributors will be assigned to 1 of 3 groups based on efficiency 4) Z Factors‐subject to the three criteria of causation, materiality, and prudence 5) Incremental capital‐subject to the three criteria of materiality, need, and prudence.
OEB Report
Earnings sharing above or below the allowed ROE
Expired at the end of 2009. PBR allows for 50/50 sharing of earnings above or below the allowed ROE. Includes ten service quality measures to maintain adequate service levels. Requires an annual review process. Operation and maintenance costs and base capital expenditures subject to incentive formula allowing incremental costs for customer growth and inflation less an adjustment factor. OEB Decision
Performance Based Rate (PBR) Plan
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Requête 3724‐2010
INCENTIVE MECHANISMS FOR CANADIAN UTILITIES
Commission
TransCanada Pipelines
Union Gas
Original: 2010‐05‐27
NEB
Ontario Energy Board
Incentive Mechanism
Additional Returns
Effective for the Mainline 5 years starting 1/1/2007. PIE includes the following incentive programs: Fuel Gas Incentive Program, Leak Detention and Repair Incentive Program, Municipal and Provincial Capital Tax Incentive Program, Great Lakes Gas Transmission Management Incentive Program, and Fuel Ratio Accuracy and Timeliness Incentive Program
Peformance Incentive Envelope (PIE)
Incentive Regulation Framework
Mechanism Information
Earnings sharing with a variance of 3% or more between actual ROE as normalized for weather and allowed ROE
Decision
NEB Decision
New rates at the beginning of each year through the use of a pricing formula rather than through the examination of revenue and cost forecasts. Allows for annual inflationary rate increases offset by a productivity factor of 1.82% that is fixed for five years effective 1/1/08. 90%/10% sharing mechanism in favour of customers for any weather normalized ROE of 3% or more above the benchmark utility ROE for the year.
OEB Decision
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Requête 3724‐2010