1. Utility Performance Incentive Mechanisms
Joe Dammel
Minnesota Attorney General’s Office
NASUCA Mid-Year Meeting
June 25, 2018
Minneapolis, MN

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

3. “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

4. BUILDING THE SANDBOX

5. Building the Sandbox
DEMAND
COSTS

6. Building the Sandbox
THROUGHPUT
CAPITAL

7. RENOVATING the Sandbox
RATES
THROUGHPUT
EFFICIENCY
RENEWABLES
GHGs
CAPITAL
DERs

8. RENOVATING the Sandbox
ALT COST REC
THROUGHPUT
MYRPs
FUEL ADJ.
DECOUPLING
CAPITAL
INCENTIVES

9. Rethinking the Sandbox
COMPONENTS OF A PIM:
PERFORMANCE METRIC
TARGET
FINANCIAL INCENTIVE

10. Rethinking the Sandbox
1. ARTICLUATE GOALS
2. ID DESIRED OUTCOMES
3. ID METRICS
4. EST. METRICS
5. EST. TARGETS
6. EST. INCENTIVES
7. EVALUATE & REPEAT

11. Rethinking the Sandbox
1. ARTICLUATE GOALS
2. ID DESIRED OUTCOMES
3. ID METRICS
4. EST. METRICS
5. EST. TARGETS
6. EST. INCENTIVES
7. EVALUATE & REPEAT

12. Goals Outcomes Metrics Hierarchy

13. Goals Outcomes Metrics Hierarchy
WHY WE REGULATE
WHAT WE WANT
WAYS TO MEASURE

14. Goals Outcomes Metrics Hierarchy

15. 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

16. 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

17. 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

18. Regulatory Goals Why do we regulate utilities? Customer Focus Outcome
Metric
Operational Effectiveness
Financial Performance
Public Policy Responsiveness

19. Desired Outcomes What do we want from utilities? Customer Focus
Metric
Operational Effectiveness
Financial Performance
Public Policy Responsiveness

20. Desired Outcomes: Customer Focus
What do we want from utilities?
Customer Focus
Outcome
Metric

21. Desired Outcomes: Customer Focus
What do we want from utilities?
Customer Focus
Service Quality
Metric
Reliability

22. Tied to policy goals, outcomes Quantifiable Verifiable Clearly Defined
Performance metrics
How do we measure?
A metric should be:
Tied to policy goals, outcomes
Quantifiable
Verifiable
Clearly Defined
Under Utility Control

23. Reliability is an outcome, SAIDI is a metric.
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.

24. Performance metrics Customer Focus Service Quality Reliability
How do we measure?
Customer Focus
Service Quality
Call answer time
# Complaints
Reliability
SAIDI
SAIFI

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

26. Three Paths
PIMs
Traditional
Modern
Hybrid

27. Thank you Follow along at home! MNPUC docket no. 17-401 Questions?
Contact Joe Dammel,