A Report on the Theory and Practice of Performance-Based Regulation

Abstract

This report is designed to be a self-contained introduction to performance-based regulation (PBR) with an emphasis on the energy sector in North America. The main topics include: key differences between PBR and traditional cost-of-service regulation (COSR), the various forms of PBR and their efficiency properties, common misconceptions about PBR, the economic and public policy principles that should inform the design and implementation of PBR, the mechanics of PBR, the advantages and disadvantages of earnings sharing mechanisms, the importance of regulatory commitment and the role of benchmarking in PBR regimes.

Keywords: Performance-Based Regulation, Regulatory Principles, Incentives, Regulatory Commitment

JEL Classification: L51, L96