Performance-Based Regulation (PBR)

Any rate-setting mechanism that links rewards to desired results or targets by setting rates (or rate components) for a given time according to external indices rather than a utility’s actual cost of service. This type of regulation gives utilities better incentives to reduce cost than cost-of-service regulation. In developing performance standards for a PBR plan, a utility should: understand its historic performance in order to develop an appropriate baseline for yardstick Comparisons; determine those areas where cost savings may be realized and quality may be approved; and begin collecting information on service quality and develop measures to be used for benchmarking performance.