Impact of multiyear rate plans on power distributor productivity: Evidence from Alberta

Abstract

Multiyear rate plans (“MRPs”) are an increasingly popular alternative to traditional utility ratemaking in North America. Rate cases are less frequent, and an attrition relief mechanism (“ARM”) escalates revenue between rate cases on some basis other than the utility’s contemporaneous cost growth. An approach to ARM design has developed in North America that is based on price and productivity indexing. Evidence filed in support of indexed ARMs frequently includes studies of the efficiency of subject utilities. Stronger utility performance incentives are a theoretical advantage of MRPs but few empirical studies have quantified this advantage. A proceeding in Alberta, where indexed ARMs are used, has yielded evidence that MRPs can accelerate utility productivity growth.