1 Declaration of Purpose. Cost of service utility regulation is a traditional approach used by regulatory authorities to determine electric and gas rates. Under this model, utilities are allowed to recover their operating expenses and capital investments from their customers. While this system has benefits, such as providing stable revenue for utilities and contributing to consistent service, it can and does also contribute to higher and/or volatile electric and gas rates. To address these challenges, regulatory authorities and utilities worldwide and in several US states are exploring alternative rate-setting mechanisms, such as performance-based regulation. The goal of these alternative regulatory mechanisms is to incentivize utilities to improve their operational efficiency, customer service, and overall performance, while also aligning their incentives with the broader goals of society. Unlike traditional cost of service regulation, where utilities are reimbursed for their costs and guaranteed a return on investments, performance-based regulation focuses on outcomes and encourages utilities to achieve specific targets and metrics. This approach can lead to improved service quality, cost savings, innovation, and a more sustainable and resilient energy sector.

2 Supervisory Power of Department of Energy and Public Utilities Commission; Performance Incentive Mechanisms. RSA 374:3-a is repealed and reenacted to read as follows:

374:3-a Performance Incentive Mechanisms.

I. No later than one year following the effective date of this section, the commission shall open an adjudicative proceeding to establish performance incentive mechanisms that directly tie electric and gas utility revenues to achievement on performance metrics.

II. In establishing performance incentive mechanisms, the public utilities commission shall consider:

(a) Electric rate affordability and volatility risk;

(b) Optimization of utility asset utilization rates;

(c) Maintenance and improvement of service reliability and safety;

(d) Peak load reduction attributable to demand response programs;

(e) Rapid integration of distributed energy resources;

(f) Timely execution of competitive procurement and third-party interconnection;

(g) Adoption of time-of-use rates and other demand flexibility strategies;

(h) Customer engagement and satisfaction;

(i) Public access to utility system information, including but not limited to public access to electric system planning data and aggregated customer energy usage data, and individual access to granular information about one's own energy usage data; and

(j) Fair compensation for utility employees.

III. As part of the adjudicative proceeding, the commission shall establish implementation timelines and deadlines for the adoption of the performance incentive mechanisms for each electric and gas utility. The commission shall apply the performance metrics to each utility as the public interest requires.

IV. In determining the public interest, the commission shall consider for each electric and gas utility, the following:

(a) Baseline performance on each metric.

(b) Existing infrastructure.

(c) Existing data systems and capabilities.

(d) Timing of the utilities' last rate case.

V. The commission shall issue a final decision in the adjudicative proceeding required by this section within 18 months of the commencement of the proceeding. Thereafter, the commission shall conduct an adjudicative proceeding to update, revise, and modify its previously approved performance incentive mechanisms at least every four years, or as the public interest requires.

378:56 Application of Performance Incentive Mechanism to Retail Rates.

I. Notwithstanding any provision of this chapter to the contrary, on and after the date the commission adopts its initial set of performance incentive metrics pursuant to RSA 374:3-a, the commission shall consider and implement the performance incentive mechanisms approved pursuant to that section whenever the commission investigates new and higher rates, fares, charges, or prices proposed by an electric or gas utility pursuant to RSA 378:5 or whenever the commission fixes the rates of any such utility pursuant to RSA 378:7.

II. In connection with seeking new and higher rates, fares, charges, or prices, an electric or gas utility may propose a multi-year rate plan that includes the performance incentives adopted by the commission pursuant to RSA 374:3-a as a mechanism for varying any initial revenue requirement determined by the commission to be just and reasonable in such rate proceeding. If a utility declines to propose such a multi-year rate plan the commission shall develop one on its own motion.

III. In a proceeding subject to this section, the commission shall adapt its approved performance incentive metrics to the circumstances of the subject utility so as to advance the objectives of such mechanisms set forth in paragraph II.

IV. No alternative rate plan approved pursuant to this section shall be applicable for longer than four years after the date on which the plan becomes effective as approved by the commission. An electric or gas utility operating pursuant to a multi-year rate plan shall submit a proposed new plan at least one year prior to the expiration date of a current plan, which the commission shall then consider pursuant to the provisions of this chapter.

3 Effective Date. This act shall take effect 60 days after its passage.

1 Declaration of Purpose. Cost of service utility regulation is a traditional approach used by regulatory authorities to determine electric and gas rates. Under this model, utilities are allowed to recover their operating expenses and capital investments from their customers. While this system has benefits, such as providing stable revenue for utilities and contributing to consistent service, it can and does also contribute to higher and/or volatile electric and gas rates. To address these challenges, regulatory authorities and utilities worldwide and in several US states are exploring alternative rate-setting mechanisms, such as performance-based regulation. The goal of these alternative regulatory mechanisms is to incentivize utilities to improve their operational efficiency, customer service, and overall performance, while also aligning their incentives with the broader goals of society. Unlike traditional cost of service regulation, where utilities are reimbursed for their costs and guaranteed a return on investments, performance-based regulation focuses on outcomes and encourages utilities to achieve specific targets and metrics. This approach can lead to improved service quality, cost savings, innovation, and a more sustainable and resilient energy sector.

2 Supervisory Power of Department of Energy and Public Utilities Commission; Performance Incentive Mechanisms. RSA 374:3-a is repealed and reenacted to read as follows:

374:3-a Performance Incentive Mechanisms.

I. No later than one year following the effective date of this section, the commission shall open an adjudicative proceeding to establish performance incentive mechanisms that directly tie electric and gas utility revenues to achievement on performance metrics.

II. In establishing performance incentive mechanisms, the public utilities commission shall consider:

(a) Electric rate affordability and volatility risk;

(b) Optimization of utility asset utilization rates;

(c) Maintenance and improvement of service reliability and safety;

(d) Peak load reduction attributable to demand response programs;

(e) Rapid integration of distributed energy resources;

(f) Timely execution of competitive procurement and third-party interconnection;

(g) Adoption of time-of-use rates and other demand flexibility strategies;

(h) Customer engagement and satisfaction;

(i) Public access to utility system information, including but not limited to public access to electric system planning data and aggregated customer energy usage data, and individual access to granular information about one's own energy usage data; and

(j) Fair compensation for utility employees.

III. As part of the adjudicative proceeding, the commission shall establish implementation timelines and deadlines for the adoption of the performance incentive mechanisms for each electric and gas utility. The commission shall apply the performance metrics to each utility as the public interest requires.

IV. In determining the public interest, the commission shall consider for each electric and gas utility, the following:

(a) Baseline performance on each metric.

(b) Existing infrastructure.

(c) Existing data systems and capabilities.

(d) Timing of the utilities' last rate case.

V. The commission shall issue a final decision in the adjudicative proceeding required by this section within 18 months of the commencement of the proceeding. Thereafter, the commission shall conduct an adjudicative proceeding to update, revise, and modify its previously approved performance incentive mechanisms at least every four years, or as the public interest requires.

378:56 Application of Performance Incentive Mechanism to Retail Rates.

I. Notwithstanding any provision of this chapter to the contrary, on and after the date the commission adopts its initial set of performance incentive metrics pursuant to RSA 374:3-a, the commission shall consider and implement the performance incentive mechanisms approved pursuant to that section whenever the commission investigates new and higher rates, fares, charges, or prices proposed by an electric or gas utility pursuant to RSA 378:5 or whenever the commission fixes the rates of any such utility pursuant to RSA 378:7.

II. In connection with seeking new and higher rates, fares, charges, or prices, an electric or gas utility may propose a multi-year rate plan that includes the performance incentives adopted by the commission pursuant to RSA 374:3-a as a mechanism for varying any initial revenue requirement determined by the commission to be just and reasonable in such rate proceeding. If a utility declines to propose such a multi-year rate plan the commission shall develop one on its own motion.

III. In a proceeding subject to this section, the commission shall adapt its approved performance incentive metrics to the circumstances of the subject utility so as to advance the objectives of such mechanisms set forth in paragraph II.

IV. No alternative rate plan approved pursuant to this section shall be applicable for longer than four years after the date on which the plan becomes effective as approved by the commission. An electric or gas utility operating pursuant to a multi-year rate plan shall submit a proposed new plan at least one year prior to the expiration date of a current plan, which the commission shall then consider pursuant to the provisions of this chapter.

3 Effective Date. This act shall take effect 60 days after its passage.