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NextEra Insights Inc.


Services for the Regulator

Energy industry landscape has changed drastically in last three decades. Energy industry regulation, and in particular electricity industry regulation has been challenged by frequent and significant changes.

Regulator has to act as proxy for competition for regulated utility with monopoly over the assigned service area, and it has to ensure fair, efficient, and open competition between unregulated utilities.

The Regulator has to determine course of action that results in most efficient outcome on short run and long run basis even as supply, demand, behaviour, policy, legislation, regulation, standard, financial, and economic conditions change over time, and are outside of its control.

The Regulator has relied on concepts like cost share, benefit share, and economic efficiency to distribute risks and rewards. In this era of integration and interdependencies, multiple factors drive cost or benefit, not all of which can be agreeably quantified.

NextEra is well versed in theory and practice of regulation, particularly how the Regulator can effectively function in conditions unique to its jurisdiction. We can lead or assist the Regulator in following areas:

Cost of service regulation

Cost of service regulation provides Utility a reasonable opportunity to earn return on prudent investments and return of prudent expenditures. The Regulator has to assess prudency of all investments and expenditures, and then determine just and reasonable way of recovering these costs.

Performance based regulation

Performance based regulation eliminates any extra incentive to invest and expense by decoupling Utility costs and revenues. The Regulator has to determine an appropriate sharing of risks and rewards between Utility and Consumers while ensuring investments and expenses required to maintain reliability are still made.

Need (NID) assessment

Independent system operator or Utility is required to being forward any investment or expenses need. Usually it takes the form of a need application by the Operator or Integrated Resource Plan filing by the Utility. The Regulator has to examine the need against relevant standard, rule, regulation, or legislation.

Power plant application

Generation function has been deregulated in some jurisdictions. Generating unit proponent is required to file a power plant application with the Regulator. While economic aspects are covered by markets, Regulator has to consider air, land, water, and noise impacts, and viability to construct, operate, retire, and remedy the site.

Permit and License (P&L) application

Permit & License application specifies how a particular need will be met by adding specific new facilities or specific services. Permit & License application provides a comprehensive assessment and comparison of all options. Regulator then balances many considerations to select the best overall option.

Rate design review

Rate design exercise intends to recover cost of providing service in economically efficiently manner while maintaining fairness, stability, simplicity, clarity, and predictability. Significant changes in nature of costs or future expectations may require a change to rate design. Regulator has to balance many competing considerations to determine best overall rate design and implementation plan.

Business case review

Smaller need or Permit & License type matters, in terms of justification, timeframe, costs or expenses, such as capital maintenance and replacement, are usually considered all together as business cases included with a general tariff application. Much like need or P&L application, Regulator has to examine and approve or deny.

Deferral account reconcilliation

Rates and riders are approved based on forecasts of costs, consumption, and revenues. After the year end any surplus or shortfall has to be disposed. Regulator has to determine the appropriate method of disposing such deferral accounts, and then ensure proper implementation of method in calculations and invoices.

Riders review

Riders are used to manage any surplus or shortfall to an acceptable level, usually within the year on a quarterly or monthly basis. Much like deferral account reconciliation, Regulator has to determine the rider structure and then monitor its implementation and operation.