Performance-Based Regulation

Performance-based regulation, or PBR, is an approach to utility regulation designed to strengthen the performance incentives faced by regulated utilities, and the term is used interchangeably with incentive regulation. It takes two main forms: award-penalty mechanisms, which attach financial rewards or penalties to performance targets, and multiyear rate plans, which set utility rates over several years using formulas meant to both control costs and reward improved performance. The economist Jean Tirole, a Nobel laureate, contributed theoretical work supporting the development of these mechanisms. Applying performance-based regulation well requires weighing several factors together, including the specific incentive mechanisms a regulator defines, so the approach genuinely encourages efficiency and productivity rather than simply shifting costs around. This description is adapted from Wikipedia contributors under CC BY-SA 4.0; changes were made. https://creativecommons.org/licenses/by-sa/4.0/