The Brattle Group brings to its assignments an understanding of international practice in regulation of gas, electricity, and telecommunications. We help companies around the world to develop and implement innovative regulatory mechanisms and communicate their merits to regulators and other stakeholders. We support proposed regulatory frameworks through expert testimony.
These mechanisms include various forms of incentive or performance-based regulation, formula-based rates, and innovative tolls for the recovery of uncontrollable costs, capital expenditures, and the cost of environmental compliance. We assist utilities to review available alternative regulatory solutions to help develop, propose, and/or implement innovative incentive regulation plans.
We also have expertise in regulatory consulting strategy, utility capital and operating expenditures, key financial issues affecting regulated utilities, cost of capital, regulatory accounting practices and processes, and quality of service issues.
On behalf of a large energy company, we made recommendations for an incentive regulation regime for Germany’s gas market, advising on the costs and services that should be subject to incentive regulation. We addressed a number of issues regarding appropriate price controls, such as how to calculate the allowed revenues, identification of cost drivers, and how to include the cost drivers in the incentive regulation regime.
We submitted testimony before the California Public Utilities Commission examining the appropriateness of a shareholder incentive proposed by an electric utility to encourage it to acquire cost-effective energy efficiency resources. Using a conceptual framework grounded in empirical studies of incentive regulation, we concluded that the company’s proposal would provide an incentive to acquire energy efficiency resources in an efficient manner and at the same time protect ratepayers from unduly high rates.
We advised the UK regulator, Ofgem, throughout negotiations of regulatory mechanisms for UK gas and electricity transmission operators (now both part of National Grid Company). We were extensively involved in the development of UK incentives on system operation in both electricity and gas.
We designed a comprehensive incentive mechanism to replace traditional cost of service regulation for a Northeastern U.S. gas distribution company. We designed a price cap for base rates, storage and transportation costs, and a market-index-based mechanism to address the cost of gas supply. Sharing bands were devised to hold financial risks within politically and operationally acceptable levels, and a quality of service incentive was developed to prevent deterioration of reliability and service quality.
We designed incentive pricing mechanisms for recovering several pipelines’ expected costs and reducing their regulatory burdens. Among these have been Automatic Rate Adjustment Mechanisms (ARAMs) for indexation of operations and maintenance expenses, construction cost variance-sharing for routine capital expenditures that included a procedure for eliciting unbiased estimates of future costs, and market-based prices capped at replacement costs when near-term future expansion was an uncertain but probable need.