Performance-Based Utility Regulation: Pitfalls Regulators Must Navigate

Across the regulatory landscape, a growing number of states are turning to performance-based frameworks to govern utilities — trading prescriptive oversight for outcome-driven incentives in an era of smart grids and distributed energy. The promise is elegant: reward efficiency, penalize failure, and let markets do the rest. Yet the distance between theory and practice is proving vast, as information gaps, misaligned incentives, and the quiet art of benchmark manipulation threaten to transform a reform meant to serve the public into a mechanism that enriches utilities at customer expense. The d