Dive Brief:

• Pennsylvania Gov. Tom Wolf signed legislation Thursday that will allow for a fundamental rethinking in how utilities make money, as part of the state's efforts to consider changes to distribution rate structures that reflect the industry's evolution.
• House Bill 1782 allows public utilities to petition the Public Utilities Commission to consider alternative ratemaking mechanisms as part of their base rate proceedings.
• The measure had strong legislative support, and was backed by PPL Utilities throughout the process. The House approved it by a vote of 191-1, and the Senate by a vote of 41-8.

Dive Insight:

There are many possible ratemaking schemes, including performance-based rates, formula rates, multiyear rate plans and some combination of those. But PPL Utilities has a clear preference: Multiyear decoupling of utility sales and revenues.

The utility issued a statement following the law's signing, outlining the benefits of decoupling and pointing out that some 18 states are already using a form of the structure. Under PPL's proposal, its revenues would be approved in advance by the PUC, and the utility would be able to collect "only the defined amount of revenue over a multi-year period — no more and no less."

Periodic true-ups would adjust kWh prices to account for any over- or under-collection by the utility. The idea is to break the link between electricity sales and revenues, encouraging the development of energy efficiency and other grid-edge resources.

The PUC said it will begin "evaluating how to coordinate this alternative ratemaking policy statement process with implementation of the statute." The new law allows for alternative rate structures for gas, electric and water utilities.

The PUC in May launched a proceeding to consider new rate structures, and issued a proposed policy statement that invited utilities to "explore alternative ratemaking methodologies" in distribution base rate cases.

Pennsylvania regulators have been focused on modernizing rate structures this year. The PUC launched a study of utility billing practices in January, and in March, regulators proposed new rules governing third party electric vehicle charging.