Full Title: Fixing Multiyear Rate Plans: Building a Firm Foundation for Utility Cost Control
Author(s): Gennelle Wilson, Melissa Whited, Ben Havumaki, Courtney Lane, and Cara Goldenberg
Publisher(s): Rocky Mountain Institute
Publication Date: October 3, 2025
Full Text: Download Resource
Description (excerpt):
Today’s electric grid is facing multiple challenges that require increased levels of utility investment. At the same time, the affordability crisis is putting pressure on utilities and regulators to limit cost growth and avoid unnecessary spending. The challenge of balancing these dual objectives highlights the limitations of the traditional cost-of-service regulatory framework, particularly its weak incentives for operational and investment efficiency, and the ability for utilities to shift risk to customers, including risks arising from poor utility fiscal management.
Multiyear rate plans (MRPs) are a ratemaking approach that can help balance the need for ongoing investments with stronger incentives for the utility to spend more efficiently. When designed well, MRPs have the potential to limit utility cost growth more effectively than traditional cost-of-service regulation.
However, the strength of an MRP’s cost-containment incentive is heavily dependent on several design choices. Many MRPs in the United States are implemented in ways that stray from the original intent of the framework, resulting in outcomes comparable to — or even worse than — those associated with traditional cost of service regulation. By contrast, well-designed MRPs have tremendous promise to enhance affordability, support utility financial stability, and advance a host of other regulatory and policy objectives.
This jointly authored report by RMI and Synapse Energy Economics is intended to help regulators and stakeholders recognize MRP design choices to avoid and remedy existing MRP design flaws.