WELCOME
Welcome to the website of the Pacific Economics Group (PEG) companies. The PEG consortium consists of two companies that are active in the fields of litigation and utility regulation. Principals of these companies are based in California and Wisconsin and include several nationally recognized economists. Please explore the site and learn more about the PEG companies and the services we provide.
PEG NEWS
Productivity Update
PEG Research is the leading expert witness on the productivity trends of energy utilities in the United States and Canada. Here is a summary of our recent results presented in testimony and other recent publicly available reports.
| Industry | Productivity Growth Trend | Sample Period | ||
|---|---|---|---|---|
| | Northeast U.S. Power Distributors | 0.64% | 1999-2010 | |
| U.S. Gas Distributors | 1.32% | 1996-2009 | ||
| Gaz Metro | 1.66% | 2000-2009 | ||
| Enbridge Gas Distribution | 1.07% | 2005-2010 | ||
| Union Gas | 1.65% | 2005-2010 | ||
| |
April 2012
Mark Newton Lowry filed testimony in the state of Washington in support of an attrition adjustment for the electric services of Avista. Avista offers vertically integrated electric service in eastern Washington and has been engaged in recent years in an aggressive capital spending program. Under Washington’s largely traditional approach to regulation the Company has filed frequent rate cases but nonetheless experienced chronic under earning. Dr. Lowry studied the trends in the Company’s costs and billing determinants and quantified the revenue deficiency that is likely in 2013, the first year that new rates take effect. Avista requests that the revenue deficiency be added to the revenue requirement. Attrition adjustments were a common form of alternative regulation in Washington and other states during the 1970s and 80s.
December 2011
Dr. Lowry filed testimony in Alberta on behalf of the Consumers Coalition of Alberta. The Alberta Utilities Commission has launched a Rate Regulation Initiative that requires energy distributors in the province to step away from the current practice of biennial rate cases and instead adopt multi-year rate plans (aka performance-based ratemaking or PBR plans) that escalate rates using inflation – X formulas. To assist in setting the X factors, Dr. Lowry submitted evidence from a recent study of the multifactor productivity trend of US gas distributors. Over the 14 year 1996–2009 period he reports 1.32% average annual productivity growth for the full US sample. This was similar to the productivity growth of the U.S. economy.
December 2011
Mark Newton Lowry filed testimonies for Pepco and Delmarva Power in Maryland and for Delmarva Power in Delaware supporting an alternative approach to the Companies' rate regulation. Pepco and Delmarva Power are both entering periods of high capital spending to improve the reliability of distribution service. Dr. Lowry explains in each filing why traditional ratemaking practices produce chronic under earning and frequent rate cases for energy distributors engaged in accelerated system modernization. He surveys salient alternative forms of regulation that can mitigate the problem and recommends that the Commission approve capex cost recovery mechanisms in the instant proceeding and the use of forward test years in subsequent rate cases.
October 2011
Mark Newton Lowry filed testimony for Atlantic City Electric in support of a capex cost recovery mechanism for an extension of the Company’s Infrastructure Investment Program. The New Jersey-based power distributor is engaged in a program of high capital spending to help it improve system reliability. Dr. Lowry explains in his testimony why traditional ratemaking practices do not work well for contemporary energy distributors engaged in accelerated system modernization. Average use grows much more slowly than in the early post war period, while the rate base of electric utilities grows much more rapidly than in the 1990s and the early years of the present century, when there was a hiatus on new generation construction. Accelerated system modernization is thus likely to result in frequent rate cases and chronic under earning under traditional regulation. Dr. Lowry surveys salient alternative forms of regulation that can mitigate the problem.
September 2011
PEG Research has filed a report for the Ontario Energy Board assessing the incentive regulation plans for Union Gas and Enbridge Gas Distribution. Both companies operate under incentive regulation plans that were approved in 2008 and include index-based attrition relief mechanisms and partial revenue decoupling. This project has been led by Senior Advisor Larry Kaufmann, and evaluated the impact of each Company's incentive regulation plan on its gas delivery rates, cost and productivity trends, financial indicators, and service quality performance. The analysis indicated that the incentive regulation plans encouraged both Enbridge and Union to control costs more effectively and generate productivity and efficiency improvements while sharing those benefits with ratepayers.
July 2011
Mark Newton Lowry filed testimony in Oklahoma on the cost efficiency of Oklahoma Gas & Electric. The study addressed the company's generation maintenance expenses as well as its total non-fuel O&M expenses. In 2010 the company continued to be a top quartile O&M cost performer and was a second quartile generation maintenance cost performer.
July 2011
PEG Research President Mark Newton Lowry filed testimony for Potomac Electric Power in the District of Columbia supporting an alternative approach to the Company's regulation. Pepco is entering a period of high capital spending as it scrambles to improve the reliability of its service in the District. Dr. Lowry explains in his testimony why traditional ratemaking practices do not work well for contemporary energy distributors engaged in accelerated system modernization. The cost of energy distribution grows much more rapidly than billing determinants even under normal circumstances today because of a gap between inflation and productivity growth that isn't offset by growth in customers' average use. Accelerated system modernization widens the inflation - productivity gap and results in frequent rate cases and chronic under earning. He surveys salient alternative forms of regulation that can mitigate the problem and recommends that the Commission approve a Reliability Investment Recovery Mechanism in the instant proceeding and use of fully forecasted (forward) test years in subsequent rate cases.
July 2011
Blaine Gilles Joins PEG Research
PEG Research is pleased to announce that Blaine Gilles has joined the firm as a Senior Advisor. His career has spanned more than two decades in which he has been a business leader, government regulator, and economic researcher focused on the issues of network-based businesses. Issues that arise with the development of competition in regulated industries are a specialty. He is also an expert in formulating strategies to deal with challenges posed by developing and pricing capital-intensive services and effectively managing profitability amid challenging and rapidly changing regulatory and market conditions. Blaine has served as an expert witness in a variety of regulatory and legal proceedings.
Dr. Gilles played a significant role in the transformation of the U.S. telecommunications industry from regulated monopoly to competition. Between 1999 and 2006, he led the voice services business of WilTel Communications, previously a subsidiary of the Williams Companies, to achieve annual revenues of over $1.3 billion. He held a variety of positions in the regulatory department of Ameritech in metropolitan Chicago. He has also led product management, marketing and sales, and business and technical operations at Level 3 Communications, NewCross Technologies, and WorldCom. Blaine earlier served as an economist for the Policy Analysis and Research Division of the Illinois Commerce Commission and was an Assistant Professor of Economics at Kalamazoo College.
Prior to joining PEG Research, Dr. Gilles operated a private consultancy where he supported a variety of network-based firms and private equity companies, as well as the U.S. Securities & Exchange Commission and the U.S. Department of Justice. He has been a key advisor to clients on mergers and acquisitions, competitive strategy, and pricing. At PEG Research, Blaine will participate in the Company's energy utility consulting as well as opening a practice in the field of telecommunications.
Dr. Gilles received his PhD and MA in Economics from Michigan State University where he studied regulatory economics with Harry Trebing of Michigan State's Public Utilities Institute. He also earned a BS in Economics and a BA in International Relations from the University of Minnesota. A native of Amherst, Wisconsin, he currently resides in Hoffman Estates, Illinois with his wife and daughter.
May 2011
The Edison Electric Institute released a white paper on "Innovative Regulation Remedies for Regulatory Lag". The paper was prepared by a PEG Research team lead by company President Mark Newton Lowry. It explains the salient alternatives to traditional cost of service regulation which can remedy the problem of regulatory lag that many utilities face today. The paper focusses on multiyear rate plans, revenue decoupling, formula rates, forward test years, and capital spending ("capex") trackers. There is an authoritative listing of recent precedents for each innovation. The problem of regulatory lag and promising remedies are currently a major focus of the EEI. To obtain a copy of the Report, click here.
March 2011
PEG Research issued a report on the design of a new Performance Incentive Mechanism for Gaz Metro in Montreal. The study calculated the recent input price and productivity trends of Gaz Metro and developed forward looking productivity growth targets that reflect the company's forecasts of its future business conditions. The research provides the basis for a revenue decoupling mechanism that indexes the revenue requirement to inflation. Index-based cost targets were developed for O&M expenses and capital spending which can be used in an incentivized formula rate regulatory system that Gaz Metro recently proposed.
February 2011
PEG Research has won a competitive bid to advise the Ontario Energy Board on how to define and measure the performance of the province?s electric utilities. The review, led by Senior Advisor Larry Kaufmann, will begin with the issuance of a Concept Paper to provide a framework and structure for analyzing performance issues. The review will culminate with the issuance of a Board report setting out the Board's policy for defining and measuring performance of electricity distributors and transmitters that will be used to inform the setting of rates whether through a cost of service review or through a multiyear rate adjustment mechanism. Currently, companies in the province operate under index-based attrition relief mechanisms with the option to opt out and operate under cost of service regulation.
January 2011
PEG Research issued a report on the generation maintenance expenses of Oklahoma Gas and Electric. The company is seeking special ratemaking treatment for a mechanical integrity program that would involve higher maintenance expenses. The study found that the company's maintenance expenses in recent years were unusually low.
January 2011
PEG Research President Mark Newton Lowry testified on revenue decoupling for Commonwealth Edison (ComEd) in Chicago. The company proposed fixed variable pricing in the proceeding, while the Natural Resources Defense Council proposed a decoupling true up plan. Dr. Lowry's testimony included an authoritative white paper that considers the pros and cons of both approaches and their appropriateness for ComEd and details recent precedents. The Illinois Commerce Commission approved in a May decision a move to fixed variable pricing. To obtain a copy of the Report, click here.
December 2010
Mark Newton Lowry filed statistical benchmarking testimony on the cost efficiency of Public Service of Colorado's gas system. Total cost and O&M expenses were both considered. PEG Research is one of the only consultancies in the world that is a long-time practitioner of rigorous total cost benchmarking. As in previous testimony on the electric operations of Public Service, the focus of this study was the company's proposed forward test year expenses. The proposed costs were found to reflect a superior level of cost management. The study also provided statistical evidence that forward test years and historical test years generate similar performance incentives on balance.
December 2010
PEG Research was selected by the Edison Electric Institute to help the trade association develop a database on approaches to Altreg that help utilities reduce regulatory lag in the recovery of capital expenditures. Approaches to Altreg that are included in the database include capex trackers, CWIP in rate base, formula rates, and multiyear rate and revenue caps. Gas utility precedents are included because of their relevance to electric power distributors. The database is now available to EEI member utilities.
December 2010
Dr. Charles J. Cicchetti, a founding member of California-based Pacific Economics Group LLC, released a report on December 8, 2010 entitled "Expensive Neighbors: The Hidden Cost of Harmful Pollution to Downwind Employers and Businesses." The report finds that pollution from coal-fired power plants that have failed to install pollution controls is costing businesses in affected downwind states nearly $6 billion annually because of higher labor and insurance costs, lost work days, and lost productivity. The report also quantifies the costs avoided by reducing sulfur dioxide (SO2) and nitrogen oxides (NOX) emissions in downwind states. It concludes that, under any reasonable set of assumptions, the benefits of the Environmental Protection Agency's (EPA) proposed "Transport Rule" under the Clean Air Act far outweigh any associated compliance costs. To obtain a copy of the Report, click here.
November 2010
PEG Research issued a report on the O&M expenses of Oklahoma Gas and Electric. The study, which was filed in their Arkansas rate case, used unit cost indexes and an econometric benchmarking model. The company was found to be a significantly superior O&M cost performer.
August 2010
John Chamberlin Joins PEG Research
PEG Research is pleased to announce that John Chamberlin has joined the firm as a Senior Advisor. His career, spanning more than three decades, has focused on planning, strategy, and policy issues related to energy efficiency programs, resource planning, and utility pricing. John played a prominent early role in the establishment of utility DSM programs and integrated resource planning in North America. He has long championed DSM performance incentives and revenue decoupling and has recently helped PEPCO Holdings establish decoupling plans in several jurisdictions. With the addition of John to our team, PEG Research consolidates its position as a leading revenue decoupling consultancy. Our three decoupling witnesses have filed relevant testimony in support of 23 approved decoupling mechanisms.
Dr. Chamberlin has also played a leadership role in the development and application of innovative electric pricing strategies. Dynamic pricing is a specialty. He developed some of the earliest interruptible and curtailable rates in the US and has since developed and evaluated numerous market based energy and demand rates, critical peak rates, TOU rate structures, and similar prices designed to influence load at times of system peak. He has recently managed several cost of service studies and led the development of demand response rates for a Midwestern utility.
Dr. Chamberlin has co-authored several books, including Demand-side Management: Concepts and Methods and Demand-side Management Planning. John has also authored of dozens of published articles and monographs and has been invited to present more than a hundred speeches on energy related topics at industry conferences. He has testified dozens of times before state and Canadian provincial regulatory commissions.
Before joining PEG Research, Dr. Chamberlin held senior management positions at the Cadmus Group, Quantec, Xenergy, and PG&E Energy Services and was cofounder of Barakat and Chamberlin. Earlier, he was employed at the Electric Power Research Institute, ICF, and Westinghouse Hanford. He earned a BA in Economics at California State University (Chico) in 1972, and the MA(1975) and PhD(1976) in Economics at Washington State University. He has been a member of numerous industry organizations, and was a founding board member of the Association of Energy Service Professionals. With his wife, Joanne, he splits the year between residences in Chico, California and Reedsburg, Wisconsin.
August 2010
The Hawaii Public Utilities Commission today gave final approval to the decoupling true up plans of the three Hawaiian Electric utilities. The Commission stated in its
- While Hawaii could rely only on setting specific [renewable portfolio standard (RPS)] mandates and other clean energy objectives, relying only on mandates may not yield the desired results...decoupling represents a possible means of enhancing Hawaii's commitment to wean itself from fossil fuels. Thus, decoupling supports the achievement of the RPS by the HECO Companies and supports the [energy efficiency portfolio standard]. Decoupling also helps reduce or eliminate regulatory lag, thereby allowing the HECO Companies more timely cost recovery, which facilitates their ability to fulfill Hawaii's statutorily mandated energy policy objectives.
Each plan features revenue decoupling for all service classes and an explicit revenue adjustment mechanism ("RAM") that adjusts the revenue requirement between rate cases for a wide range of business conditions. The RAM has a "hybrid" design like those used for many years in California decoupling plans. It includes indexation of O&M expenses and special treatment of major plant additions. The Commission has directed the companies to operate under three year staggered rate case cycles to ensure that the RAMs reduce the frequency of rate cases.
The HECO plans continue the trend in the electric power industry away from the revenue per customer ("RPC") approach to decoupling that is common in the natural gas industry. The Commission explicitly rejected this approach, stating that
- The RPC mechanism, which was not intended to address issues such as regulatory lag, will not perform as well as the RAM in meeting the objective to maintain the HECO Companies' financial integrity. In addition, the Commission finds that the RPC method may not provide adequate rate relief where the increases in costs may be far greater than increases in customers, or where the customer base is decreasing. Although various packages, including RPC plus rate cases, were discussed at the hearing, it does not appear from the record that any of these options would reduce regulatory lag, maintain the HECO Companies' financial integrity, or support the achievement of Hawaii's objectives as well as the RAM.
The plan is a component of the Hawaii Clean Energy Initiative, under which HECO has agreed to a wide range of measures to promote conservation and clean energy. PEG Research President Mark Lowry was a witness for the HECO companies in the proceeding.
August 2010
PEG Research President Mark Newton Lowry has just filed testimony in California on the productivity trends of U.S. gas and electric power distributors. Over the 1999-2008 sample period, he reports that the total factor productivity ("TFP") of a large sample of U.S. electric power distributors grew at a 0.88% average annual pace. The TFP of a sample of natural gas distributors averaged 1.18% annual growth. The multifactor productivity index of the U.S. private business sector averaged 1.31% growth over the same period. The testimony was filed on behalf of two Sempra Energy utilities: San Diego Gas and Electric and Southern California Gas. SoCalGas is the largest gas distributor in North America. Dr. Lowry has provided productivity testimony for these companies in their general rate cases since the mid-1990s. SoCalGas has operated under revenue decoupling continuously since that time.
Springtime in Madison
PEG Research employees are enjoying the springtime weather at the company's office in Madison, Wisconsin. From our perch above Capital Square, we have watched the grass turn green, the tulips bloom, and the oak trees burst into leaf. We wish you all the best in this season of hope and renewal.
April 2010
Larry Kaufmann, Senior Advisor to PEG Research, recently submitted Direct and Rebuttal testimony in support of an O&M net inflation adjustment mechanism proposed by National Grid for a gas utility decoupling plan in Massachusetts (D.P.U. 10-55). The proposed mechanism would allow National Grid to recover annual, formula-based adjustments in its O&M expenses over a multi-year period. The net inflation adjustment formula is inflation in the gross domestic product price index (GDP-PI) minus an O&M productivity offset of 0.52%. Dr. Kaufmann's proposed productivity offset was calibrated using a study of O&M input price and productivity trends for gas distributors in the northeast United States. A final Order in this proceeding will be issued by the end of October 2010.
March 2010
The Ontario Energy Board has posted a report by PEG Research on revenue decoupling. The report, authored by company president Mark Newton Lowry and entitled Review of Revenue Decoupling Mechanisms, is the outcome of a months long study. It is intended to provide Ontario policymakers with a solid background for considering new directions for its decoupling policy. The report discusses all three established approaches to decoupling: lost margin trackers, decoupling true-up plans, and straight fixed variable pricing. There is an authoritative review of key precedents and an analysis of the circumstances in which each decoupling approach is advantageous. A discussion of the design of revenue adjustment mechanisms draws on the company's extensive experience with this complex subject. Linkages between decoupling and other regulatory issues are stressed, including rate design and the choice between forward and historic test years. The report also reviews Ontario's decoupling policies and considers promising new directions. The Board recently established a consultation process (EB-2010-0060) to address provincial decoupling strategy. A conference to discuss the report is scheduled for April 19 in Toronto. Ontario energy distributors have extensive DSM programs that slow growth in average use by small volume customers. Conservation and long displacement generation are also encouraged in the province by the recently passed Green Energy and Green Economy Act. A copy of the report is available here.
December 2009
On Friday December 4, the Colorado Public Utilities Commission approved a settlement in the rate case of Public Service of Colorado. The company's featured evidence was based on a forward test year (FTY). PEG Research provided statistical support for the FTY filing. It showed that the company's proposed O&M expenses reflected a good level of operating performance. The sample used in the benchmarking study was also used to show that the trend in the O&M performance of companies operating under forward test years was similar to, and a little better than, that of companies operating under historic test years. The approved revenue requirement is based on an historic test year with extraordinary adjustments for future business conditions, including the costs of a smart grid project. The settlement also provides that Public Service will file forward test year evidence in its next rate case but also provide historic data and a thorough deviations analysis. The company will work with interested parties to improve reporting requirements with respect to budget and actual data to facilitate the review of future cases.
November 2009
PEG Research won a bid to investigate the use of "top down" techniques for estimating the reductions in gas consumption from utility DSM programs. The estimates would be developed by applying econometric methods to gas distributors' billing data, in an effort to identify the changes in gas consumption that result from energy efficiency programs. These "top down" estimates could potentially substitute for the "bottom up" methods that are currently used to calculate gas savings, and which are based on assumptions regarding projected savings from particular measures and programs. PEG Research will develop statistical models that can be used for the "top down" measurement and verification of utility DSM programs and prepare a white paper that evaluates the merits of a top-down approach compared with the current methodology.
November 2009
PEG Research was recently selected by the Edison Electric Institute in Washington DC to prepare a white paper on forward test years in the U.S. electric utility industry. Roughly half of all investor-owned electric utilities are still required to use historic test years in their rate case filings. The results are increasingly uncompensatory in today's rising unit cost environment. States that have in recent years moved away from historic test years include Idaho, New Mexico, Wyoming, and Utah. The paper will present data on the financial harm caused by historic test years and explain the forward test year alternative.
September 2009
Mark Newton Lowry, President of PEG Research LLC, filed testimony in Rhode Island on behalf of the Energy Efficiency and Resource Management Council. The testimony supported the general outline of a revenue decoupling proposal recently filed by National Grid in the state. Dr. Lowry discussed basic approaches to decoupling, decoupling precedents, and criteria for choosing between alternative decoupling methods such as decoupling trueup plans and straight fixed variable ("SFV") pricing. He commented that "the trueup approach to decoupling is the best practice approach because it encourages, at a reasonable administrative cost, the full range of measures that can promote clean energy. These advantages help to explain why decoupling trueup plans are spreading rapidly in the gas and electric power industry and are used or scheduled for use in most states that have a strong commitment to clean energy".
Summer 2009
As a result of recently passed legislation, the New Zealand Commerce Commission is required to set up new electricity distribution rate plans for the period 2010-2015. The plans will utilize the format of CPI-X to escalate rates. Total factor productivity (TFP) is the preferred basis for setting the X factor. PEG Research Senior Advisor Larry Kaufmann has been retained to evaluate the Commission's proposals on behalf of the Electricity Networks Association. PEG Research personnel have extensive experience in New Zealand, having testified in the previous price controls for electricity and gas distributors. A final decision on the price controls is expected in December 2009.
June 22, 2009
The Oklahoma Corporation Commission staff filed responsive testimony today in Oklahoma Gas & Electric's (OG&E) rate case. As part of its testimony, it reviewed the February 2009 PEG Research report, filed as evidence by OG&E in the rate case. The report stated that OG&E was a top performer at minimizing non-fuel O&M expenses, which are the company's chief controllable cost. Staff's testimony concluded that "Staff is in agreement [with the PEG Research study] that OG&E is a very cost-conscious company in its O&M expenses as compared to other utilities".
Spring 2009 
Public Utilities Reports has published Charlie Cicchetti's latest book, Going Green and Getting Regulation Right: A Primer for Energy Efficiency, which responds to the rising interest in energy efficiency and demand-side management programs by exploring the important lessons that can be learned from earlier mandated conservation efforts. Going Green and Getting Regulation Right is a valuable resource for regulators, legislators, utilities, public advocates, and other policy makers. The book draws on a vast database of results from utility programs throughout the nation over the past 15 years. Energy efficiency programs are addressed both quantitiatively and comprehensively. These analyses are complemented by a thorough qualitiative and institutional review of the different approaches to conservation and efficiency that have been taken across the nation and over time. For more information or to order, visit http://www.pur.com/books/55.cfm
April 16, 2009
Bay State Gas today filed a revenue decoupling plan with the Massachusetts Department of Public Utilities (DPU). Bay State proposes to add revenue decoupling to its existing PBR plan, where rates escalate in accordance with a GDPPI-X formula with an X factor of 0.51%. This is the first decoupling plan to be filed in Massachusetts which conforms to DPU guidelines that decoupling plans can be PBR plans with revenue adjustment mechanisms that feature revenue adjustment mechanisms which provide automatic relief for price inflation.
In today's filing, PEG Research Senior Advisor Larry Kaufmann testifies that the existing PBR plan and the revenue decoupling proposal are compatible. His testimony also supports the continued use of Bay State's existing X factor. PEG Research personnel have supported PBR in Massachusetts numerous times over the past 15 years, including the research underpinning the current power distribution rate plan of NStar Gas & Electric and testimony in support of the original and current rate plans of Boston Gas and the current Bay State plan.
March 4, 2009
The Essential Services Commission of Victoria (ESC) today filed comments in an examination of the merits of adding a total-factor productivity (TFP)-based regulatory option in Australia's energy regulatory framework. This examination is being undertaken by the Australian Energy Market Commission (AEMC). The ESC advised the AEMC that a TFP-based option was feasible and appropriate and provided details on a specific, TFP-based regulatory approach. The ESC was advised by Larry Kaufmann when preparing its submsission.
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