A number of States are introducing retail competition in electricity, enabling customers to choose their suppliers. In the new competitive environment, some utilities will have stranded costs as a result of the proposed transition to competition at the retail level. In the process, they have invariably succeeded in securing rate reductions for customers in exchange for providing their utilities with the opportunity to recover stranded costs. States that have negotiated a workable consensual arrangement with the stakeholders appear to have a reasonable chance of success in implementing competition at the retail level. Denying an opportunity for full recovery has resulted in slowing the transition to competition, as in the case of New Hampshire.
Incentives usually take the form of caps either on prices or on revenues.
To the extent that PBR plans lead to a decline in rates, their implementation may be preferable to the traditional regulatory approach. This possibility rests on the capability of PBR plans to respond more effectively to external changes than may be feasible under traditional regulatory schemes. Inadequacies in monitoring and evaluation could also lead to unintended results. PBR plans surveyed in this report are all relatively recent. As such, their effectiveness in reducing costs has yet to be determined.