The saying “No good deed goes unpunished” isn’t commonly associated with setting utility rates.
But as utility companies attempt to bring new power sources online to meet skyrocketing demand, Indiana legislators are coming back to that aphorism as they consider jumping to performance-based ratemaking.
Republican legislative leaders say they want to reward utilities for finding operational efficiencies that will help bring energy costs down.
“We need to have clear measurable [legislation] that the [customers] can put a little effort in and tell whether their bill is going up or down,” said Rep. Ed Soliday, R-Valparaiso, who chairs the House Utilities, Energy and Telecommunications Committee. “We may or may not succeed, but I think [with] the environment we’re in, doing nothing is not an option.”
IBJ reached out to all five investor-owned utilities seeking comment for this article.
Spokespeople for AES Indiana, Centerpoint Energy, Duke Energy and Northern Indiana Public Service Co., or NIPSCO, all referred IBJ to the Indiana Energy Association, which represents the state’s largest electric and natural gas utilities.
Indiana Energy Association president Danielle McGrath told IBJ in an email that performance-based ratemaking is not a one-size-fits-all approach. IEA looks forward to continued engagement with lawmakers and other stakeholders, she said.
Indiana Michigan Power did not return a request for comment.
The basic pricing framework of Indiana’s utility landscape has stayed the same for much of the past century, with regulators using a “cost of service” model to determine rates.
When investor-owned utilities want to increase their rates, they calculate how much money it took to provide service, add on a rate of return for investors, and submit their rate requests to the Indiana Utility Regulatory Commission.
The IURC hears testimony and documentation from the utility and from other stakeholders, then decides what a “reasonable” amount of cost recovery includes and sets rates for customers accordingly.
But energy industry analysts like Nick Crowley, vice president of consulting at Christensen Associates, say the traditional model doesn’t motivate utilities to be as efficient as possible.
“If the utility spends more money, as long as it’s prudently incurred, that money can be recovered through rates,” Crowley said. “So the utility … doesn’t have an incentive to keep costs low.”
Utilities might not even look for more efficient operating procedures or staffing, he said. Or they might invest in more infrastructure than they truly need, a practice called “gold plating,” since they can recoup those costs through rate increases.
“That’s where the ‘No good deed goes unpunished’ comes from,” Crowley said. “If the utility works really hard, and they increase their [return on equity] because they found those efficiencies, then that efficiency gets incorporated into the revenue requirement, and they’re not able to keep it as profit.”
Regulators around the country are rethinking the cost-of-service structure as energy demand, and prices, rise.
Crowley was an author of a Christensen Associates report presented to the IURC last May that studied performance-based ratemaking, or PBR, and how it could be implemented in Indiana.
PBR is a broad term used to describe a number of regulatory tools that reward or penalize utilities for meeting, or failing to meet, specific metrics.
Rep. Alaina Shonkwiler, R-Noblesville, said she plans to author the anticipated House bill on PBR. She likened PBR frameworks to an employee performance review.
“It’s like a review of [an] employee that we’re taking with our investor-owned utilities,” Shonkwiler said. The state would “update those regulatory tools so utilities are rewarded for delivering the outcomes we actually want.”
‘The devil is in the details’
Given the complexities of any new regulatory system, utilities, consumer advocates and industry observers disagree as to whom PBR regulations would benefit. They do agree, however, that those answers will come down to the language of any legislation.
“The devil is in the details,” said Kerwin Olson, director of the ratepayer advocate group Citizens Action Coalition. “What performance are we incentivizing, and is this just a way for the utilities to make extra profit on top of what they’re already making? Or is this going to be a way to hold utilities accountable for certain performance levels? What are we measuring, and if they don’t hit those targets, are there punitive measures that are going to be in place?”
The two most common PBR methods are multiyear rate plans and performance incentive mechanisms.
Multiyear rate plans lock utility rates for three to five years, increasing regulatory lag. Knowing they can’t ask for rate increases for a prolonged period, PBR advocates argue, utilities will operate more efficiently in order to make a profit.
Crowley said multiyear plans would represent a significant change in Indiana’s energy landscape, though he noted utilities already forecast future revenue as part of their rate-increase cases.
Performance incentive mechanisms, or PIMs, would more easily incorporate into Indiana’s existing ratemaking structure and target benchmarks like affordability, outage recovery speed, safety or reliability.
Lawmakers would choose the metrics. If utility companies met the benchmark, they would be rewarded. If not, they could be penalized.
But PBR regulations are not without drawbacks. As Christensen Associates summed up in its report, “Although PBR tools may improve utility incentives relative to a given status quo regulatory framework, PBR is not a panacea.”
Critics say the performance framework keeps utilities too focused on short-term cost management, discouraging needed investment in long-term infrastructure.
Crowley added that if utilities face rewards or penalties regarding certain factors, they will focus only on those factors and not address other important parts of their operation.
That concern puts the onus on lawmakers to draw up well-reasoned regulations that price rewards and penalties correctly.
“What do you do about having this kind of myopic utility that’s only looking at specific outcomes? The answer is to structure the PIM as accurately as you can,” Crowley said. “You want to price things correctly. You want to set the thresholds for rewards and penalties correctly. You want to measure the activity correctly.”
The Christensen Associates report noted that utilities in Indiana already submit statistics on a wide range of performance metrics to the IURC annually, giving regulators access to actionable data.
Qualified support
In a joint filing in response to the Christen Associates report, Indiana’s five investor-owned utilities said they’re open to PBR concepts, though they would like any multiyear rate plans to be optional and to keep capital investment and expense trackers as part of rate forecasts.
“In light of the extensive performance metrics reporting already in place, the Utilities support [multiyear rate plans] on a standalone basis as a mechanism for modernizing cost recovery,” the brief submitted by the utilities said.
The utilities added that multiyear plans would reduce the number of rate cases they have to present, which are “expensive, time consuming, and resource intensive.”
The utilities appeared less enthusiastic about PIMs. According to the brief, utility providers believe attaching too many PIMs to rate cases could prove difficult to track for both the companies and regulators. And they acknowledged that if regulators index heavy incentives or disincentives into one area of their operation, other areas could suffer.
“In other words, overemphasis on one aspect of a utility’s performance may produce decreased performance in other important aspects—a major concern with the design of PBR plans,” the utilities said.
At the Citizens Action Coalition, Olson said he worries that PBR language will amount to extra credit for energy providers and that utilities will be rewarded for things they already have to do by law.
“If we’re going to replace the current rate-making construct with performance-based ratemaking, that’s one thing,” Olson said. “But if we’re just looking at adding a cherry on top of the whipped cream to give the utilities more money, that might be something we might not be so crazy about.”
Crowley said his research indicates that jurisdictions that use PBR regulations see energy bills rise at a slower rate than those with cost-of-service models. Although he cautioned that data can be hard to decipher with multiple variables in play.
“Regulators that have adopted these kinds of PBR, and I’m talking about price caps and revenue caps, seem to believe that it’s successful at slowing rate growth,” Crowley said. “The biggest problem, though, with these studies is that PBR is becoming popular at the same time that costs are increasing. So there’s a problem where there’s two changes happening at once.”
What will lawmakers consider?
As Indiana inches toward the world of performance-based ratemaking, specifics surrounding proposed bills aren’t yet clear.
At the annual Dentons Legislative Conference on Dec. 18, Soliday, who controls legislation that comes through the House utilities committee, said his caucus’s mindset is to take things slowly.
“There are so many metrics that it’s hard to really make sense of it,” Soliday said. “So what we determined in that little, if you will, think-tank group [of legislators], was, ‘Let’s crawl before we walk, walk before we run.’”
Soliday is working with Shonkwiler, who is also on the House utilities committee and told reporters she plans to file her bill by Monday at the latest.
Shonkwiler said she and her caucus are still hammering out details, but they plan to introduce multiyear rate plans along with three specific PIM benchmarks.
Under the bill, Shonkwiler said, utilities would have their rates set by the IURC for three years, instead of allowing utilities to request new rates on an ad-hoc basis.
“The goal is shifting the incentives from spending to outcomes,” Shonkwiler said. “It encourages the utilities to focus on the customer experience and reliability, and then also it maintains the earnings opportunity. But it is in that lane of accountability to the customer.”
She said whether the bill will cement a timeline for each utility to start its multiyear rate plan or the schedule will be left up to the IURC is still being decided
The bill is also expected to include PIM-type language regarding rate pricing, reliability and recovery times from severe weather.
To encourage lower rates, Shonkwiler said, she anticipates giving incentives for electric providers that keep rates in line with the national electricity inflation average, as measured by the consumer price index.
For severe weather and general reliability, she said, the bill will look at data for past averages to compare performance going forward.
Republican lawmakers say they hope to address other items in their primary energy bill, including assistance for low-income customers. Soliday and Shonkwiler said their legislation should include provisions to increase bill-assistance programs and prevent summer shutoffs.
For the time being, the proposals appear to have support from Democrats on the House utilities committee. Ranking minority committee member Matt Pierce, D-Bloomington, however, said even if PBR legislation does help rates, there are more straightforward ways to cut Hoosiers’ energy bills.
“Now, these proposals in the bill can have some impact, but I think people need immediate relief,” Pierce said at the Denton’s conference. One way you could do that is, you could remove the 7% sales tax on the utilities and that would be an immediate 7% cut in the bill, which is pretty good.”
Copyright © 2026 All Rights Reserved.