Economic theorists whose work has supported the development of PBR include Nobel prize-winning economist Jean Tirole.
Therefore, this problem should be analyzed though different aspects, taking into consideration parameters, such as incentive’s mechanism defined by regulatory authorities, enabling thus the development of regulated activity and increase of efficiency and productivity.
Since infrequent rate cases lessen concerns about cost allocations and cross-subsidies, MRPs can permit regulators to sanction greater marketing flexibility.
Such plans have helped railroads, oil pipelines, and telecommunications utilities provide a complex array of services to markets with diverse competitive pressures from a common set of assets.
Early papers encouraging the use of input price and productivity research in ARM design include Sudit (1979) and Baumol (1982).
MRPs are also favored for energy distributors in most populous provinces of Canada and are increasingly popular for gas and electric utilities in the United States.
Since the ARM is based on multiyear cost forecasts, the regulator must carefully review utility business plans.
Under cost of service regulation, utilities will respond to these conditions by filing rate cases more frequently and requesting additional marketing flexibility.
[2] RIIO has recently been touted as a promising approach to regulating US electric utilities in an era of smart grid innovations and increased distributed generation.
However, many components of RIIO (e.g. MRPs and APMs) are already widely used in America, and Americans have developed their own approaches to addressing certain regulatory challenges.
Shared savings incentives have long been used for utility conservation programs and can be extended to distributed generation.
One example of PBR that conforms to this definition is an MRP with an index-based ARM that is calibrated so that utilities earn superior (inferior) returns for productivity growth exceeding (falling short of) the industry norm.