The Regulation of District Energy Systems

This paper examines nine diverse systems, four under BCUC jurisdiction and five regulated by municipalities, to elicit the type and level of economic regulation that can encourage financial sustainability while providing customers with reasonably priced energy services.

This paper concludes with a number of key findings and recommendations:

  • The preferred regulatory approach is a cost-of-service regulatory model with a
    levelized rate structure to provide more affordable prices in early years, with a
    revenue deficiency deferral account to be repaid in later years as more customers
  • A deemed capital structure, target risk premium and, in early years, a disproportionately high fixed charge rate component, round out the preferred model;
  • Up-front subsidies to offset capital costs can keep rates competitive and significantly enhance long-term financial viability.
  • Particularly for mature, well-managed systems without exclusivity provisions, a “light handed” regulatory framework should be pursued, while still maintaining procedural fairness and decisions based on evidence.