Incentives and the Cost of Service Model

The regulatory structure governing investor-owned utilities is fundamentally misaligned with the goals of a sustainable energy transition, primarily due to the cost of service (COS) regulatory model. Under COS, utility profits are tied to the amount of electricity sold, which creates a strong incentive for utilities to invest in infrastructure rather than in energy efficiency or customer-centric solutions. This model encourages practices like 'gold plating,' where utilities overspend on unnecessary infrastructure to increase profit margins, and has resulted in a throughput incentive that discourages energy efficiency initiatives. Consequently, achieving modern energy goals requires a complete reevaluation of this outdated approach to regulation.