PERFORMANCE-BASED REGULATION

(PBR) - Any rate-setting mechanism which attempts to link rewards (generally profits) to desired results or targets. PBR sets rates, or components of rates,for a period of time based on external indices rather than a utility's cost-of-service. Other definitions include light-handed regulation which is less costly and less subject to debate and litigation. A form of rate regulation which provides utilities with better incentives to reduce their costs than does cost-of-service regulation.