When choosing a ratemaking approach, it is important to note that policymakers and regulators should avoid equating complexity with best practice; stated differently, a more complex ratemaking regime is not necessarily a better regime. Instead, the first step in implementing tariff reform should be to ensure that rates reflect the cost of providing electric service. It is only once this objective is achieved that the ratemaking regime can evolve, where incentives can be added over time to improve utility performance in specific areas of concern (e.g., line losses, collection issues).
