California — already a leader in intelligent utility regulations — is taking aggressive steps to stay the leader. The California Public Utilities Commission (PUC) made the following remarkable proposal last month:

In adddition, the PUC established “a new system of incentives and penalties to drive investor-owned utilities above and beyond California’s aggressive energy savings goals.” Under this framework:

Earnings to shareholders accrue only when a utility produces positive net benefits (savings minus costs) for ratepayers. The shareholder “reward” side of the incentive mechanism is balanced by the risk of financial penalties for substandard performance in achieving the PUC’s per kilowatt, kilowatt-hour, and therm savings goals.

Kudos to the PUC for its aggressive strategy, which “puts energy efficiency on an equal footing with utility generation,” as Commissioner Timothy Alan Simon put it. “It will align utility corporate culture with California’s environmental values.”

Even though utility regulations seem mundane, they are a core climate strategy, so here are some more details of the PUC’s ground-breaking decision:

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