Addressing climate change while maintaining affordability and reliability across the energy sector is one of the most important challenges facing leaders today. LEI’s commitment to objectivity, creativity, and comprehensiveness enables us to wield experienced teams dedicated to tackling the problem.

Whether the engagement involves creating an electric or natural gas grid of the future, integrating distributed energy resources, determining spot price formation in a predominantly zero-marginal cost world, electrification of transportation and heating, or examining the role of storage and demand response in balancing renewables, LEI professionals have the experience and insights to provide strategies and analysis to facilitate the transition to a cleaner, net zero energy system.

Our rate design practice is based on a strong understanding of regulatory finance principles and cost of service principles. It is further anchored by our ability to quantify current and achievable efficiency levels for regulated industries and to convert the findings into efficiency targets mutually acceptable to both utilities and regulators. These abilities are supplemented by on-the-spot knowledge of how regulatory regimes in the US, Canada, UK, Australia, Latin America, and elsewhere have evolved. Our team has a successful track record developing tariff methodology and designing self-funding tariffs for clients around the world. We advise regulators and deliver workshop training on Performance-Based Rate design and on setting X-factors; our comprehensive model of comparative network efficiency, including hundreds of international utilities, helps to benchmark efficiency levels for particular regions.

LEI closely follows capital markets for all of its engagements and has performed work specific to the regulatory cost of capital in a number of North American, Asian, and Middle Eastern countries. LEI regularly serves as a financial advisor to participants in the power sector across North America and internationally, including governments and regulators, and provides advice on issues ranging from the cost of capital, target capital structures, and asset valuations. Typical issues include choosing an appropriate risk-free rate, referent market index, risk premium, deemed levels of debt and equity, and identifying continued areas of natural monopoly. Larger policy issues include the extent to which regulated businesses face increased risks due to climate change and how this impacts the cost of capital.

Cost allocation is a critical part of rate design. By deploying principles like functionalization, cost causation, and incentive compatibility, LEI is able to recommend billing determinants, identify customer classes, and allocate revenue requirements among those customer classes. Important issues include avoiding intra- and interclass subsidies, how often allocation should be reassessed, and the role of distributed energy resources in enabling customers to avoid paying for costs that they cause the utility to incur if rates are not properly designed. LEI has explored cost allocation across the value chain, including examining how long-distance high-voltage transmission should be paid for, how vertically integrated utility revenue requirements should be allocated, and the design of standby rates.