Colorado’s state legislature is seeking to follow the lead of states like California, New York, Hawaii and Massachusetts in revamping its utility regulations to better serve for a more distributed, customer-empowered energy future.

Colorado House Bill 1250 (PDF), if passed into law by the state’s General Assembly this year, would require the Colorado Public Utilities Commission to open an “investigatory proceeding to explore alternative utility revenue models” and report its findings by October 1, 2016. That's only a first step in what's sure to be a years-long process -- but the end goal is a regulatory structure that could help manage multiple challenges now being faced by utilities across the country.

Specifically, the bill would require the CPUC to consider a “performance-based regulatory system” to “drive innovation and promote economic development in a variety of technologies.” Those could include solar and wind power at both utility and distributed scale, innovations in customer energy efficiency and management, carbon emission reduction programs, and the economic structures that could allow these to become more tightly integrated into how investor-owned utilities pay for, and receive compensation for, what they do.

Performance-based regulation is different from the so-called “cost-of-service” constructs that have governed state utility regulations for decades. In simple terms, cost-of-service rules allow utilities to charge just enough to build and maintain the infrastructure to deliver safe and reliable power to all comers, and to receive a specified rate of return on those investments.

Performance-based regulations, by contrast, are aimed at allowing utilities, along with new partners in the energy generation and delivery system, to find ways to share costs and benefits in ways that deliver the greatest long-term value to customers. That’s important in a world that’s changing as quickly as the utility landscape is today.

Rooftop solar net metering is the most obvious example. Utilities around the country are claiming that they’re losing revenues to solar-equipped customers and are being forced to charge non-solar customers more to make up for it, while solar advocates respond that distributed PV empowers customers and benefits the grid at large.

Adding energy storage to the mix could allow customers to become even more independent of utility-supplied electricity, although experts agree that it’s more efficient for solar-plus-storage equipped customers to work in concert with the grid, rather than to divorce themselves from it.

Meanwhile, advances in technology, from smart meters and demand response programs to energy management platforms in homes and businesses, are allowing utility customers to play a much more active role as so-called “prosumers” of energy.

Many states are tackling the complex challenges of changing their utility regulatory models to adjust to these new conditions, whether to deal with specific new initiatives like smart grid deployments, or at a more fundamental level. GTM Research’s report, Regulating the Utility of the Future: Implications for the Grid Edge, delves into these issues in detail.

New York’s Reforming the Energy Vision (REV) initiative is the most ambitious of the state efforts now underway, with a goal of completely overhauling the state’s electricity delivery system to transform utilities into distributed energy platform providers. Hawaii and California are engaged in similar challenges through different regulatory proceedings, and Massachusetts and Minnesota are making moves on the grid modernization and value-of-solar tariff (VOST) fronts, respectively.

Colorado has seen its own struggles in bringing more renewable energy into its power mix. The state’s Clean Air-Clean Jobs act, which ended up closing down six coal-fired power plants at a cost of about $1 billion, faced stiff opposition from coal and power generator groups. The landmark SmartGridCity project in Boulder ended up costing much more than originally planned, and helped fuel the move by that city’s residents to vote to form their own utility, against the wishes of incumbent utility Xcel Energy.