This paper encapsulates work derived from workshops in Europe in 2012 on setting future tariffs for distribution system operators (DSOs), particularly when it comes to incentivizing smart grid, distributed generation, and demand response. It also serves as a foundation document for future action to implement regulatory reforms that may follow from those workshops.

The report begins with an overview of performance-based regulation (PBR), including historical experience. It then addresses the type of mechanisms that may be appropriate for consideration in Europe. It concludes with caution about how electricity distributors may take advantage of any system that is promulgated, and suggests checks and balances as a mechanism is rolled out to ensure that societal goals are met and gaming of the mechanism is minimized.