Back to Basics

America’s electricity system is in a state of regulatory disarray, and has been for two decades, since the move to restructure the industry that began in the 1990s, which initially faltered with the California crisis of 2000-2001, and eventually resulted in a patchwork of state regulatory models, some of which adopted some form of modified restructuring, and others which explicitly resisted it.  Many in the industry have attempted to put a positive spin on this patchwork of starkly different regulatory models, arguing that they represent different “laboratories” for exploring the benefits and limitations of each variant.  I contend that the opposite is the case, and that the reluctance of the industry to make a frank assessment of the benefits and drawbacks of restructuring, and in particular to address the question of why the “flawed” regulatory model that it was intended to replace continues to survive and even thrive in much of the country, has produced a sort of stagnation, in which there is much talk of evolution in regulation and new business models, but little or no tangible progress.

The fact that new trends and developments, such as declining electricity growth and the rise of distributed energy resources, will present serious challenges to all existing regulatory and business models in the electricity industry, makes it imperative that a fresh and unbiased look be taken at regulatory policy.  But more than this, to avoid the stagnation that regulatory “agnosticism” has produced over the past two decades, the industry should set as its goal the search for a single state regulatory model that will be flexible enough to accommodate regional differences in generation sources and distributed generation penetration, and adaptable enough to effectively manage the changes which are arising from changing electricity usage patterns and new technological developments.

What is needed is a concerted effort to address the following basic questions:

  • What elements (if any) of deregulation/restructuring have genuinely improved electricity service, in terms of pricing, reliability, and/or expansion of new services or capabilities that are of tangible benefit to electricity consumers? How can these be universalized in a non-disruptive manner, given that many states have rejected any form of deregulation/restructuring?
  • How will those entities tasked with ensuring universal electricity service and reliability be adequately compensated for performing this role in an environment of flat or possibly declining electricity sales?
  • Under what conditions will electricity consumers find it beneficial to be more actively engaged in the management of their electricity service? Many if not most residential customers presently value the fact that receiving reliable, affordable, electricity service does not require their active engagement.  What would change this value proposition?
  • What is the most cost-effective way to provide safe and reliable electricity service while meeting state and/or federal clean energy goals and targets?

I believe, then, that the two most important key words in future regulatory and business models are “flexibility” and “adaptability”.  The rise of distributed energy resources will occur at different rates, and will probably peak at different levels in different states.  Similarly, the phenomenon of declining sales growth will be more pronounced in certain areas and less pronounced in others.  It is imperative that frameworks be designed which do not provide onerous burdens on those states with low DER penetration, while meeting the challenges of effectively managing and fairly compensating these resources in states where DER penetration is or will be more pronounced.  This should be the litmus test for any proposed new frameworks.

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