A New Regulatory Concord

America’s electric utilities face the unprecedented and intertwined challenges of energy security and global climate change at the beginning of the 21^st century. During the 20^th century these predominately investor-owned corporations met the challenge of financing and building a national, safe and secure, affordable and reliable electric service production and delivery system. This was accomplished under an arrangement between the monopoly utilities and state and federal regulators sometimes called “The Regulatory Compact”. The “compact”, according to some observers, was abandoned. Now it is time to look at a new relationship based on past experience and future needs. The new relationship or “new Regulatory Compact” would include new techniques in finding a balance between electric supply and demand while also attacking the critical greenhouse gas issue.

Today the companies within the electric power industry are less uniform in corporate structure, different as to diversification policies and many operate under more diverse state laws and regulatory policies. The old “regulatory compact” according to some observers, was broken in many states with the regulatory mandate that utilities purchase supply required in competitive wholesale power markets and in other states with the introduction retail access in a minority of states.

The electric utility industry is also faced with a new set of conditions. The industry must assure future energy security while facing both the uncertainty and consequences of state and federal climate change legislation and policies. It is the combination of new issues and old requirements that lead to a call for a new joint approach by regulators and the electric power industry. This new approach can be considered a new agreement or arrangement to replace the old regulatory compact.

I would suggest that a “Regulatory Concord” is needed. It would include, in addition to traditional economic regulation, the implementation of managerial strategies with necessary regulatory approvals supporting comprehensive “green” and “incentive” programs for electric companies and their consumers.

The new arrangement would include regulatory initiatives and approvals providing incentives for the electric utility industry to strive for the following goals;

to provide electricity supply and delivery services efficiently,

to promote energy efficiency in end use by consumers

to incentivize climate change mitigation and

to reward greenhouse gas reduction all along the energy conversion supply and delivery chain

The “Concord” envisions a future electric utility industry:

obtaining good and services from environmentally superior providers,

connecting consumers to a “smart grid” delivering electricity to

new “smart” meters,

“smart” tariffs providing real time pricing to

“smart” appliances able to communicate and maximize economic performance

The electric utility would become the integrator of energy usage and pricing information and in this new role the utility would be provided the opportunity for enhanced profits commensurate with the creation of new consumer benefits.

Much of what needs to be done to establish the “Regulatory Concord” is already available and based on proven policies and techniques. The rest requires imagination and cooperation between regulators and companies in the spirit of the new Regulatory Concord.

How Electric Utilities and Regulators Can Respond to Energy Security and Global Warming Issues

By Branko Terzic