Public Utility and the Low Carbon Future
98 Pages Posted: 30 Jul 2014
Date Written: July 28, 2014
Substantial reductions in global power sector emissions will be needed by midcentury to avoid significant disruption of the climate system. Achieving these reductions will require greatly increased levels of financing, technological innovation, and policy reform. In the United States, the scale and complexity of the overall challenge have raised important questions regarding prevailing regulatory and business models, with much scrutiny directed at the traditional practice of public utility regulation. Recognizing the many valid criticisms leveled against public utility regulation and the important questions raised about the viability of traditional utility business models, particularly in the face of substantial growth in distributed energy resources, this Article argues that a revitalized and expanded notion of public utility has a critical role to play in efforts to decarbonize the power sector in the United States. In making this argument, the Article looks back to an earlier, more expansive concept of public utility as articulated by Progressives, legal realists, and institutional economists in the early twentieth century. This earlier concept of public utility contains valuable insights for dealing with the current challenges of decarbonization. The Article shows how this broader concept of public utility was substantially diminished by a confluence of external challenges and a sustained intellectual assault mounted by economists and lawyers starting in the 1960s. The narrowed understanding of public utility that resulted, it is argued, has distorted our views regarding the role of markets and disruptive technologies in the sector. In fact, basic public utility principles continue to govern a significant amount of activity across the power sector, including in both wholesale and retail electricity markets. And there are important unrealized possibilities embedded within the public utility concept that hold considerable promise for reforming current regulatory and business models in the face of rapid technological change and growing decarbonization imperatives. Such principles and possibilities are particularly important in ongoing efforts to increase renewable energy and finance large low-carbon generation projects. They also hold great promise for ongoing efforts to plan for and optimize the integration of increasingly large amounts of distributed energy resources such as rooftop solar, demand response, and energy storage. Indeed, when one looks at the overall scale, complexity, and sequencing of investments needed to decarbonize the power sector over the coming decades (however it comes to be organized), it is clear that the broad concept of public utility offers essential tools for planning and coordinating such investments over the long time horizons contemplated and for managing a system of increasing complexity. In all of these areas, a more expansive notion of public utility that draws from earlier understandings of the concept provides a normative foundation for efforts to govern a power system that is increasingly complex, participatory, and intelligent, and for managing the sustained, collective effort to channel investment and behavior in a manner necessary to realize a low-carbon future.
Keywords: public utility, regulated industries, electricity regulation, energy law, climate change, decarbonization, legal realism, institutional economics, law and economics, public choice
JEL Classification: B25, K23, L22, L50, L51, L52, L94, L97, N42
Suggested Citation: Suggested Citation