Maximizing Utility in Electric Utility Regulation
52 Pages Posted: 20 Apr 2017
Date Written: 2015
The electric power sector is undergoing a period of profound change, reacting to economic, technological, and regulatory variables that have emerged quickly and largely without warning. In many states, the public utility commission (PUC) will play a key role in determining how electric utilities respond to these rapidly changing circumstances, the outcome of which will affect electricity rates, investor returns, public health, and local and state economies for decades to come. The general mandate underlying many utility commission proceedings-seeking the least cost option for maintaining a reliable electricity sector-provides the PUC with considerable discretion to choose among sources of information, potential outcomes, and risk assessments. The least cost framework is generally treated as an objective standard, but a close examination of PUC decisions demonstrates the inherent subjectivity and the value choices commissioners face when determining which electric utility decisions are in the public’s best interest. From a descriptive perspective, the effort to maximize societal benefits and minimize societal costs associated with electricity generation and delivery is, at its core, a utilitarian exercise. Like the concept of welfare maximization that lies at the heart of the classic utilitarian framework, the cost minimization goal seeks to produce the greatest good for the greatest number through an affordable and reliable electricity sector. From the normative perspective, accepting that PUC decision-making is a utilitarian exercise invites a critical assessment of whether PUCs are succeeding in implementing the least cost mandate. This Article provides an overview of PUC decision-making and the least cost framework, then examines the inherent discretion in the least cost mandate by analyzing four recent PUC decisions where commissioners reach opposing decisions based on the same set of facts. The Article concludes by proposing mechanisms for capturing broader societal benefits through an expanded application of the PUCs’ existing discretion.
Keywords: energy, environmental law, public utilities commission, climate, carbon price, natural gas, utility maximization, utilitarianism
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