Unservice: Reconceptualizing the Utility Duty to Serve in Light of Climate Change

Abstract

Monopoly regulated utilities operate under a duty to serve - they must provide service on a non-discriminatory basis to all who request it within their state-sanctioned monopoly territory. As climate change alters the conditions of the natural world, utilities will find themselves in the situation where continuing to provide service, re-installing infrastructure to provide service where it has been lost, or providing new service would be considered imprudent. However, due to the duty to serve, utilities may find themselves doing exactly that: spending ratepayer funds providing service and installing or maintaining infrastructure where, without the duty to serve, the utility would not expend the funds as it would be considered fiscally and environmentally irresponsible.

While public utility commissions will want to protect the public interest, for fiscal and sustainability purposes, modifying the utility duty to serve will become necessary. Because of the impacts of climate change, satisfying the duty to serve will become increasingly expensive. Utility action needed to meet the duty to serve that was once prudent may no longer be prudent, but instead lead to inefficiencies, injustice and moral hazard. Prudency, if defined properly and reinvigorated to deal with the impacts of climate change, may help meet this challenge. But to do so, the duty to serve will need to be modified. This paper will discuss the utility duty to serve, posit how to change prudency to address climate change, and address the legal and practical implications for properties that may end up outside the service boundary.

It is impossible, at this point in time, to know exactly which situations will develop where climate change impacts will require action. Trying to reduce the theory to specific situations would necessarily reduce its criticality and narrow its application. It is enough to know that they will occur, and legislatures and regulators must start preparing programs and procedures for that eventuality now.

Keywords: takings, prudency, duty to serve, adaptation, climate change, monopoly, electricity, utilities

JEL Classification: K23, K32, L12, L5, L94, L95, L97, L98, Q48, Q54, Q58