Incentive Regulation, New Business Models, and the Transformation of the Electric Power Industry

The electric utility sector is in the midst of paradigmatic change. Market forces include decreased load growth, technological advances in distributed energy resources, pressures for decarbonization, and demands for increased efficiency and new utility services. Meanwhile, as the utility monopoly is undermined and profits slow, financial analysts signal increasing risk to potential utility investors. Suggestions for transforming the existing regulatory structure abound. At the broadest level, such proposals reflect an established divide between energy policy, which traditionally focuses on economics and markets, and environmental law, which is based in the protection of natural resources and ecosystems. To marry the two camps and reach the desired end goals of both industry and environmental advocates, an integrated approach—merging economic, regulatory, and environmental perspectives—must be taken. A key aspect of the analysis must be the recognition that regulation creates incentives, and incentive-based regulation can and should be used to further goals for the new utility system. This Article: (1) identifies regulatory and economic incentives embedded in the current utility system; (2) assesses current market trends and new utility goals; and (3) analyzes the intersection of embedded regulatory incentives and key proposals for regulatory changes in light of the new goals. It finds that proposals for regulatory change often fail to account for existing regulatory incentives, and ignore opportunities to use regulatory incentives to modify and encourage desired utility behavior. It concludes with recommendations for ways to incorporate incentive-based regulation in proposals for new utility regulatory structures

Incentive Regulation, New Business Models, and the Transformation of the Electric Power Industry

The electric utility sector is in the midst of paradigmatic change. Market forces include decreased load growth, technological advances in distributed energy resources, pressures for decarbonization, and demands for increased efficiency and new utility services. Meanwhile, as the utility monopoly is undermined and profits slow, financial analysts signal increasing risk to potential utility investors. Suggestions for transforming the existing regulatory structure abound. At the broadest level, such proposals reflect an established divide between energy policy, which traditionally focuses on economics and markets, and environmental law, which is based in the protection of natural resources and ecosystems. To marry the two camps and reach the desired end goals of both industry and environmental advocates, an integrated approach—merging economic, regulatory, and environmental perspectives—must be taken. A key aspect of the analysis must be the recognition that regulation creates incentives, and incentive-based regulation can and should be used to further goals for the new utility system. This Article: (1) identifies regulatory and economic incentives embedded in the current utility system; (2) assesses current market trends and new utility goals; and (3) analyzes the intersection of embedded regulatory incentives and key proposals for regulatory changes in light of the new goals. It finds that proposals for regulatory change often fail to account for existing regulatory incentives, and ignore opportunities to use regulatory incentives to modify and encourage desired utility behavior. It concludes with recommendations for ways to incorporate incentive-based regulation in proposals for new utility regulatory structures

Teaching an Old Dog New Tricks: Adapting Public Utility Commissions to Meet Twenty-First Century Climate Challenges

Climate change and efforts to address it have put the electric utility system under increasing pressure to adapt and evolve. Key to the success of these efforts will be the support of public utility commissions, the state agencies that oversee retail electric utilities. In an effort to determine how these commissions will make decisions, this Article explores the history, enabling legislation, and jurisdiction of commissions. It concludes that the authority and purpose of commissions has been narrowly defined to focus almost exclusively on short-term rate impacts to current utility customers. As a result, efforts to reduce greenhouse gas emissions, modernize or transform the electric grid, or expand the path for new technologies such as electric vehicles, will not come from commissions and in fact may be blocked by the same. Accordingly, this Article offers options for modernization, ultimately recommending a melding of economic and environmental goals through a long-term planning process that balances cost and risk, yet remains squarely within the jurisdiction and historical purpose of the regulatory commission.This is the publisher’s final pdf. The published article is copyrighted by Harvard Law School and can be found at: http://www3.law.harvard.edu/journals/elr/

Beyond Zero-Sum Environmentalism

Environmental law and environmental protection are often portrayed as requiring trade offs: “jobs versus environment,” “markets versus regulation,” “enforcement versus incentives .” In the summer of 2016, members of the Environmental Law Collaborative gathered to consider how environmentalism and environmental regulation can advance beyond this framing to include new constituents and offer new pathways to tackle the many significant challenges ahead . Months later, the initial activities of the Trump Administration highlighted the use of zero-sum rhetoric, with the appointment of government officials and the issuance of executive orders that indeed seem to view environmental issues as in a zero-sum relationship with jobs or economic progress . In the essays below, the authors explore the meaning and the role of zero-sum environmentalism as a first step in moving beyond it

A Response to the IPCC Fifth Assessment

The Intergovernmental Panel on Climate Change\u27s (IPCC) Fifth Assessment Report presented significant data and findings about climate change. But the IPCC\u27s working groups\u27 summaries for policymakers avoid making normative statements about the IPCC\u27s findings. The authors, members of the Environmental Law Collaborative, bridge this gap by identifying the normative claims that stem from the working groups\u27 summaries to spark deeper discussion and help shape the IPCC\u27s sixth assessment