Value of the Regulated Utility

Based on observing and responding to Florida’s sudden spike in deregulation conversations, PACE has built on research and work highlighting the value of the regulated utility model.  The University of Georgia’s Carl Vinson Institute of Government released a new study this week, “Powering the Future and Protecting Consumers: Ensuring Reliability, Resilience, and Quality of Electric Service.”

Whether you’re an energy policy veteran who recalls the deregulation debates and decisions of twenty-plus years ago, or somewhat newer on the scene, this paper serves as a useful resource recounting the historic policy rationale for regulating electricity providers. As set forth in the Executive Summary:

“Over the past century, reliable and universal access to electricity has served as the backbone of economic development and improved quality of life in the United States. This backbone exists in large part because of laws, regulations, and policies designed to ensure access to this essential service. Long-term commitments by utilities to maintain a complex web of transmission lines, invest in power generation plants and projects, and train and deploy a skilled workforce have contributed to dependable and affordable access to electricity.”

Because the electric power industry is experiencing a wave of change and innovation, “[u]understanding this history is important so that when proposals for change are considered, important values and lessons learned are not lost. Regulatory frameworks have ensured reliability, supported long-term planning, allowed for public participation, provided oversight, and resulted in cost savings and customer protections.”

Based on research into the deregulation experiences in a diverse set of states, the paper makes the following key points:

  • Price volatility and immediate rate increases have been an all-too-frequent outcome when restructuring has occurred.
  • Market restructuring has highlighted that the electricity industry’s unique technical requirements should take precedence over political or economic theories.
  • While numerous factors such as geography and fuel mix inform the average price of retail electricity, the region with the highest retail prices is New England, where five of the six states have restructured markets. The lowest rates are in regions where none of the states have restructured markets: East South Central, West North Central, and Mountain.
  • Deregulation or restructuring, particularly at the retail level, could add unnecessary uncertainty at a time when states are facing a rapidly changing environment with respect to traditional baseload power.

Perhaps most importantly, the paper reminds us that “electricity as an essential service must continue to be provided in an affordable and reliable way that promoted public safety and bolsters resilience to natural disasters.”

It’s become quite trendy to talk about the “value of” different fuels and technologies, but here at PACE we thought it was appropriate and timely to speak up for the value of the regulated utility. If you agree, please share this new paper with colleagues and policymakers in your states.