Energy efficiency and decarbonization: Priorities for regulated utilities

Abstract

This essay continues a conversation with electric utilities’ leadership about clean energy prospects, which extends over more than four decades. It reflects a shared conviction that America’s electric utilities should be essential clean energy partners, and that utilities can thrive if they help ensure the acceleration of a now longstanding transition to a decarbonized economy.But two essential elements of decarbonization pose particular challenges for traditional utility business models: massive economy-wide acceleration of energy efficiency and demand response for all customer classes, and a diverse portfolio of utility grid enhancements and zero-carbon resource additions requiring long-term investment and cost recovery. To be sure, utilities have always needed a solution to the conflict of interest that cost-effective demand reductions can create between shareholders and customers, along with reasonable assurances of cost recovery for new infrastructure. But the decarbonization imperative raises the stakes massively and exposes worsening inadequacies of the status quo. Regulatory frameworks that work tolerably well under contemporary levels of energy-efficiency and demand flexibility will be increasingly untenable in the decades ahead.