State and local regulation of district-heating-and-cooling systems: issues and options

Abstract

Basic questions pertaining to public regulation of district heating and cooling (DHC) systems are investigated. Any such system not completely contained within a single tract of privately owned land, or which makes retail sales of thermal energy, may be subject to the same sort of state regulation that electric and gas utilities receive. Many states apply traditional utility regulation to DHC systems, especially those that are investor-owned. State regulation of an energy utility usually establishes pervasive control over the utility's basic activities: its entry into a market, construction (though usually not siting) of its facilities, its service rates and revenue requirements, the quantity and quality of service it provides, and the conditions under which service may be abandoned. Some states, however, take less traditional approaches to DHC regulation - including nonregulation, less regulation for DHC than for electric and gas companies, and DHC regulation on a case-by-case basis. These approaches are examined to determine how each affects the startup of new DHC systems, the revitalization of old systems, and development of both. The report also addresses a variety of possible ownership arrangements for a DHC system and its main subsystems, as well as a variety of cost-allocation procedures that canmore » be employed by a company cogenerating electrical and thermal energy. Material appended to the report backgrounds DHC operations in several European countries and presents US case law and recent state legislation pertaining to DHC regulation. The authors view district heating as a socially useful technology that can reduce US consumption of scarce and imported fuels, and they argue in general that appropriate DHC regulation is one means of helping the technology become established and expand. They recommend no specific regulatory approach, however; instead, they seek to clarify issues and present options on which decisions about DHC regulation can be based.« less