The United States regulatory compact and energy poverty

Abstract

Utility regulation in the United States (US) was founded partly on a consensus that raw marketplace economics ignored social justice, including universal service goals. The century-old ‘regulatory compact’ in most jurisdictions offers ‘just and reasonable rates’ in exchange for investment in public services. Justice has come to justify such low-income supports as discounted rates, arrearage forgiveness, limitations on service termination, and low/no cost energy efficiency. The consensus for regulation has now evolved to encompass carbon reduction, and has led to, amongst other things, the promotion of domestic forms of renewable energy known as ‘distributed generation’ (DG). However, such technologies potentially threaten the current regulatory balance that includes ameliorating energy poverty, because DG reduces utility sales but not utility fixed costs and so contributes to higher bills for low-income households that cannot afford such DG investments as rooftop solar, solar domestic hot water, and cogeneration.The aim of this paper is to analyze how utility regulation might evolve to encompass modern energy developments, thus addressing both the goals of reducing carbon and amerliorating fuel poverty. It begins by reviewing the origin of US utility regulation and describes the regulatory compact that resulted. It then discusses possible balancing measures, including tax-based subsidies, system benefit charges (taxes) on DG, stricter application of just and reasonable regulatory principles, and low-income-specific approaches to DG.