State Public Utility Commissions Research Articles

Overinvestment in Grid Modernization Is a Real Possibility

Sixty percent of the U.S. distribution grid, which carries electricity to homes and businesses at the local level, have exceeded their 50‐year life expectancy. The Brattle Group estimates that $1.5 trillion to $2 trillion will be spent by 2030 to modernize the grid just to maintain reliability—a huge amount that elevates the importance of state public utility commissions (PUCs) conducting careful cost‐benefit review.

Defense Energy Resilience and the Role of State Public Utility Commissions

Physical hazards such as extreme weather, and increasingly, sophisticated cyber threats, jeopardize safe, reliable operation of the power grid in the United States. More than 98 percent of military installations in the nation depend on the civilian power grid to execute military and national security missions around the world. For these installations, power outages can have devastating consequences. Public Utility Commissions are in a unique position to help bring stakeholders together and work to enhance resiliency of this defense critical energy infrastructure.This article examines issues related to defense energy resilience and explores opportunities for PUCs to develop relationships with the Department of Defense to encourage projects that will enhance national security and provide resilience benefits to communities outside the fence line. Effective state‐specific examples are highlighted.

Aligning gas regulation with climate goals: A road map for state regulators

Reduction in the usage of natural gas is critical to mitigate climate change. When combusted, natural gas usages can vary from home heating and cooking to large industrial processes to fuel for electric generation. While many states have adopted greenhouse gas (GHG) emissions targets and are conducting long-term planning for the transition away from natural gas, retail gas utilities and their regulators have generally continued to operate in a business-as-usual framework assuming static or increased natural gas usage. In most states, there is a lack of reconciliation between these two policy objectives. This paper presents recommendations for State Public Utilities Commissions (Commissions) and other regulators to align decision making regarding gas utility operations, rates and infrastructure with climate goals to drive reductions in GHG emissions. While this paper primarily focuses on states that have enacted climate laws, the recommendations are equally relevant for states without such laws, as they ultimately serve to improve regulatory oversight, protect customers from unnecessary costs, and support continued provision of safe, reliable and affordable service in an evolving industry.

Regulatory Challenges Facing Renewable Natural Gas

Natural gas is coming increasingly under attack by policymakers and elected officials who are embracing “electrification only” as a means of reaching state clean energy and climate‐mitigation goals. Achieving these goals may mean reducing the use of natural gas as a residential and industrial fuel. Earlier this year, the California Public Utilities Commission (CPUC) launched a new rulemaking to address the state's transition away from natural gas. The commission will address issues related to stranded assets and cost recovery, and unfair shifting of costs among different customer classes. Other state public utility commissions in New Jersey and New York may follow shortly, given their increasing opposition to interstate natural gas pipelines that would serve their residents and businesses.

Potential for Economic Regulation of Michigan’s Water Sector

This policy brief considers the potential role for economic regulation of water utilities in Michigan, particularly given considerable pressure on infrastructure costs and prices and subsequent concerns about efficiency and equity. Economic regulation by state public utility or public service commissions (PSCs) is widely accepted for privately (investor) owned utilities in the United States. Michigan is one of only six jurisdictions that do not regulate water utilities (along with the District of Columbia, Georgia, Minnesota, North Dakota, and South Dakota). Today, while all of Michigan’s 1,385 water systems are subject to environmental regulation, none are subject to economic regulation, including rate review.

Quantifying the capacity value of natural gas efficiency in New England

Natural gas utilities in New England face increasing natural gas transmission system congestion and volatile spot gas prices. We observe that prevailing evaluation methods for natural gas efficiency programs value avoided firm pipeline capacity based on its total (‘gross') cost. We propose, consistent with deregulated electricity markets, to value avoided firm pipeline capacity at its ‘net’ cost. Specifically, we account for revenues associated with selling excess capacity during periods when the firm capacity holder does not fully utilize its rights. Our evaluation of commercial building efficiency programs suggests that prevailing evaluation methods could over-estimate the value of efficiency programs when those programs are intended to offset new capacity investments (i.e., the utility is in need of additional firm capacity). The situation is more complex for a utility with sufficient firm pipeline capacity to meet forecast load (i.e., consumption). In this case, the prevailing evaluation methods have the potential to under- or over-estimate the value of efficiency programs. The value of avoided infrastructure investments is likely to vary with the specific circumstances of the utility and the expected revenues associated with short-term sales enabled by available capacity. In the future, we recommend that economic regulators of natural gas distribution utilities, the state public utility commissions (PUCs), value avoided infrastructure investments at the ‘net' cost of the investment instead of the ‘gross' cost.

Proposals to Streamline Federal and State Regulatory Review of Transactions in the Communications Industry

Proposals to Streamline Federal and State Regulatory Review of Transactions in the Communications Industry

Why the Inclusion of Unlimited Recovery of Lost and Unaccounted for Gas Costs in Gas Adjustment Clauses is Unjust and Unreasonable

Most states have statutes administered by public utility commissions (PUCs) that prohibit unjust or unreasonable natural gas rates. In all states, PUCs have permitted utility companies to recover natural gas commodity costs related to lost and unaccounted for gas from customers using purchased gas adjustment clauses. The New York Public Service Commission and the Pennsylvania Public Utilities Commission, two gas distribution company regulators, have reformed purchase gas adjustment clauses in order to properly incentivize gas distribution companies to reduce lost and unaccounted for gas. This Note advocates for all state public utility commissions regulating natural gas distribution companies to reform purchased gas adjustment clause design in order to limit the quantity of lost and unaccounted for gas that local gas distribution companies may recover from customers. This Note also argues that the majority approach permitting unlimited lost and unaccounted for gas recovery within purchased gas adjustment clauses is unjust and unreasonable in violation of and inconsistent with state utility regulatory statutes.

Evolving Jurisdiction Under the Federal Power Act: Promoting Clean Energy Policy

In response to an emerging electricity sector, Congress passed the Federal Power Act (FPA) in 1935 and enshrined a division of jurisdiction between the federal government and the states. Federal jurisdiction would control wholesale electricity and transmission while state jurisdiction would control retail electricity. While Congress intended to establish a jurisdictional bright line, uncertainties in applying this division lie at the heart of some of today’s most important state and federal renewable energy policy challenges. Significant regulatory, structural, and technological changes since the FPA’s passage have tested the adaptability and coherence of this jurisdictional division. To explore the underlying areas of tension that have emerged, I examine two state policies aimed at promoting renewable energy, net metering and feed-in tariffs, and one federal policy, the integration of demand response into wholesale electricity markets. These examples reveal how a strict reading of the retail-wholesale jurisdictional division is ill-suited for the modern electricity sector. They also show how strategic efforts by the Federal Energy Regulatory Commission (FERC), together with state legislatures and public utility commissions, have stretched the limits of the FPA in order to promote clean energy policies. Together these considerations demonstrate that clarifying jurisdictional lines will involve unexpected tradeoffs in substantive policy. This Comment builds on existing literature in several important ways. Some scholars have examined the jurisdictional tensions that underlie individual policies such as net metering, feed-in tariffs, and demand response. Others have considered the congruence of jurisdictional authority, institutional capacity, and political exigency among diverse levels of decisionmaking. This Comment converges these lines of scholarship to provide a thorough account of contemporary challenges confronting the FPA’s jurisdictional division and how they implicate clean energy policy at both state and federal levels. This account is particularly relevant today, given the U.S. Supreme Court’s recent decision in FERC v. Electric Power Supply Association condoning a pragmatic and functional understanding of FERC’s exercise of federal authority over demand response resources.

A Solution for the Integration of Demand-Response Resources in Mainees Competitive Retail Market

This Note addresses Maine’s legislative options in light of the possible impending doom of demand-response electricity resources in wholesale markets. The Supreme Court is currently reviewing a case that may spell the end of demand-response integration in wholesale markets. Acknowledging this potential issue, the Maine House of Representatives passed “Resolve, to Study Options for a State Demand Response Program” in February 2015. Within, the House requested Efficiency Maine produce a study detailing how Maine could integrate demand-response resources into the state’s retail electricity market. Efficiency Maine is an “independent administrator for efficiency programs in Maine.” In response, this Note proposes one possible solution.Demand-response resources are an important part of the electricity grid. At the state retail level, demand-response systems broadly consist of consumers reducing electricity usage in response to price signals. The presence of demand-response resources in an electricity market can mean less need for generation (and therefore less fossil fuels used), less strain on the electricity grid, greater reliability, lower costs for both consumers and producers, and a lower overall environmental impact. The benefits are so great that the United States Congress officially supports demand-response integration. Maine has some unique characteristics that will affect how demand-response may fit. First, since state electricity markets fall outside of federal jurisdiction, the upcoming Supreme Court case will not determine the future of demand-response in state retail markets. Thus it is important for Maine to figure out how demand-response resources fit within the state’s electricity industry. Maine’s retail electricity market is currently regulated by the state Public Utility Commission. The retail market was drastically altered in 2000, and the current deregulated system implies that utilities serve merely as distribution companies and purchase power from the wholesale markets. Maine consumers then purchase the power from their choice of competitive retail providers or rely on the standard offer. There are legislative solutions to integrating demand-response resources in Maine’s deregulated retail electricity market. This Note hypothesizes that major hurdles include finding financial incentives, providing sufficient subsidization, implementing market oversight, and enforcing demand-response performance. The Note then suggests additional language for Maine’s Electricity Industry Restructuring Act that may help integrate demand-response resources with economic and legislative success.

Advances in Geothermal Power Policy in Five Key Western States

While federal initiative and international initiatives were important to expanding the geothermal power market in 2013, many important developments happened in state legislatures and public utility commissions. Thirteen states collectively passed nearly two dozen pieces of geothermal power, heating, and direct-use legislation. This article reviews activity in five Western states with the potential to be significant geothermal power markets producing at least several hundred megawatts of geothermal power.

Future Test Years: Are They in the Public Interest?

In recent years, electric utilities have petitioned their state public utility commissions and lobbied state legislatures for ‘innovative ratemaking mechanisms’ that deviate from traditional ratemaking practices. Electric utilities have expanded their use of nontraditional ratemaking mechanisms to include different cost trackers for a large number of utility activities, revenue decoupling, formula rates, and surcharges for new investments.

No Dialtone: The End of the Public Switched Telephone Network

All good things must come to an end. The set of arrangements known as the Public Switched Telephone Network (PSTN) is the foundation for the modern global communications system, and the myriad benefits it delivers. Today, the era of the PSTN is swiftly coming to a close. The PSTN’s technical, economic, and legal pillars have been undermined by three developments: the rise of the Internet; customers and providers abandoning wireline voice telephony; and the collapse of the regulatory theory for data services under the Communications Act. This paper provides a framework for moving beyond the PSTN, by distinguishing the aspects of the existing system that should be retained, reconstituted, or abandoned. The transition from the PSTN to a broadband network of networks is the most important communications policy event in at least half a century. It calls into question the viability of the Federal Communications Commission, the Communications Act, and the telecommunications industry as we know it. Yet the significance of the transition is not widely recognized. Attention has focused on specific manifestations and consequences, such as the rise of “wireless-only” households and problems with rural call completion. The time has come to address the situation squarely. The lesson from prior structural transitions in communications such as digital television, the ATT 2) a technical architecture to provide a service (wireline voice telephony) 3) a business and market structure; 4) interconnection obligations; 5) a social contract; 6) strategic national infrastructure.These aspects define not only the obligations on network operators (such as common carriage, universal service, and law enforcement access), but also demarcate the roles of the FCC and other agencies (including state public utility commissions, the FTC, the Department of Justice, and NTIA).The six-faceted definition of the PSTN provides a roadmap for the transition. The elements earlier on the list are rooted in the particular historical, legal and technical circumstances that gave birth to the PSTN. They are anachronistic in the current environment, and should be restructured or, when appropriate, eliminated. The later elements are public policy obligations that should be satisfied regardless of the historical circumstances. Separating the dimensions of the transition in this way also makes it possible to focus in on specific challenges, such as the technical standards for addressing and service interconnection in an all-IP environment, separate from broad public interest questions such as the level of functionality that should be guaranteed to all Americans. By examining the content of each aspect of the PSTN in light of the business and technological landscape today, we can ensure that the transition to a digital broadband world reinforces, rather than undermines, the achievements of the past century of communications policy.

Gathering and Transporting Marcellus and Utica Shale Natural Gas to the Market and the Regulation of Midstream Pipeline Companies - The Case for a Uniform Federal and State Definition of "Gathering" in the Context of Economic and Siting Regulation

Much has been written about the major natural gas reserves in the Marcellus and even Utica Shale formations located in West Virginia, Pennsylvania, and Ohio. But much of the focus has been on the law and regulation around producing the gas-drilling and getting it out of the ground. Related, but serving a very different function, is the role of pipeline companies in their various business models to transport that gas to market. This is a different and equally robust and growing segment of the natural gas industry where large amounts of shale exploration take place. In fact, without pipelines and regulatory certainty for those constructing pipelines, natural gas has no value as it cannot be transported to the market place in any practical manner without pipelines. When planning to construct or acquire natural gas pipelines, a major question to consider is, "Will the pipelines be regulated?" For purposes of this Article, "regulated" refers to regulation of the siting and construction of pipeline facilities as well as economic regulation of the prices (or rates) charged and the terms and conditions (or tariffs) for services offered to customers (or shippers) transporting on those pipelines. Depending upon the physical configuration of the pipelines, the manner in which they are used to transport natural gas, and the type of customer transporting the gas on the pipeline, the correct answer could be (1) no regulation, (2) regulation by a state or commonwealth public service or utility commission, or (3) possible regulation by the Federal Energy Regulatory Commission ("FERC"). Moreo- ver, with respect to state or commonwealth regulation, as one might imagine, the extent of that regulation varies by state or commonwealth.

What Do Revolving-Door Laws Do?

On the basis of evidence from state public utility commissions, we find that revolving-door laws—laws that restrict the post-government-employment opportunities of public sector workers, including public utility regulators—do not do much, at least with respect to electricity prices. In this paper, we take advantage of a quasi experiment afforded by the fact that revolving-door laws were introduced in different states at different times to investigate their effects on electricity prices. Our findings suggest that while revolving-door laws temporarily dampen industrial electricity prices, they have no effect on commercial or residential prices. There is also some evidence that these regulations affect the characteristics of state public utility commissioners; commissioners from states with revolving-door regulations serve shorter terms and are less likely to be subsequently employed in the private sector, compared with their counterparts from states without revolving-door laws.

Energy demand‐side management: New perspectives for a new era

AbstractOver the past decade and a half, state governments have assumed greater responsibility over demand‐side management (DSM) operations. Whereas DSM programs formerly were initiated primarily by utilities or state public utility commissions, they are now becoming increasingly state‐initiated and incentivized through funding mechanisms or efficiency‐level mandates. The supporting literature, however, has yet to respond to these changes and to verify that DSM funding or mandates are effective policy mechanisms. Furthermore, the supporting literature has yet to resolve some of the research design and methodological challenges that traditionally plague DSM evaluations. As states continue to expand their energy and climate policy efforts, and the federal government considers the possibility of national decarbonization policies, of which DSM is a key strategy, the need for empirical research on the effectiveness of DSM programs will grow. This essay describes the current status of DSM efforts in the U.S. and explores how these programs affect electricity operations. The relationship between DSM policy and program efforts and the amount of saved electricity is tested with a methodological approach aimed at minimizing the selection bias that is inherent in the nonexperimental research design. Results confirm that state‐run DSM efforts contribute to electricity savings across the country. Public benefit funds coupled with performance incentives are found to encourage utility participation in DSM programs. Energy efficiency portfolio standards and performance incentives effectively promote electricity savings, but public benefit funds without the support of other DSM policies are not significant drivers of either DSM program participation or total DSM electricity savings. © 2011 by the Association for Public Policy Analysis and Management.

Energy Demand - Side Management: New Perspectives for a New Era

Over the past decade and a half, state governments have assumed greater responsibility over demand-side management (DSM) operations. Whereas DSM programs formerly were initiated primarily by utilities or state public utility commissions, they are now becoming increasingly state-initiated and incentivized through funding mechanisms or efficiency-level mandates. The supporting literature, however, has yet to respond to these changes, and to verify that DSM funding or mandates are effective policy mechanisms. Furthermore, the supporting literature has yet to resolve some of the research design and methodological challenges that traditionally plague DSM evaluations. As states continue to expand their energy and climate policy efforts, and the federal government considers the possibility of national decarbonization policies, of which DSM is a key strategy, the need for empirical research on the effectiveness of DSM programs will grow. This essay describes the current status of DSM efforts in the U.S. and explores how these programs affect electricity operations. The relationship between DSM policy and program efforts and the amount of saved electricity is tested, with a methodological approach aimed at minimizing selection bias that is inherent in the non-experimental research design. Results confirm that state-run DSM efforts contribute to electricity savings across the country. Public benefit funds coupled with performance incentives are found to encourage utility participation in DSM programs. Energy efficiency portfolio standards and performance incentives effectively promote electricity savings; but public benefit funds without the support of other DSM policies are not significant drivers of either DSM program participation or total DSM electricity savings.

Demand Is Very Elastic!

Demand-Side Management (DSM) has been on the agendas of many state public utility commissions (SPUCs) since the first oil embargo in 1974. Many utilities bought meters and control devices with the large communication infrastructure to comply with SPUC orders to implement or to test DSM. Many of the devices never left the warehouse as the energy crisis dissipated.

Implementing Public Utility Commission Web Sites: Targeting Audiences, Missing Opportunities

Research demonstrates that some government agencies are more accomplished than others when it comes to e‐government. More generally, various scholars suggest that e‐government is moving forward at a relatively slow pace, especially in relation to the sophistication of government Web sites. With these issues in mind, this research utilized interviews with state public utility commission staff members to explore their agencies' experiences with staffing, funding, coordinating, and prioritizing their e‐government efforts, particularly their Web site activities. Assessing such efforts in both quantitative and qualitative terms, this research found that a mix of various factors, including financial resources, knowledgeable staff, and administrative oversight, related to better performance. Moreover, although public utility commissions have a clear mission to serve both consumers and regulated utilities, this research indicates that the commissions are focusing more of their e‐government efforts on industry rather than citizens.

Bureaucratic Minimal Squawk Behavior: Theory and Evidence from Regulatory Agencies

This paper develops a model in which a desire to avoid criticism prompts otherwise public-spirited bureaucrats to behave inefficiently. Decisions are taken to keep interest groups quiet and to keep mistakes out of the public eye. The policy implications of this “minimal squawk” behavior are at odds with the view that agencies should be structured to minimize the threat of “capture.” An empirical test using data from US State Public Utility Commissions rejects the capture hypothesis and is consistent with the squawk hypothesis: longer PUC terms of office are associated with a higher incidence of rate reviews and lower household electricity bills. (JEL D73, L51, L97, L98)