LegiStorm

Summary:

In the United States, the modern electric utility industry began to emerge about 100 years ago, guided by a philosophy which came to be called the "regulatory compact." Under the compact, state and local governments generally granted the right to provide electric power in a designated service territory, in exchange for an obligation to serve all electric power customers. Much of the nation's power generation and delivery infrastructure was built under this arrangement, with customers ultimately paying for the costs of electricity services. However, the electric utility model nowadays is under pressure as the industry deals with issues such as the aging of power generation assets, the implementation of new environmental regulations favoring cleaner, low carbon emission power generation choices, and the development of technologies providing options for customers to self-generate electric power. Some observers argue that new technologies are leading to a distributed generation (DG) future for customers, supported by utility base load generation and infrastructure. Various states and jurisdictions have begun initiatives to look at what a new "regulatory compact" could specifically encompass, with cleaner electric power and new services as the driving force behind utility investments. And the Environmental Protection Agency's regulations to reduce greenhouse gas emissions favors renewable electricity as the technology of choice for new power generation. While the electric utility industry seems to be fully aware of the potential for change, the question is how much the industry will embrace it. Some companies may see DG as appealing to only a small segment of the market, but in times of shrinking revenues, any market share loss can be significant. The Edison Electric Institute contemplates that the potential rise in DG, and requirements for net metering payments (without "appropriate" compensation by net metering customers for use of the grid), could be a threat to the regulatory paradigm that allows costs of providing service to be recovered from the consumers who benefit from grid services. Regulators will be challenged to recognize and plan for the possibilities of change, with its potential costs and implications for electricity industry structures. A key to the evolution of the current electric utility model is likely to be cost control for many utilities, so that prices will be competitive with other choices. Electric utilities may also have to offer enhanced service to consumers to entice them to stay utility customers, especially as it is becoming easier to go "off the grid." Utilities may even offer support services for customer self-generation beyond merely providing backup power. A convergence of electric power and natural gas utilities may possibly result in the future in a new, customer focused energy industry focused on providing consumer services. However, a formal transition requiring federal policy guidance for the electric utility industry may be required if, for example, the energy markets fail to transition smoothly to a clean power future, should that continue to be a policy goal. Market failures of this sort have been discussed in the past, with stranded assets and company bankruptcies posited as potential disruptions. Congress began to address the move of the electricity utility industry away from the regulatory compact concept by introducing competitive providers to the electric utility industry with the Public Utility Regulatory Policies Act of 1978, and reinforced competition as federal policy with the Energy Policy Act of 1992. Several laws enacted since then have contained provisions to further a range of technologies and paradigms in various "states-must-consider" standards. Congress may yet consider if a formal legislative initiative would be required to move the electric power industry to a clean energy power system should that be a goal. Congress may also consider legislation if a market failure is perceived or if consumer choice is seen to be unduly constrained.