Full Title: Addressing Energy Insecurity via Utility Ratemaking: Fact Sheet
Author(s): Abigail Austin, Dr. Vivek Shastry, Emma Shumway, Qëndresa Krasniqi, and Dr. Diana Hernández
Publisher(s): Center on Global Energy Policy at Columbia University SIPA
Publication Date: August 26, 2024
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Description (excerpt):
About one in four American households experience some form of energy insecurity. Within this group, Black, Indigenous, Latine, low- and moderate-income (LMI), and other disadvantaged communities face a disproportionately higher burden. Paste efforts to mitigate energy insecurity have focused on downstream strategies such as bill assistance and weatherization. But upstream innovations in the utility ratemaking process have the potential to address the structural drivers of energy affordability themselves.
Over 70 percent of household energy services in the United States are delivered by investor-owned utilities (IOUs). IOUs are privately owned entities regulated by state public utility commissions (PUCs). In exchange for monopoly power within their service territory, IOUs are subject to government-set prices with guaranteed rates of return, which are determined through a formal ratemaking process. IOU retail rate increases are routinely reviewed by PUCs through “rate cases” in which a judge considers relevant evidence, negotiates with the parties involved, and issues decisions that determine the IOU’s revenue requirement and how the associated costs will be allocated among customer classes. PUC regulators must balance the interests of utility shareholders and ratepayers, with social and environmental policy goals such as energy conservation and affordability an important consideration.