This discussion is presented in conjunction with the closing keynote at the Association for Environmental Studies and Sciences 2014 Conference.
Cost-effective and profitable energy efficiency technologies and services, and renewable energy generation alternatives are available today to end GHG emissions from the electric utility sector entirely. Traditional cost-of-service regulation rewards capital investments more than the provision of value, punishes innovation and efficiency, and treats customers as “ratepayers” with few choices and little clout. Today’s electric utilities are not well prepared to make the business model changes required to become truly sustainable. Three key strategies map a path forward.
First, cost-of-service regulation, with its focus on narrowly regulated profitability, should be replaced with performance-based regulation (PBR). PBR sets standards based on policy goals and provides earnings penalties for failure to meet targets and the opportunity for extra earnings for exceeding objectives. Second, the focus of the electricity business must shift from rates and the delivery of kilowatt-hours to satisfying customer desire for valuable services and options. A wider range of services and technologies should be available to all customers. Third, regulators and policy makers should unbundle electric service into component services and open competitive elements up to third party technology and service providers. Third parties can bring much-needed innovative and entrepreneurial spirit to the sector.
Is the regulatory system up to the task of overseeing the transformation of the industry they regulate? Are these approaches transferable among different states, regions, and countries?