The U.S. energy grid is at a essential crossroads. Electrical energy era, like each different trade, must rid itself of fossil fuels if the nation is to play its function in combating the local weather disaster — a transition that should occur at the same time as power suppliers scramble to satisfy what they declare is an unprecedented spike in electrical energy demand, attributed to the rise of AI.
Thought-about as a bodily object, the North American grid is the world’s largest machine; in its political type in america, nonetheless, it’s a mess of overlapping jurisdictions. So whether or not the nation meets this newly rising demand for electrical energy in a climate-friendly method or by prolonging the fossil gas trade’s dominance will largely be as much as the 200 or so regulators who sit on state utility commissions. No single individual or physique of presidency is within the driver’s seat — the standard, arcane, and largely out-of-sight utility commissions are answerable for the grid and its future. Their mandate is to approve or deny the utility corporations’ expenditures and the charges they gather from their clients to pay for them. This implies federal policymakers can implement all of the incentives they need for clear power, however these efforts will quantity to nothing if state-level regulators don’t require utilities to construct it.
Each state has a regulatory panel identified variously as a public utilities fee, public service fee, company fee, and even railroad fee. Most are appointed, usually by the governor. In 10 states, utility regulators are straight elected by voters. Eight of these states are holding elections for at the least one seat on November 5.
States voting for utility commissioners in 2024
Three seats on Arizona’s utility fee (generally known as the Arizona Company Fee) are up for grabs. Within the quick time that physique has had a 4-1 Republican majority, it’s gone on a spree of approving the development of latest fuel crops, alongside fee hikes and new charges for rooftop photo voltaic installations. In Louisiana, a Republican commissioner is retiring, and the selection of his substitute is pivotal as a result of he has been the fee’s lone swing vote. And on the Montana Public Service Fee, which is presently totally Republican, Tuesday’s election will show a check of voters’ dissatisfaction with the 28 p.c fee hike authorised for patrons of the state’s largest power firm final yr. The outcomes of those elections — and the make-up of commissions throughout the nation, elected and appointed — will fairly actually decide whether or not states add extra fossil gas capability or transition to wash gas sources over the following a number of years, driving how shortly the U.S. cuts emissions nationwide.
How did state utility commissions get a lot energy? And what can they do with it on this pivotal second?
For many years after Normal Electrical — the corporate at the vanguard of electrifying society — was based in 1892, electrical energy remained a high-cost luxurious. Most individuals who may afford electrical energy service, in city facilities like New York Metropolis and Boston, have been clients of utilities owned by their native municipality. Samuel Insull, an enterprising Brit who began his profession as Thomas Edison’s secretary, sought to alter that by distributing electrical energy extra broadly and promoting it extra cheaply. In 1912, Insull based the Center West Utilities Firm, a holding firm primarily based in Chicago; as a result of Center West owned and managed smaller and extra native subsidiaries all through the area, it gave Insull the attain, and capital, to pioneer centralized energy crops that operated nonstop.
With the intention to advance his personal dominance, Insull was a forceful advocate for an settlement between the privately owned utility corporations and state regulators that acknowledged the utilities’ “pure monopoly” over electrical energy. It doesn’t make sense, the argument went, for energy corporations to compete over who serves a given buyer; it could be “wasteful duplication” for a number of transmission strains to energy the identical cities and attempt to outbid each other on charges. In change for authorized safety of their monopoly, the businesses would undergo the oversight of public utility commissions, or PUCs. It was a transference of the regulatory construction that had already been instituted in response to the development of the railroad trade that accelerated the settlement of the West within the second half of the nineteenth century. (The general public utilities fee in Texas continues to be referred to as the Texas Railroad Fee, regardless that it’s been a long time because it had something to do with trains.) Insull’s imaginative and prescient got here to dominate the regulatory panorama for electrical energy within the first twenty years of the twentieth century, and a handful of enormous holding corporations took management over energy era and distribution nationwide.
In apply, the mannequin was imperfect. The commissions have been inclined to corruption (the idea of “regulatory seize,” a phenomenon during which companies develop into influenced by the industries they regulate, was first utilized to utility regulation). In a collection of Federal Commerce Fee investigations starting within the late Twenties, the electrical energy trade was revealed to be rife with monetary fraud. In 1935, President Franklin D. Roosevelt signed the Public Utility Holding Firm Act, a regulation limiting utility holding corporations from exercising monopolies throughout a number of states and authorizing the Securities and Change Fee to interrupt up utility monopolies because it noticed match. Center West collapsed within the wake of larger authorities scrutiny and the Nice Melancholy, and the political fortunes of the monopoly mannequin waned.
Nonetheless, the construction of vertically built-in monopoly utilities typically continued till liberalizing reforms within the Nineties prohibited one firm from controlling the era, transmission, and distribution of energy, and created wholesale electrical energy markets the place energy is auctioned from energy crops to clients. In areas with wholesale markets — referred to as regional transmission organizations, generally known as RTOs, or unbiased system operators — financial forces and real-time value auctions mix with the priorities of utility commissions to affect each what sorts of energy era get constructed and the way a lot power prices for patrons. The specifics of every market range: Some areas permit customers to decide on their electrical energy operator from an array of choices, for example, whereas others permit utilities to take care of their territorial monopolies and take part in regional marketplaces with the power they make. However utility commissions nonetheless play a essential function in approving these utilities’ charges, development of energy crops and transmission strains, and long-term plans. The commissions may also require the utilities of their jurisdiction to take essential steps towards bettering fairness or increasing renewable power.
Such markets exist in nearly the entire nation, save the Southeast, the place the makers and sellers of electrical energy function with legally protected monopolies of their service territories. When you dwell in Georgia, Alabama, or Mississippi, for example, your location throughout the state determines which energy firm is on the market to you, and the utility fee is the first examine on its charges and operations. Due to these utilities’ distinctive monetary construction, with a set return on any capital funding assured to their shareholders by the native utility fee, they’re higher incentivized to construct giant, capital-intensive power infrastructure like nuclear crops and offshore wind generators. That’s put these protected monopolies within the highlight as they determine how to answer the calls for of the second: “The choices that Southeastern PUC commissioners make over the following three years will make or break whether or not the U.S. meets the power transition aims and, by extension, the world,” mentioned Charles Hua, founding father of the group PowerLines, which is searching for to modernize utility regulation within the U.S. However utility commissions usually are not solely consequential in that area.
Whereas folks in these three states deal straight with their respective energy firm, a few of the largest utilities in these states — Georgia Energy, Alabama Energy, and Mississippi Energy — are literally owned by the identical firm, the Southern Firm. In 2005, Congress handed the Power Coverage Act, which repealed Roosevelt’s Public Utility Holding Firm Act and, because the journalist Kate Aronoff has written, “helped to clear the way in which for the reemergence of the kind of holding corporations that impressed it within the first place, with entities like Southern Firm having spawned new arms that exist in one thing of a regulatory grey space.”
Electrical energy era is liable for 1 / 4 of America’s greenhouse fuel emissions, and undergirds a lot of the remaining; decarbonizing power is an integral part of any severe local weather plan. If the nation’s grid is ever weaned off of fossil fuels, federal coverage will little question play an important function. However the federal authorities’s capability to make that occur with the instruments it’s utilizing — primarily, underneath the Biden administration, subsidies supposed to make low-carbon electrical energy worthwhile — is proscribed. The choice to really construct renewable power era happens on the state stage.
“We have to be sure that we do that proper,” mentioned Hua, of the present second in power transition. “And by that, what we imply is to heart the general public curiosity in order that the general public and customers come out of this transition higher off.”
Whereas utilities are usually those who put ahead plans for his or her regulators to approve, deny, or amend, the commissioners typically have substantial latitude to make adjustments — and even outright order utilities to pursue sure sorts of power. In Georgia, for example, particular person commissioners have directed the state’s largest utility, Georgia Energy, so as to add photo voltaic and biomass to its portfolio; the previous has helped the state climb to seventh within the nation for utility-scale photo voltaic, whereas the latter led to the controversial approval of a brand new biomass plant anticipated to extend clients’ payments. Minnesota’s fee issued an order directing utilities to maximise their use of advantages from the Inflation Discount Act, the landmark local weather regulation that accommodates subsidies for utilities who add renewable power.
Utility commissions have a considerable affect even on renewable power that’s owned by people — that’s, rooftop photo voltaic. It’s unimaginable for most householders or companies to go absolutely off the grid, as a result of these programs usually generate extra energy than the proprietor wants when it’s sunny, and the person nonetheless wants power at night time. Batteries might help, however rooftop photo voltaic customers usually must each purchase and promote electrical energy — a contract with their utility that the state’s fee oversees. The phrases of those offers have far-reaching implications for the way a lot rooftop photo voltaic prices and, by extension, how many individuals use it. When California’s utility fee reduce the speed utilities pay clients for his or her photo voltaic power, rooftop installations plummeted.
An alternate mannequin is in place within the areas served by the Tennessee Valley Authority, a federal company created throughout the New Deal. The TVA offers energy to clients in seven Southern states, together with most of Tennessee, and is overseen by a board nominated by the U.S. president. Its lack of a revenue motive has enabled it to reply considerably otherwise to the latest progress in projected electrical energy demand spikes attributable to new information facilities.
Like its neighbors within the Southeast, the TVA is “constructing an insane quantity of fuel — however they’re spending more cash on power effectivity and demand response than every other utility” within the area, mentioned Daniel Tait, a researcher on the Power and Coverage Institute, a nonprofit utility watchdog. For the TVA, in contrast to utilities that primarily revenue off of the development of latest infrastructure, “a kilowatt-hour from a fuel plant versus from power effectivity needs to be no totally different to them, as a result of they make no cash,” Tait mentioned. Clear power advocates have lengthy been pushing for utility commissions to contemplate power effectivity in the identical method, with blended outcomes.
Ron Buskirk / UCG / Common Pictures Group through Getty Pictures
One level analysts agree on is that no regulatory construction is totally successful the power transition — the grass, it appears, is usually greener in another person’s service territory. Advocates working with vertically built-in monopolies, for example, argue the shortage of a aggressive market retains newer applied sciences, particularly renewables, from thriving as a result of progress is proscribed to what the person utility agrees to construct.
Power analysts engaged on RTOs fear that the extra liberalized markets don’t do sufficient centralized, concerted planning, which may create reliability points. Critics additionally contend that RTOs typically face much less public accountability than monopoly utilities, that are extra absolutely topic to elected or appointed utility commissions that maintain public conferences — offered, after all, that ratepayers and stakeholders maintain their utilities and commissions accountable.
“If we may wave a magic wand and tomorrow everyone knew that three or 5 or seven folks decide their power payments, we expect that may be a superb factor,” Hua mentioned.
How precisely to get folks engaged with their utility fee within the absence of a magic wand is a persistent problem for clear power and client advocates. Principally, they attempt to educate their supporters with weblog posts and newsletters highlighting a fee’s actions or votes, or the group’s personal advocacy work. Some states have even established advisory councils and launched public engagement initiatives. The Federal Power Regulatory Fee, or FERC, created an Workplace of Public Participation in 2021 to assist educate the general public and encourage engagement; whereas it’s centered on FERC proceedings, the workplace’s supplies additionally present fundamental info and terminology to know the difficult world of power regulation.
Past getting concerned within the course of, people may also affect the make-up of the commissions themselves. Whereas that chance is most evident within the states that straight elect their commissioners, elections and public strain can drive change in states with appointed commissions too. In Massachusetts, Democratic Governor Maura Healy changed commissioners on her state’s utility fee quickly after she took workplace. The brand new fee has since opened a docket on low-income power burdens, taken steps to enhance equitable entry to photo voltaic power, and overseen utilities’ clear power roadmaps required by a 2022 state regulation. And final yr, in Maryland, a fuel trade govt nominated by the governor withdrew his candidacy for the state’s public service fee after outcry from environmental teams.
Stuart Cahill / MediaNews Group / Boston Herald through Getty Pictures
Commissioners themselves even have some capability to reimagine their roles.
“On this time and second we needs to be asking ourselves, ‘How can we be progressive?’ as a substitute of doubling down and doing what we’ve executed the final hundred years each time there’s load progress,” mentioned Davante Lewis, a progressive utility commissioner in Louisiana who was elected in 2022.
Primarily, Lewis means that regulators take “environmental considerations and the ecosystem” into consideration. “Sometimes the regulatory compact has been solely determined primarily based on whether or not or not a utility is justified in constructing one thing,” Lewis mentioned. “We want a extra complete, holistic view: Not solely was this probably the most prudent determination financially; is it probably the most prudent determination environmentally?”
Utility commissions typically have sufficient latitude underneath state regulation to look at elements past value and reliability, in accordance with a College of Michigan Regulation College evaluation, however many are hesitant to take action. That’s the place a state legislature can step in to broaden the fee’s scope. Colorado, for example, has broadened its utility fee’s authority to explicitly embody fairness, together with minimizing the unfavorable impacts of its choices and addressing historic inequalities — a change the fee’s workers referred to as a “new decision-making paradigm.” The workers’s report on tips on how to implement the brand new rule recommends requiring utilities to develop fairness plans and creating a brand new kind of continuing to contemplate the fairness influence of electrical and fuel points. Since a serious critique of fuel and coal crops is the unfavorable results of their air pollution on the often-marginalized communities close by, the method, if applied, may considerably affect choices about such energy crops.
Different states have tried to even the enjoying area between electrical utilities and the opposite stakeholders who weigh in on their plans earlier than utility commissions. Giant, investor-owned utilities make use of giant staffs of legal professionals and specialists who can testify on their behalf. Environmental and client advocates, in the meantime, are usually nonprofits with a lot smaller budgets, which may make it troublesome for them to rent or contract with specialists to make their case for renewable power, decrease charges, and different insurance policies in opposition to a mountain of testimony and information from the utility.
“There could be an excessive imbalance between the totally different events who is likely to be collaborating in these proceedings,” mentioned Oliver Tully, the director of utility innovation and reform for the Acadia Heart, a nonprofit advocating for clear power throughout New England.
So some states, together with California, Idaho, and Michigan, have applied packages to compensate people and nonprofits who participate in regulatory proceedings by cross-examining the utilities and bringing in specialists to testify.
In Connecticut, one of many states the place Tully works, it took a pure catastrophe to usher in change. Hurricane Isaias left some 750,000 folks with out energy in August 2020, some for greater than every week. The state’s utility fee, the Public Utilities Regulatory Authority, or PURA, finally issued hundreds of thousands of {dollars} in fines over utilities’ sluggish response or lack of preparation. The storm, Tully mentioned, bought state leaders considering critically about how these utilities are ruled.
“That was the catalyst that bought loads of legislators speaking in regards to the want for change throughout the world of utility regulation,” he mentioned.
Connecticut had already established an advisory council to assist deliver the wants of low-income residents earlier than power regulators. However within the wake of the storm, officers took reforms additional. The governor, who appoints the three members to PURA, established a further advisory board centered on fairness and power justice, which advocates mentioned helps their efforts to get extra folks and teams excited about clear power and environmental justice concerned with the difficult and troublesome strategy of power regulation. The Regulatory Authority has subsequently opened a continuing centered on fairness and stakeholder engagement.
The state legislature, in the meantime, handed legal guidelines directing PURA to implement two key adjustments: stakeholder compensation and performance-based regulation. The state’s stakeholder compensation program covers attorneys’ charges, skilled witness charges, and different prices for intervening teams. Efficiency-based regulation lets the fee tie utilities’ earnings to how they carry out in sure areas, like protecting charges reasonably priced or slicing emissions. As a result of investor-owned utilities obtain a revenue vary set by their regulators and are allowed to cross prices like development and gas on to their clients, critics argue they don’t have a lot incentive to maintain these prices low or pursue packages like rooftop photo voltaic and power effectivity that may decrease emissions but additionally reduce into earnings. This strategy goals to flip these incentives round, pushing electrical corporations to alter their practices.
It’s not a shift utilities are sometimes keen on, and their highly effective lobbying efforts generally is a main impediment. The resistance in Connecticut was so vehement, Tully mentioned, that lawmakers in Maine deserted an identical invoice.
“This can be a perennial threat of those sorts of proceedings,” he mentioned. “It represents a risk to the established order of how utilities have been working for a lot of, a few years.”
Some utilities argue that altering their revenue construction on this method may harm their capability to finance main, mandatory power tasks — one of many major strengths of enormous utility corporations. However that doesn’t appear to be the case in the long term. Though the elevated uncertainty whereas regulators are hashing out the small print could make collectors cautious, in Hawaiʻi, the performance-based regulation framework truly improved utilities’ credit standing. Some client teams, in the meantime, have raised considerations about performance-based regulation as a result of they argue that utilities may simply misrepresent their efficiency to regulators.
The Connecticut fee continues to be engaged on the way it will implement performance-based regulation, and the opposite adjustments are comparatively new as effectively, so their influence continues to be “to be decided,” Tully mentioned. However he and his colleagues have been inspired that the advisory councils have pushed PURA to contemplate fairness.
Getting utility commissions to run otherwise, advocates mentioned, generally is a steep uphill battle, particularly within the face of sturdy resistance from utilities. However it might work. Different states have applied insurance policies like Connecticut’s, and brought different steps, generally on the behest of state legislatures and generally as a result of commissioners determined to take motion.
Whereas a hurricane kickstarted change for Connecticut, it additionally took loads of advocacy — each “up and out,” mentioned Jayson Velazquez, one in all Tully’s colleagues primarily based in Hartford. The group and its allies foyer “up,” working to get lawmakers and commissioners on board with passing reforms. They usually additionally work “out,” speaking their findings and the problems earlier than the fee to the general public and interesting environmental justice teams and neighborhood members.
“A number of the work that we’re doing is bridging that hole between environmental justice teams and our regulators,” Velazquez mentioned. “You sort of have to boost the collective consciousness of the teams earlier than you may actually get into effecting change.”
