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The case for rethinking public utility commissions

Energy pylon from below
Lesterman

The United States is at a defining moment in its response to the climate crisis. At the national level, President Joe Biden has recommitted to the Paris Agreement, announcing that the United States will play its part as a climate leader in the coming decade. Sub-nationally, states and cities across the country are committing to 100 percent clean energy standards and making strides to address pollution head-on to avoid the worst impacts of climate change.

In response, many states are recognizing the pivotal role that public utility commissions (PUCs) can play in the transition to a zero-carbon U.S. grid. In June alone, Maine and Colorado took legislative steps to bring their PUCs more in line with state climate goals. In Maine, the legislature empowered the PUC to make decisions that support greenhouse gas emission reductions as part of its primary mission. In Colorado, the legislature directed the PUC to identify disproportionately affected communities and adopt rules to improve equity, minimize impacts and prioritize decarbonization benefits to these communities.

These developments follow states such as Oregon, Massachusetts and Washington that have taken legislative or executive steps to modernize the mandates of their PUCs in recent years.

PUCs are still regulating for the 20th century

Most state PUCs were created in the early 1900s and tasked to regulate public utilities. At their inception, state legislatures primarily established and authorized commissions to oversee the operations and investments of utilities in the absence of market competition to ensure cost containment and affordable rates. Today, state lawmakers are asking these same regulators to regulate far more than they have in the past. PUCs must increasingly consider issues such as utility resource plan impacts on GHG emissions, equity, grid reliability, distributed energy resources, increased customer choice and broader state policy considerations.

Commissions across the country share the common obligation to regulate in the public interest and ensure that safe and reliable utility services are provided at just and reasonable rates for all consumers. However, the authority and purview of PUCs varies widely from state to state. The amount of statutory authority delegated to PUCs by legislatures and how the commission interprets that authority also varies widely. The statutory authority that legislatures delegate to PUCs can include interpreting and advancing state energy policy goals; playing specific roles within the state’s energy landscape to affect the economic, environmental or social outcomes in the state; or making energy decisions using specified criteria.

Few states have fully empowered their PUCs to orchestrate the transition to a zero-carbon grid; address prevailing inequities for disadvantaged and other communities; and ensure communities will be safe in the face of climate-induced natural disasters.

Policymakers and the public are increasingly asking PUCs to consider a broader range of objectives than safety, affordability and reliability in their decision-making. Yet, organizational and structural challenges pose barriers to innovation and informed regulatory decision-making. These challenges may include outdated statutory mandates, staff and resource constraints, gaps in technical expertise, information asymmetry between utilities and PUCs, procedure-heavy processes and a culture of risk aversion. Barriers such as these risk delaying or impeding the innovative decisions needed to achieve aggressive state energy goals in the timeframe required to achieve a 1.5 degrees Celsius future.

Modern PUCs are needed to address modern challenges

This is not the first time that PUCs have had to change to grapple with the evolution of the sector. PUCs evolved in the 20th century for new needs that emerged as relevant at that time.

For example, the emergence of the Public Utility Regulatory Policies Act (PURPA) and the growth of restructuring in the 1990s created the need for an expanded view of the public interest that included promoting competition and potential competitive services.

Now, more than 20 years into the 21st century, most PUCs are still in the early stages of modernizing to address a changing world due to the impacts of climate change. Few states have fully empowered their PUCs to orchestrate the transition to a zero-carbon grid; address prevailing inequities for disadvantaged and other communities; and ensure communities will be safe in the face of climate-induced natural disasters.

In response to these needs, many states have launched efforts to ensure regulatory decision-making is proactive, aligned with the emergent needs of the 21st-century grid, and consistent with state policy.

In Oregon, a 2020 executive order directed the PUC to develop a series of work plans outlining activities the PUC would undertake to help reduce greenhouse gas emissions consistent with state policy goals. In Washington, D.C., a 2018 law expanded the mandate of the Public Service Commission to include the "effects on global climate change and the District’s public climate commitments."

Although state budgets, governance structures and political dynamics are unique from state to state, these efforts reflect a window of opportunity to transform PUCs into the regulatory institutions needed to orchestrate the transition to a zero-carbon future.

Purpose, people and process: Dimensions of PUC modernization

To assist policymakers, advocate and regulators in their zero-carbon efforts, an RMI Insight Brief Series focuses on PUC modernization in the context of equitable GHG emissions reductions. Each issue in the series draws from more than a dozen interviews with industry experts and independent RMI analysis.

The series explores three dimensions of PUC modernization: purpose, the core missions and authorities that empower PUC decision-making; people, the individuals and governance structures that shape PUC decisions; and process, the stakeholder engagements that yield timely, equitable and co-developed outcomes relevant to stakeholder energy needs and state policy goals. The issues cite examples of states already working toward PUC modernization in these dimensions and offer considerations for state legislatures and commissions that may be considering PUC modernization in their state.

PUC table graphic

Issue Brief No. 1: Purpose: Aligning PUC mandates with clean energy goals

In many states, PUC statutory mandates are not explicitly aligned with state energy goals. This results in significant uncertainty around how commissions perceive their role in orchestrating grid decarbonization and other energy goals, and can thwart innovative, climate-aligned decision-making. To rectify this, state legislatures and regulators have several options available to better align regulatory priorities state energy goals.

Legislatures can explicitly update PUC statutory authority to align with state energy priorities. Commissions can redefine their strategic goals, mission and vision to signal that regulatory decisions and proposals should be aligned with broader state goals. Both state legislatures and PUCs can rearticulate the definition of public interest — inclusive of the need for 1.5 degrees Celsius climate alignment and equitable energy decisions  — to guide regulatory decision-making. The first issue brief dives deep into this topic and current proposed interventions, and highlights states that have begun making headway to modernize their PUCs in this manner.

Issue Brief No. 2: People: Optimizing PUC resources for future industry needs

Modernizing PUC internal organization to match evolving industry needs can unlock innovative decision-making and outcomes that co-optimize pollution reduction, equity and putting communities and ratepayers first. This issue brief identifies challenges that PUC commissioners and staff face in effectively regulating a rapidly changing energy system, including those related to commission leadership, the need for new skill sets (analytical methods and soft skills for stakeholder engagement) and PUC organizational structures.

The second brief identifies steps legislatures and PUCs can take to modernize PUC internal organization and strategy. This includes positioning commissioners to lead on strategy development and staff direction, harmonizing staff, improving internal avenues of collaboration, and expanding PUC technical expertise and access to expert services. In addition, the brief highlights states already putting these steps into practice.

Issue Brief No. 3: Process: Revamping stakeholder engagement

This third brief explores the evolving nature of stakeholder engagement in regulatory decision-making. It builds upon the findings in RMI’s 2018 report, "Process for Purpose: Reimagining Regulatory Approaches for Power Sector Transformation," highlighting opportunities for enhancing process efficiencies and equitable outcomes.

As with each issue in the series, this brief suggests specific actions that policymakers, regulators and advocates can take to address PUC modernization in their own jurisdictions. Specifically, PUCs wishing to reach the innovation edge of stakeholder collaboration — which will yield robust, collaborative outcomes — can benefit from engaging diverse voices and groups that are not traditionally engaged in the regulatory process in decision-making processes.

Getting PUCs regulating for the 21st century

RMI’s research finds that in most states, PUCs have not reached their full potential to tackle this decisive decade. As a result, comprehensive institutional reform is needed to ensure that states are able to cost-effectively implement their energy goals. PUCs need the authority and tools to address state clean energy policies, to make decisions that prioritize equity and resiliency, and to use emerging regulatory mechanisms and utility business models to chart a path toward a zero-carbon future.

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