Allocating the Risk
Mr. Kenneth Costello is Regulatory Economist/Independent Consultant. He has conducted extensive research and written on a wide variety of topics related to the energy industries and public utility regulation.
Innovation has enormous potential for improving the performance of public utilities. It can help enhance the quality of utility services, achieve clean energy goals at less cost, and lower the cost of existing services, as well as advancing other regulatory objectives more effectively and economically, which after all, is a primary goal of regulation.
We know from experience that achieving public policy goals at tolerable cost to society frequently requires technological breakthroughs. Many experts assert that making the transition to a clean energy future at an affordable or politically acceptable cost will demand new technologies.
Innovation is also essential for advancing long-term policy objectives, like safety, reliability, resilience, cheaper energy, and improved energy efficiency. Innovation is an essential ingredient for improving the long-term performance of public utilities.
An important policy question is: How can utility regulators make innovation more economically tenable for utilities without placing excessive risks on their customers? Do regulators need a new ratemaking model to encourage utility innovation while not imposing excessive risks on customers or giving utilities excessive incentive to innovate?