Great Britain’s electric regulator takes performance-based regulation to a new, more complex level, weighing policy choices against attendant costs.
Defining the New Policy Conflicts
Failing to address and adapt to the new ratemaking realities could result in increased costs for the economy.
Precisely because change is constant, the foundations have to be extra strong.—Peter F. Drucker
The approaching 100th anniversary of regulation by public utility commissions in the United States calls for some reflection. Which ideas are our true foundations and which need to adapt to new realities?
Are telephone subsidies a foundational principle, or do new realities in competitive telecommunications force us either to give up traditional pricing and subsidies or face the prospect of some services and service providers disappearing? Are new energy and environmental policy realities, changing world energy markets, and growing demand challenging consumers to adapt to higher prices and price volatility; challenging producers to make long-term construction plans without the benefit of long-term policy stability; and challenging environmentalists to reconsider their opposition to advanced coal and nuclear technologies to meet future demand? Failing to address and adapt to new realities likely will result in increased costs for the economy.
The difficulty of addressing these real-world challenges was the focus of the recent Public Utility Research Center (PURC) at the University of Florida Annual Conference, “A Century of Utility Regulation: Lessons We’ve Learned.” A few issues that were prominent at the conference—universal service in telecommunications and building new electricity generating capacity, as well as the obstacles policymakers face in resolving these issues—demand a closer look, 1 using a conflict-analysis framework.
Utility policy is filled with conflict: Environmentalists and local communities often are at odds with utilities and developers who see a need for new electricity generating plants and transmission lines. State and federal regulators disagree on the proper balance between pursuing national interests and attending to state and local differences.
How can policymakers work through these conflicts? The first step is to discover the true natures of the conflicts. Lord (1979) and Shabman (2005) have developed a conflict analysis framework that identifies four types of conflict. 2
The first is conflict over facts: Examples include, “How much of the future demand for electricity can be addressed by energy efficiency, conservation, and renewable resources?” “What prices are customers willing and able to pay for telecommunications services?”
Fact conflicts such as these can be resolved through research and technical analysis.
Conflicts over the differential impacts of regulatory policies make up the second type of conflict—interest or distribution conflicts. Consider, for example, the hardening of the electric transmission and distribution systems in coastal states to better withstand hurricanes. Upgrading technical and maintenance standards creates costs, which raises the issue of who pays. Another issue is where and when these system improvements will occur, which affects the distribution of benefits. Different voting blocks will have different views on these benefits and costs.
The first two types of conflict are transactional in that people can conduct studies or negotiate