State regulators address transformative forces.
One of the main purposes of utility regulation is to provide certainty for investment and operations. Utilities run the world’s largest infrastructure, and those assets don’t turn on a dime. The system is planned, designed, and executed on a time horizon spanning decades – 30 years or more for baseload power plants and transmission systems.
Given this planning time scale – and the magnitude of its investments – utilities understandably dislike paradigm shifts. If they were subject to the whims of fickle market forces and technologies that advance at a Moore’s Law pace, cost of capital would be much higher for utilities than it is today. Utility stock wouldn’t be mattress money; it would be more speculative. And the utility system likely would be less stable – that’s the cost of trying to bring new technologies on stream faster. Whether a laissez-faire energy market, without financial regulation, would produce lower costs than today’s quasi- and fully regulated markets is an intriguing question, but it’s largely academic; regulators (and the legislators who provide their authority) have their hands on numerous levers that determine which direction the industry will go, and how fast.
However, those levers don’t work like they once did.