Rate design should balance consumer and investor interests.
Ari Peskoe is the senior fellow in electricity law at the Harvard Environmental Policy Initiative, a non-partisan organization that provides legal analysis on a range of regulatory issues. Previously, Ari was with a law firm in Washington, D.C. where he litigated before the Federal Energy Regulatory Commission about the western energy crisis.
Ensuring that rates are just and reasonable and not unduly discriminatory is at the core of regulatory oversight of electric utilities. These ratemaking standards were codified and initially interpreted by public utility commissions during a different era, when the industry's rapid expansion was the goal that aligned utility profits with the public interest.
This article examines these terms in the context of ongoing debates about utility rates and rooftop solar, as well as parallel episodes in the industry's history. It concludes that regulators should ensure that changes to rate design seek to balance consumer and utility interests. Rates that are intended to insulate utilities from economic and technological change while providing no benefits to consumers ought to be considered unjust, unreasonable, and unduly discriminatory.
Faced with revenue challenges due to flat demand, many utilities are arguing that misalignments between their costs and revenue collected from residential consumers must be corrected with revised rate designs. These utilities assert that unfair rate designs enable residential consumers who use less to pay less than the utility's measure of its cost to serve them.