Public Interest before Special Interest
David Boonin is president of TBG Consulting and has over forty years of experience as a public utility economist synchronizing the interests of utilities, regulators and other stakeholders in the electric, gas, water and transit industries. Boonin served as a principal for the National Regulatory Research Institute, member of the Philadelphia Gas Commission, chief economist at the Pennsylvania Public Commission, and corporate economist for United Illuminating.
Utilities compete with distributed generation and microgrids. Regulators as well as stakeholders address the challenges of potential death spirals. And rate design is finally getting attention.
The primary economic goal of utility regulation is to have regulated utilities and their customers produce and consume the same economically efficient amount of power that would occur under competition.
This fundamental goal gets lost in the morass of other goals, such as reasonable revenue requirements, billing or metering limitations, and protecting the environment.
Economically efficient concepts of pricing have been forgotten in the wake of distributed generation. They’ve been replaced by concepts such as net metering, avoided costs, feed-in tariffs and decoupling. Economic efficient rate design has fallen prey to concepts such as rate discounts, average cost pricing and income stability.
Regardless of the market structure, government often needs to intercede to internalize externalities such as protecting the needy. But in unregulated markets, these changes are made after the market (not the regulator) sets prices. Too often under retail utility regulation, solutions to externalities are built upon the shaky foundation of rate designs that encourage inefficient behavior by producers and consumers.