Making Regulation a Better Surrogate for Competition
Jeffrey Goltz is Of Counsel at Cascadia Law Group, Seattle and Olympia, Washington. From 2009 to 2015, he was a member of the Washington Utilities and Transportation Commission, and its chairman from 2009 to 2013. He can be reached at firstname.lastname@example.org.
We have read a number of admonitions in Public Utilities Fortnightly about the need for innovation in the electric utility sector. And about the adverse impact that regulation has had on a utility’s incentive to innovate.
One is reminded of Professor Alfred Kahn’s observation in his 1988 book The Economics of Regulation. “Regulation has on balance been obstructive both of competition and of the innovation it helps stimulate and justify.”
As a result of this regulatory maxim, some commentators have pointed to states like New York that are engaged in massive overhauls of traditional regulatory systems as a means to cultivate innovation in the electric sector.
But what about those states that, perhaps for good reason, have not undertaken such Herculean reform efforts? What if they wish to observe from the sidelines for a while, and in the words of Ken Costello of NRRI, in February’s PUF, be “free riders” on the work of these other states. Must these states, particularly those with vertically integrated markets, simply sit and wait for enlightenment on how to spur innovation?
I think not. There are some ways, though perhaps modest, for regulators in these states to move their utilities along. To encourage appropriate risk taking. And to modify the regulatory system to be a better surrogate for competition.