How Can We Ensure Energy Transition is Just?


Procedural Justice at State Commissions

Fortnightly Magazine - January 2024

For over a century, state utility regulators across the country have worked hard to ensure that the entities they oversee deliver safe and adequate service at just and reasonable rates. That century saw the emergence of the interconnected energy system we rely on today, as well as a series of transformations in society, transportation, and technology, and multiple evolutions of utility governance.

Today, the climate crisis and resulting energy transition are upending settled beliefs about a range of energy-related practices and values — such as the benefits and costs of various energy sources, relationships between supply and demand, interactions among different infrastructure systems and fuels, and time horizons of interest for planning and analysis.

Utility regulators now face the challenge of ensuring that the energy utilities they oversee do their parts to effect the energy transition, while continuing to provide safe and adequate service at just and reasonable rates. Moreover, they need to accomplish all this while assuring fairer outcomes for communities that have in the past been persistently and disproportionately harmed by energy infrastructure decisions.

Fairness is not a novel consideration for state utility regulators. One of their core responsibilities has always been to protect the general public — or at least, utility customers — from being disserved by monopolies providing vital services. A complex web of overlapping institutional practices has grown up to help regulators make sure residential customers, including low-income customers, have access to decent utility service at prices they can afford.

But ensuring safety and fairness for communities that may be disserved by energy infrastructure has not always been prioritized. With the new wave of energy utility infrastructure investment now underway, commissions urgently need to make sure that this time the voices of disadvantaged communities are heard.

Elizabeth Stein: As utility service has been increasingly recognized as a public safety necessity, ensuring it stays affordable for all has become a priority.

To ensure tomorrow's energy system is fairer to communities than yesterday's, state commissions will need to start by recognizing what was missing in their decision processes, and what could be done differently. Ongoing research by the Institute for Policy Integrity at New York University School of Law sheds light on the wide range of what procedures are currently in place in nine states.

Utility Regulators and the Public Interest

Without competition and customer choice to keep monopoly utilities in line, regulatory oversight prevents these large, powerful companies from delivering low-quality service or outlandish prices. Oversight also has been essential for delivering equitable outcomes society has prioritized — that is, getting decent, affordable service in place even for customers in far-flung locations that might be costly to serve, as in the case of rural electrification.

As utility service has been increasingly recognized as a public safety necessity, ensuring it stays affordable for all has become a priority. In many states, additional government entities have been created to help make sure utility service remains in reach for low- and moderate-income customers.

These consumer advocates perform an important service of counterbalancing the utility drive to perhaps spend more than necessary — as well as counterbalancing more powerful customers, who are more capable than typical individuals of representing their own interests in regulatory fora.

Burçin Ünel: With the new wave of energy utility infrastructure investment now underway, commissions urgently need to make sure that this time the voices of disadvantaged communities are heard.

But electric and gas utilities aren't just large monopoly companies that provide essential services and must be prevented from charging unreasonable prices for those services. They are also energy companies and infrastructure companies. Energy infrastructure is a tremendously essential force in American life.

For more than a century, energy infrastructure has fueled the American economy, but it has also done significant harm, including air and water pollution and land/community impacts. Importantly, that harm has not been spread evenly — it has often been concentrated in particular communities, especially low-income and minority communities that are poorer.

At the same time, some disadvantaged communities also experience worse-than-typical utility services, in terms of reliability — a phenomenon that some advocates attribute to aging equipment and underinvestment by utility companies.

Some utility regulators have experience considering community interests other than affordability, such as employment impacts and pollution mitigation. But these concerns often sit less comfortably within the traditional scope of the utility regulator's role. And unlike protecting the interests of low-income ratepayers, there is no well-established, widely adopted toolkit for utility regulators to protect all these interests.

In short, state-level regulators across the country do not currently have a shared understanding of what they would need to do differently to ensure that disadvantaged communities have a meaningful opportunity to be heard in decision-making processes and help shape better outcomes. The energy transition has intensified the need to develop these capabilities, and quickly.

Achieving rapid reductions in economy-wide pollution will require extensive buildout of some new types of energy infrastructure — while hitting the brakes, or even pulling the plug, on some traditional types. The need for rapid, far-reaching changes in how energy infrastructure is planned and built means utility regulators need this new toolkit as soon as possible.

Institute for Policy Integrity's Research

An increasing body of literature is improving our understanding of inequitable outcomes. This area of fairness focused on outcomes. Distributional equity concerns the manifest unfairness of some communities bearing more than their share of ills, such as bad air quality and related health problems.

Research into distributional equity is making real progress toward quantifying unfairness in the distribution of harms and assessing progress in remediating that unfairness. For procedural equity, however — the fairness and inclusiveness of the procedures that ultimately help shape the outcomes — a body of research exists but is less fully developed.

Against this backdrop, Policy Integrity has been working to develop a baseline understanding of what conventional practices currently may prevent utility regulators from integrating the voices of disadvantaged communities, and what some regulators are already doing to mitigate these barriers.

Based on existing knowledge and research on state regulatory proceedings, including known efforts to improve procedural equity by utility regulators, we postulated that there were six general areas in which lack of procedural equity at utility regulatory bodies might be possible: financial support, accessibility, meaningful engagement, information resources and support, transparency, and equity prioritization.

For each of these areas, we identified a variety of potentially helpful measures. Then, for a select group of states — California, Georgia, Illinois, Massachusetts, Michigan, New York, Pennsylvania, Texas, and Wyoming — we surveyed the websites of utility regulators, as well as relevant statutory and regulatory provisions that we were able to identify, to assess whether regulatory bodies had adopted such measures.

As a follow-on step, we have been vetting our findings with practitioners and stakeholders for further context.

The nine states we examined show a wide range of geographic sizes, population sizes, energy market structures, mixes of urban and rural development, industrial characteristics, and climate policies. While a survey like this may not yield a complete picture of the situation on the ground for any particular state regulator, the aggregate picture across the various states sheds light on the range of practices that are in place.

The reality is that finding procedural information can be difficult, and community members unfamiliar with regulatory proceedings would likely encounter some of the same challenges we experienced.

Every Regulator Has Strengths and Weaknesses

The various regulators had unique portfolios of tools to enhance procedural equity for disadvantaged communities. Although some regulators had a statutory or institutional commitment to enhancing procedural equity, no one regulator had arrived at a definitive formula that other regulators could rely upon to ensure procedural equity for communities would in fact be achieved. But every regulator had at least some promising levers in place for community stakeholders to use.

Existing Institutions and Practices Don't Fill the Gap

Most of the states assessed had public advocates with some statutory responsibility for participating in utility regulatory proceedings on behalf of interests that might otherwise go unrepresented. However, in most states, these entities were strictly consumer advocates; that is, their purpose is to make sure that the interests of individual consumers are represented in proceedings that might otherwise be dominated entirely by utility interests, or by utilities and their largest, most sophisticated customers and perhaps other market participants.

Another seemingly promising tool to enhance procedural equity that may be an ill fit for disadvantaged communities is intervenor compensation. On its face, intervenor compensation sounds like it could serve as an all-purpose funding stream that could assist prospective participants from disadvantaged communities at various stages in various types of procedures.

In practice, however, intervenor compensation programs appear to be few and far between. They only exist in a few states, and even where they exist, their scope may be very narrow, covering only a limited range of utility regulatory proceedings.

Moreover, in practice, they do little for disadvantaged communities because their basic structure does not meet those communities' needs — typically, they provide funding only retroactively, such that intervenors must advance significant resources up front before potentially being reimbursed months or even years later. For disadvantaged communities, help often needs to come up front or it may be no help at all.

Capable Representation Access May Be Worth More than Money

Many of the tools we looked for involved funding to overcome cost barriers and other access barriers, and lowering barriers to entry where possible. However, much of the difficulty faced by disadvantaged communities in these regulatory fora arises from the technical complexity of the subject matter, and the need to draw on significant subject-matter expertise.

Given the complexity of these fora and the subject matter, the diversity among dockets even at a single commission, and the important role of settlement negotiations, legal resources that can represent communities might be a powerful tool for improving procedural equity.

While some policy decisions are made through rulemaking-type processes that may follow procedures that require significant transparency, many key decisions affecting specific communities are reached by utilities through closed-door negotiations with other sophisticated, well-resourced parties in confidential settlement processes, and subsequently ratified by regulators.

While more can and should be done to make sure the voices of non-intervenor parties with an interest can inform final regulatory decisions even in matters where some kind of settlement is reached, for communities that are likely to be directly affected by proceedings, there may be no substitute for competent representation at the negotiating table in the first place.

For disadvantaged communities to participate meaningfully in complex proceedings involving settlement discussions, a large number of separate barriers would likely need to be overcome. They would need assistance identifying the relevant regulatory dockets; whether or not counsel is strictly required, they would need expert advice about both procedural requirements and the substantive issues; they would likely need funding or other assistance to make it possible for one or more community members to participate at the requisite times and places, which might be quite time-intensive and occur during hours when most community members cannot be present and may even require travel.

Money might go a long way to overcoming some of these barriers, others, not so much. With so many different barriers, assistance in connecting affected communities with competent representation — whether through a designated entity like a consumer advocate, by funding third-party representation, by cultivating relevant expertise at academic centers with energy law expertise, or through other channels — may be an especially potent tool to help level the playing field for communities that are at risk of being, or have in the past been, negatively affected by energy system decisions.

The Time is Now

The transition of our energy systems from highly polluting to clean provides a watershed moment to enhance procedural equity. The decisions that are being made now have the potential to alleviate pollution burdens and transform economic opportunities.

But if done wrong, they could inflict new harms on communities that have already been harmed by the energy decisions of past generations. Doing a better job of including affected communities in energy decision making is essential to making sure the transition to the clean energy future is just.