Opposite of Arbitrary and Capricious
John Shenot is a senior advisor to the U.S. program at the Regulatory Assistance Project, an independent, global, non-governmental organization advancing policy innovation and thought leadership within the energy community. A former staffer with Wisconsin’s Public Service Commission and Department of Natural Resources, he advises state utility commissions and environmental regulatory agencies throughout the U.S. on public policy best practices.
Chris Neme is a principal and cofounder of Energy Futures Group, a clean energy consulting firm. He has worked with clients in more than thirty states and abroad on issues including energy efficiency, demand response, strategic electrification and distributed energy resources. He co-authored the 2017 National Standard Practice Manual for Assessing Cost-Effectiveness of Energy Efficiency Resources, and the 2020 National Standard Practice Manual for Benefit-Cost Analysis of Distributed Energy Resources.
Everyone who works in utility regulation understands that decisions will not hold up in court if they are deemed arbitrary and capricious. We hear it all the time. But how can regulators avoid this pitfall? Well, according to a popular online thesaurus, the opposite of arbitrary can be summed up in a few key words: logical, reasonable, and consistent.
How do regulators evaluate distributed energy resources? For decades, state public utility commissions have ordered utilities and third-party energy efficiency program administrators to use benefit-cost analysis (BCA) techniques to determine if those programs are cost-effective. An increasing number of commissions are now requiring the use of BCAs to evaluate other distributed energy resources (DERs) and even some types of utility infrastructure investments, such as advanced meters.
A landmark 2020 document, the National Standard Practice Manual for Benefit-Cost Analysis of Distributed Energy Resources (NSPM) offers regulators and others a set of fundamental principles that can guide their decisions about how to conduct BCAs and which cost tests to use in their jurisdiction.