Reunification: The case for concerted regulatory reform in the U.S. electricity industry

Abstract America’s electricity system is in a state of regulatory disarray, and has been for two decades, since the move to restructure the industry that began in the 1990s, which initially faltered with the California crisis of 2000–2001, eventually resulted in a patchwork of state regulatory models, some of which adopted some form of modified restructuring, and others which explicitly resisted it. Many in the industry have attempted to put a positive spin on this patchwork of starkly different regulatory models, arguing that they represent different “laboratories” for exploring the benefits and limitations of each variant. This paper argues that the opposite is the case, and that the reluctance of the industry to make a frank assessment of the benefits and drawbacks of restructuring, and in particular to address the question of why the “flawed” regulatory model that it was intended to replace continues to survive and even thrive in much of the country, has produced a sort of stagnation, in which there is much talk of evolution in regulation and new business models, but little or no tangible progress. The fact that new trends and developments in the industry, such as declining electricity growth and the rise of distributed energy resources, will present serious challenges to all existing regulatory and business models in the electricity industry, makes it imperative that a fresh and unbiased look be taken at regulatory policy. But more than this, to avoid the stagnation that regulatory “agnosticism” has produced over the past two decades, the industry should set as its goal the search for a single state regulatory model that will be flexible enough to accommodate regional differences in generation sources and distributed generation penetration, and adaptable enough to effectively manage the changes which are arising from changing electricity usage patterns and new technological developments. The paper concludes with some suggestions on how to effectively conduct such a program.