The States

The sweeping regulatory reform implemented in Michigan over the past year is often couched as a response to the economic crisis. Decoupling rates from utility profits, the reasoning goes, will remove disincentives to efficiency. Reducing the subsidies that commercial customers have long shouldered will ease their financial burdens. New renewable portfolio standards and wind generation initiatives will create green jobs and much-needed infrastructure.

Regulatory policies are evolving to make demand response and smart-grid planning a reality across the country. Cooperation between federal and state lawmakers will allow local flexibility within a uniform national framework.

States’ green energy policies are being used to serve multiple agendas. Lawmakers should revisit their renewable incentive programs to better align them with policy goals. A regional approach will yield a more efficient portfolio.

In June 2008, the New York Public Service Commission (PSC) established the electric energy-efficiency portfolio standards for New York’s investor-owned utilities. In its order, the PSC directed utilities to file three-year energy-efficiency plans. Later that year, the PSC issued a supplemental order approving shareholder incentives for utilities successfully implementing their portfolios. If all goes according to plan, the six affected IOUs stand to earn about $27 million annually in performance incentives over three years. The structure of the incentive mechanism approved by the PSC presents risk factors that might affect utilities’ ability to realize the full earning potentials the mechanism offers.

Proving the need for new infrastructure construction for energy purchases has become more complicated for utilities. State commissions reserve the right to revisit rate-base investments after the fact, even when they’ve been pre-approved.

The economy has put state commissioners and regulated utilities in precarious positions. Seven state chairmen explain how they’re applying fair rate treatment.

As federal policy makers push for GHG regulation and transparent markets, the California experience shows what works and what doesn’t work.

When Congress repealed the Holding Company Act, it gave states greater authority to regulate utilities. New Jersey picked up the baton and enacted rules to protect ratepayers.

As energy issues take center stage in the policy debate, state attorneys general increasingly are using their political influence and legal authority to affect a wide range of areas—from greenhouse-gas emissions to siting and development of infrastructure projects. Working constructively with state AGs can help utilities avoid becoming targets of investigation and litigation.

So far, states have taken the lead in carbon-control strategies. These state actions, however, could lead to constitutional conflicts—as recent court battles demonstrate. Only the U.S. Congress can regulate interstate trade, so states must step carefully in controlling carbon leakage.