Commissions Confront Challenges
Mr. Kenneth Costello is Regulatory Economist/Independent Consultant. He has conducted extensive research and written on a wide variety of topics related to the energy industries and public utility regulation.
Most state utility commissions have relentlessly subscribed, at least publicly, to what regulatory observers call the balancing act of regulation. Here we will examine features of the balancing act and how commissions would apply it in an ideal world.
See Figure 1.
Commissions attempt to balance the rights of utilities and their customers by considering three major factors: legal constraints, for example, utilities have a right to be given a reasonable opportunity to be financially viable, and customers have a right to just and reasonable prices; the commission's perception of fairness; and compatibility with a broader interest.
In an ideal world, commissions would attempt to balance the interests of the different stakeholders with the overall objective of promoting the general good. This is consistent with the premise behind the public-interest theory of regulation.
Terms like fairness and just and reasonable prices have subjective connotations that challenge commissions, for example, to balance the dual objectives of fairness and economic efficiency along with an increasing number of other objectives.