Public Utilities as Social Agencies.

• Author: Costello, Kenneth W.
• Position: BRIEFLY NOTED

Public utilities regulation has expanded its domain far beyond its original mandate and what is socially optimal. The original mandate confined itself to setting "just and reasonable" rates and acting in other ways that improve the long-term welfare of utility customers. The idea was to protect customers from "monopoly" utilities setting high rates and providing poor service. Today, as regulators pursue other goals driven by escalating politics, they inevitably compromise on that original mission.

According to most state statutes, regulators must assure the public that utility rates are just and reasonable and not unduly discriminatory. Those requirements demand that consumers pay no more than necessary to give a prudent utility a reasonable opportunity to recover efficiently incurred costs, including a "fair return" on investment.

Around the early 1990s, state regulators and legislatures began requiring utilities to widen their sphere to include subsidizing low-income households. Subsequent expansions in authority included accommodating, facilitating, and even subsidizing utilities' competitors (e.g., retail solar providers and other forms of renewable energy); investing in politically popular technologies; promoting energy efficiency; and achieving clean air/climate change targets beyond federal and local mandates. Those demands on utilities have escalated their costs, hindering their ability to operate as profitable entities providing basic services reliably and economically.

A major part of the current policy debate on utilities regulation centers on the utility business model, addressing--among other things--the extent to which utilities should broaden their activities to satisfy society's demands driven by political forces. An expansive role for utilities has led, for example, to higher electricity prices along with the compromise of traditional regulatory objectives like cost-based rates, consumer protection, least-cost utility operations, and adequate service reliability. California is the poster child for this development, although other states have also gone down this primrose path.

Perhaps ironically, utilities themselves may be complicit in broadening their social responsibility for the purpose of goodwill/ publicity that they hope will lead to favorable treatment from regulators and other governmental entities. Utilities increasingly become strong proponents of subsidized energy efficiency programs and clean-energy technologies...