Yesterday's gone: the risk associated with tomorrow's electric utility infrastructure.

• Author: Manshio, Calvin K.

Public utility regulation has entered a new phase. Today, the principal concerns facing utilities and their customers are coping with competition, allocating risk and deploying new technologies. The regulatory framework for this new phase, however, remains unclear and is filled with uncertainty. Much of that uncertainty revolves around choosing an infrastructure for the industry and an architecture for regulation. This means making fundamental technological choices centered around the fact that a public utility's mass market does not exist and it is becoming more difficult to design a system that will optimally support services with many different requirements. In this environment, the questions become, who decides which choices are to be taken and when are these choices to be made? But before we can even ask these questions, shouldn't there be a better appreciation of the paradigm in which these choices are made?

The old public utility infrastructure was designed to provide mass market service. Today's infrastructure is becoming more specialized. This fundamental shift in capability has not been matched by a shift in regulatory thinking.

A comparable example of how past thinking creates future problems is found in the "arms race." Like public utility assets, weapons procurement is based upon spending in the present in order to be prepared for the future. As a consequence present-day planners make forecasts without quite knowing what will happen in the future. Since, their only experience is with the past; sometimes their predictions are right; sometimes they're wrong. It is not an exact process. The role of the regulator in this drama is similar, he or she is suppose to make decisions that make societal and economic risks more manageable. Today, however, the regulator's role has taken a terrible tangent and evolved into the assignor of fault, and like the oracle at Delphi, their ability to influence events does not depend upon the clarity of their pronouncements, but upon, how their words are interpreted in the mass media.

Like deploying new weapon systems, building public utility infrastructure is a costly task. Once costs are undertaken you pay whether or not you have correctly anticipated the future. Sometimes, who pays and how much you pay differs, but payment is nevertheless required. The intent of the process is to plan for the needs of the future, not allocate the costs. A historical example of my point can be found in the Washington Naval Conference of 1921.

On the eve of World War I, Congress passed the "Big Navy Act of 1916." The purpose of the Act was to make the U.S. Navy second to none. An admirable goal for a nation on the brink of war. But also one that committed this nation to using military force and the battleship as an essential part of our foreign policy. That commitment cost million of dollars and did upgrade the fleet. It also led to other nations accelerating their investment in battleships. All of this construction proved beneficial in war time, but at war's end a new reality emerged. Public opinion did not support building a new battleship every year, it did not support a global perspective and it would not pay for any foreign involvements.

This shift in pubic attitude lead the United States and other nations to think about reducing their fleet construction. At the Washington Conference the countries thought they could regulate battleship competition. People were convinced a gentlemen's...