1/N

A thread on utility regulation...

As the Texas energy crisis continues to unfold, I recall my time as a utilities lawyer for Chicago, when I spent years litigating against the state's energy utilities in rate cases and environmental protection and energy-plqnning cases.

2/N Led by ComEd (now part of Exelon), the utilities fought unceasingly for higher rates, lighter-handed regulation, and recovery of all of their investments and costs. Perfectly rational short-term business litigation-strategy, but not in the long-term interests of the public.

3/N The utilities relentlessly opposed initiatives to get them to invest in energy-efficiency programs and renewables, including rate-structures that would force utilities to bear the environmental costs of fossil-fuel reliance ("externalities" like emissions).

4/N For most of my time litigating against them, the utilities tended to prevail at the state regulatory commission, but lost a number of rate increase cases in Illinois's courts, obliging utilities to make short-term or permanent refunds to residential and business customers.

5/N Meanwhile, the utilities lobbied the legislature for changes in regulatory law to lighten their legal duties. Most recently, ComEd agreed to be fined $200 million for a multi-year scheme of bribing state legislators to pass such laws (without admitting guilt, of course).

6/N Utilities are, by and large, private businesses - profit-maximizers - primarily attentive to their shareholders (who are interested only in stock value and dividends), and their bondholders (who want to be repaid, with interest, money they've loaned to the utilities).

7/N For many decades, utilities operated under "the regulatory compact": utility commissions gave them rates that predictably, but modestly, served their need to attract capital by paying shareholders and bondholders enough to keep utilities competitive in financial markets.

8/N in exchange for guaranteed rates, the commissions required utilities to spend whatever was needed to provide reliable service. As the free-market ideologues (Milton Friedman and his progeny) got more powerful, utilities began to demand even lighter regulation.

9/N Utility commissions often cooperated, setting off anti-competitive rounds of mergers and acquisitions. The balance of power between regulators, utilities, stockholders, bondholders, and customers shifted in favor of the utilities, who unbundled generation and distribution.

10/N Texas is an extreme case of this trend, exacerbated by the separate, but related, power of the fossil-fuel industry in this country and especially in Texas.

10/N Unless governments implement policies that ensure, first and foremost, that customers get the power they need from a reliable, well-managed portfolio of energy sources that increasingly shift toward energy efficiency and renewables, we will see more Texas crises.

End

11/N And, while I'm here, I want to emphasize that utility deregulation is not only a Red State problem. I'm lucky I live in a Blue State that has always had extreme weather, so utilities have, mostly (but not always, and not in poorer urban or rural areas), prepared for that.