Technicians at Solar Power Station
Report Release: Reimagining Regulatory Process Design to Accelerate Utility Transformation
The restrictive nature of conventional regulatory processes is inhibiting the historic transformation underway in the power sector. While states, cities, and utilities are committing to ambitious renewable energy goals, shutting down coal plants, and investing in new technologies, the processes being used to update regulatory structures that support these goals are inadequate to manage their scale and complexity.
The design details of regulatory processes are often overlooked, yet they are a major determinant of the outcomes and relative success of any utility reform effort. Traditional regulatory approaches consist mostly of quasi-judicial hearings and contested decision-making, which fail to guide participants through new, dynamic, and interrelated topic areas. Well-designed processes, on the other hand, can sustain or build momentum behind energy and climate commitments. By enabling collaboration and coalescence around reforms that meet the objectives not only of policymakers and regulators, but also of utilities and other stakeholders, new regulatory approaches can unlock innovative ideas and opportunities.
A new paper from Rocky Mountain Institute, Process for Purpose: Reimagining Regulatory Approaches for Power Sector Transformation, promotes more intentional consideration of the key components and design options for electricity regulatory processes, to help regulators and stakeholders design more successful processes from the outset. It reviews reform efforts undertaken by 10 states, describes the processes by which reform can proceed, and identifies the most significant factors that impact reform efforts’ effectiveness. Insights were collected from interviews with more than 20 stakeholders involved in these processes, as well as from RMI’s engagement participating in and facilitating regulatory processes across the United States.
This paper follows the recently released Navigating Utility Business Model Reform: A Practical Guide to Regulatory Design, which offers a menu of regulatory options for policymakers, utilities, and electric customers to best support and manage the maturation of a 21st-century grid. Process for Purpose describes updated tools and methods to confront this growing and diversifying portfolio of regulatory reform proceedings. It examines four distinct stages of successful reform processes:
- Initiating the reform process
- Communicating the vision for reform
- Conducting the reform process
- Delivering reform outcomes
Initiating the Process
Reform efforts can result from public utilities commission (PUC) orders, legislative requirements, directions from a governor, stakeholders’ efforts, or utility initiatives. Who launches a process shapes how well accepted a reform effort will be and the extent of regulatory overhaul achieved.
State commissions may be reluctant to initiate reform processes due to concerns over statutory authority; legislation on reform goals, such as clean energy or greenhouse gas emissions, can expand the boundaries of what is interpreted to be within a utility commission’s jurisdiction to enable PUC action on reform. Absent these policy directions, stakeholders and regulators can couch their goals in traditional mandates. For example, reform can be justified to achieve just and reasonable rates in the long term by reducing system costs through promoting lower-cost resource portfolios.
Policy directives from a legislature or governor can jump-start action, ensure that efforts take place on a reasonable timeline, galvanize wider support for reform objectives, and provide the push needed for efforts to produce policy changes. For example, Oregon’s SB 978 ordered the state PUC to investigate the possibility of regulatory reform and describe the findings in a report to the legislature. SB 978 also included the option for the PUC to implement reforms based on the investigation’s outputs.
Communicating the Vision for Reform
Every regulatory undertaking should be anchored to a guiding vision for what the process seeks to achieve. The guiding vision should articulate what opportunity the state or utility is facing; how the opportunity benefits customers, the grid, and public policy; what the outputs of the effort should be; and how outputs will be utilized by regulators or utilities going forward. The vision for reform should be communicated at the start of the process and reiterated throughout to ensure that policy design, implementation, and scaling are consistent with reform objectives.
Most importantly, a vision for reform must include goals for what the reform should accomplish. The most common goals for reform across the 10 states surveyed included enhancing utility operations, such as improving system efficiency, reliability, and resilience; improving customer service by reducing rates and supporting added customer choice and control; and promoting societal objectives, such as integrating renewable energy and reducing carbon emissions, addressing risk allocation, and preserving utilities’ long-term viability.
Conducting the Process
How reform processes are structured depends on the objectives and expectations established at their outset. Regulatory processes can be investigatory or decisional in intent, or a mixture of the two.
Investigatory processes engage stakeholders to explore grid needs or potential reform options; decisional processes set out to adopt new rules or programs, while frequently including an investigatory stage. Investigatory processes (or exploratory stages of decisional processes) are helpful in building a common foundation between process participants to inform future decision-making. Processes that are not intended to spur actual decision-making may not receive sufficient utility and stakeholder buy-in or the level of deliberation and analysis needed to make informed conclusions. Alternatively, prematurely moving to decision-making can lead to technical and economic decisions mired in adversarial debates, ultimately producing inadequate and narrow outcomes.
Stakeholder engagement should be a feature of all regulatory processes to encourage collaborative and multiperspective thinking on these new, complex topic areas. Designing stakeholder processes to support information sharing, consensus building, and creative thinking can improve the quality of reforms produced. Recent efforts, such as initiatives in Hawaii, Ohio, and Rhode Island, have utilized a multistage process that includes deliberate sequencing of comments and workshops to support iterative discussions.
In order to achieve meaningful results, investigatory processes must eventually advance to a decision-making stage, and decision-making processes should adopt, implement, and continuously improve specific reforms.
Evaluation and adaptiveness should be integrated into all reform efforts to ensure continual refinement of new policies and programs. Regulators, utilities, and stakeholders have an opportunity to codevelop pilots as regulatory test beds specifically to inform future decisions that the commission seeks to make. Performance tracking and mechanisms for review and refinement also can be used to ensure that outcomes remain aligned with visions for reform and lessons are useful and applicable.
Sustaining momentum to achieve utility transformation will require states to undertake dynamic and inclusive processes to pursue regulatory reforms. As previously cautious states are emboldened to launch efforts around their own system goals, it is imperative to educate and engage regulators, policymakers, and stakeholders on best practices and new approaches. As this paper demonstrates, the increasing need and ambition of these processes should be matched by purposeful process design that is up to the task. Fortunately, a new set of tools and approaches are coming into focus that can help us on that path.