College of Business

The electric utility sector is in the midst of paradigmatic change. Market forces include decreased load growth and technological advances in distributed energy resources, alongside pressures for decarbonization and demands for increased efficiency and new utility services. Meanwhile, as the utility monopoly is undermined and profits slow, financial analysts signal increasing risk to potential utility investors. Suggestions for changes to the existing regulatory structure abound. At the broadest level, the changes that have been proposed reflect an established divide between energy policy, which traditionally focuses on economics and markets, and environmental law, which is based in the protection of natural resources and ecosystems. This article: 1) identifies regulatory and economic incentives embedded in the current utility system; 2) assesses current market trends and new utility goals; and 3) analyzes the intersection of embedded regulatory incentives and key proposals for regulatory changes in light of the new goals. It finds that proposals for changes to the regulatory structure often fail to account for existing regulatory incentives, and ignore opportunities to use regulatory incentives to modify and incentivize desired utility behavior. It concludes with recommendations for ways to incorporate incentive-based regulation in proposals for new utility regulatory structures.

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