Regulatory Expense Asymmetry

Here are three responses from readers of the February 2015 essay, "­Regulatory Expense:  Is Asymmetry Inevitable? ­":

From Ned Ford, Energy Advisor to the Sierra Club, Ohio:

I find you to be one of the most interesting and pertinent thinkers on matters of importance to me.  But in this case I think we have some tremendous reality gaps.  Ohio regulators are indeed not funded well enough to do what is in the interest of the public ratepaying customer, but the PUCO has devoted much of its time and effort to deliberately avoiding work which is fairly inexpensive (I have done much of it on my own, but I can't be the mouthpiece of the state government) in order to facilitate the state's anti-environmental political agenda.  I wasn't sure about this for a few years, but it has become a settled question in the last year, as the state used absurdly incompetent arguments to comment against the Federal Clean Power Plan, misled the legislature through omission of simple cost and benefit data regarding efficiency and renewables, and fails to provide a reasonable accounting of hundreds of millions of dollars each year in subsidies to five or six industrial companies. 

Most of my several decades on this issue have been spent using the logic that it is best for us to steer away from these conflicts, which amount to corruption on a very large scale, as long as we get what we want in terms of efficiency and renewables.  I spend a lot of time arguing for incentives for the utilities because many public interest entities want to cut them by mistaking them for a cost, when in fact they are a sharing of benefit.  I don't know what the right level of incentive is and I would use the empirical method of simply raising incentives until we see utilities doing what seems like a really powerful efficiency program.  But we aren't close to that point because the dialogue never gets sophisticated enough.  Most of the parties in a case don't even understand that the utilities are asking not for a share of program savings, but for the net present value of a share of program savings, which makes the incentive the best economic deal I have ever heard of. 

My point to you is that you are thinking about very sophisticated matters which should be considered.  But the reality is that most states have problems like Ohio does, and the fine-tuning of regulatory funding is almost meaningless if we don't have tools to determine what is going on and where we ought to be. 

So a future topic might be how to compare these regulatory costs in your state with other states, in order to determine if they are in the ballpark of reasonable, or if they are so far out of whack that a meat cleaver is a more appropriate tool than a scalpel.

From Ken Costello, Principal Researcher, National Regulatory Research Institute:

Your readers may also be interested in the problem of information asymmetry as it relates to future test years:

Future Test Years: Challenges Posed for State Utility Commissions

From Ralph Cavanagh, Energy Program Co-Director, Natural Resources Defense Council

On the use of the term “ratepayer,” Ralph Cavanagh offers these thoughts on the NRDC Switchboard blog.