The following is a contributed article by Ron Lehr, a former Chairman and Commissioner of the Colorado Public Utilities Commission.
As Claude Rains told Humphrey Bogart in "Casablanca," I am "shocked... shocked" that politics has an increasing influence on utility regulation, as pointed out by Kenneth Costello in a recent opinion article alleging energy efficiency and renewable energy exemplify subsidies at consumers’ expense and result from political influence over regulation.
Mr. Costello’s regulatory career has been long and distinguished enough that he should have long ago realized political influences on regulation, exerted by various interests over decades, have shaped and influenced regulation from its first days — and have overwhelmingly favored fossil fuels.
Is it possible that politics have led to the United States providing roughly $20 billion in direct subsidies to the fossil fuel industry every year? Can it be the case that politics supported regulation allowing America’s continued reliance on coal, natural gas and nuclear power despite the enormous external costs of these resources, estimated at $36 per metric ton of carbon dioxide by the Obama administration’s social cost of carbon? Are fossil fuel interests subsidized by being allowed to pump their combustion byproducts into the air we breathe, to the tune of an estimated 5% of U.S. gross domestic product? Is allowing nuclear plant owners to store fuel waste on site, ignoring risks concerned with protecting it for periods ahead longer than our recorded human history, a politically driven subsidy? These well known, long-appreciated external utility power system risks and economic costs aren’t news to anybody.
Mr. Costello, a well-respected regulatory economist, knows very well that these and many other external utility power system costs are fully borne by consumers. However, they are just not included in their utility bills. Large scale external costs are not evidence of economic efficiency or consumer protection, but are rather just the opposite. Consider that climate change impacts could cost the U.S. nearly half a trillion dollars annually by 2090, or more than 10% of GDP by 2100, and the true external costs of fossil fuel subsidies come into view.
These uncomfortable artifacts of existing regulatory systems, external economic costs, don’t find any place in Mr. Costello’s recent analysis, nor are the politics that protect the interests which benefit from these elements of the status quo mentioned, explicated or analyzed.
Does efficiency save consumers money? Yes, if you consider efficiency programs saved 27.1 million megawatt-hours of electricity in 2018. Do consumer-sited generation resources benefit consumers? Yes, if you consider rooftop solar panels can save a home between $10,000 and $30,000 over the lifetime of an average system. Can new clean bulk system resources improve consumer welfare, even if they bring self-interested, competitive and profitability motives with them? Yes, if executed properly, as they are in most cases. Can these resources have negative impacts if they are not carefully regulated and implemented? Yes, but these exceptions don’t prove the rule that Mr. Costello argues, that these results of political influence on regulation are somehow entirely devoid of public interest value.
Technology has diversified and improved, so much so that large scale wind and solar resources now cost less for utilities and their consumers than continuing to run old fossil plants. Building new solar and wind is already cheaper than 74% of the total U.S. coal fleet, and clean energy portfolios are already cheaper to build then 90% of all planned U.S. gas projects. Diversity itself is the key to managing risks, just like in a financial portfolio. Does Mr. Costello acknowledge these fundamental economic shifts that provide benefits in favor of consumers? No, since they result from what he deems "political" influence on regulation, to which he objects — unless, apparently, the influence supports the status quo.
But most observers understand that the status quo supports huge external costs, risks and liabilities. Most observers understand that power system contributions to climate threats must be addressed. Most, including many investors and corporate buyers, can make their way through new economic realities brought by changing and improving technology. And most see opportunities in helping manage the utility financial transition toward a more efficient and cleaner power sector that can provide better services and less cost to consumers.
That’s why politics impacting regulation, as it always has, is changing regulation in new ways now. Legislators, regulators, interest groups, investors, corporate and institutional buyers, governors and most everyone else understand that regulation has to change to address new realities, along with reforming practices that deny consumers benefits they deserve.
Politics is the expression of these concerns by the society that regulation, and utilities, are meant to serve. There’s nothing new here, except for the nostalgia Mr. Costello exhibits for narrowly focused regulation whose time has passed.