A Regulatory Guide for Affordable Utility Service

This paper starts with the premise that the affordability of electricity and natural gas to all households demands some form of energy assistance (EA) funded by utilities and their customers. Although taxpayer-funded programs to help low-income households may be more economically justified, the political reality is that legislatures and executive branches of government may require utilities along with regulatory support to assume this responsibility.  Utility-funded programs, for example, are common in the U.S.

Smart regulation demands that EA initiatives have favorable benefit-cost ratios. Regulators should strive to assure that each dollar expended returns the highest possible dividend and that EA initiatives do not interfere with other regulatory objectives. 

This paper emphasizes that governmental policy requiring utilities to provide monetary assistance to low-income households must address several questions, including:  (1) How much assistance should a utility provide in view of governmental and non-utility private assistance (e.g., the number of dollars offered to eligible households)?  (2) Who should pay for this assistance (e.g., residential customers, all customers, utility shareholders)?  (3) How should the utility collect the money in rates?  (4) What constitutes an appropriate financial effect on subsidizing customers? and (5) How should the utility distribute the assistance to eligible households (e.g., discount rate, lump-sum payment)?

This paper identifies criteria that public utility regulators can apply to assess the effectiveness of EA initiatives.  It discusses features of EA actions that are likely to make then successful from a regulatory and societal perspective.  Overall, the paper recommends that regulators review EA actions to determine whether they are achieving the regulatory goal of utility-service affordability:  (1) most effectively and (2) with minimal adverse effects on other regulatory and public-policy goals.

Winner #2 of the 2016 ERRA Regulatory Research Award.


Author:

Costello, Kenneth

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  Affordability     EA     energy assistance     smart regulation