Public Service Commissions are spearheading the efforts to modernize their approaches to new and emerging industry issues.
In the early 1900s, state legislatures established public service commissions (PSCs), also called public utility commissions, to regulate companies providing public services and ensure equitable and quality service.
Today, state lawmakers are asking these same regulators to oversee far more than they have in the past. Commissioners must increasingly consider issues such as increased customer choice, utility resource planning, emissions, equity, grid reliability, distributed energy resources, and broader state policy considerations.
Yet, organizational and structural challenges pose barriers to innovation and informed decision-making for regulators. These challenges may include outdated statutory mandates, staff and resource constraints, gaps in technical expertise, information asymmetry between utilities and PSCs, procedure-heavy processes, and a culture of risk aversion.
Modern PSCs are Needed to Address Modern Challenges
This article explores three dimensions of the new directive facing PSCs:
Going Local - the core missions and authorities that empower PSC decision-making
Future-Proofing Processes - the team's expertise and the processes that optimally position commissioners to understand today's demands and tomorrow's needs
Understanding Public Perceptions - the individuals and governance structures that shape PSC decisions
Issue #1 – The Local Mandate
Across the US, cities are committing to environmental goals such as clean energy standards and addressing pollution. These goals give new depth and significance to cities' relationships with the energy utilities that provide power.
In these situations, a solid and collaborative relationship between legislatures and commissions is instrumental in establishing coherent, comprehensive, and cost-effective energy policies at the local level.
In some states, participation by Public Service Commissions can pave the way for those collaborations. Often state legislators set the high-level requirements, but the commissioners will craft the rules and practices for how utilities implement them.
This means cities targeting renewable energy or encouraging the development of net-zero neighborhoods will need to work with the utility and utility regulators to ensure long-term planning and distribution infrastructure are in place to accommodate future needs.
Policymakers should update PSCs' statutory authorities to harmonize regulatory decision-making with policy expectations in all rule-makings and regulations.
Statutory updates should be coupled with ambitious clean energy policies that provide direction around expected utility performance.
In 2021, Maine took legislative steps to bring their PSCs closer to local climate goals, empowering the PSC to make decisions that support greenhouse gas emission reductions as part of its primary mission.
Issue #2 – The Future-Proof Mandate
Many commissioners, even those with extensive industry experience, may find themselves ill-equipped to tackle the numerous and fast-changing issues of the industry—particularly those that relate to new and emerging priorities.
While existing staff capabilities may reflect historical needs, today's challenges require new competencies in climate (e.g., carbon accounting), energy system modeling, load and resource forecasting, finance (e.g., securitization), environmental equity, and cybersecurity.
Few government agencies can retain all of these competencies internally.
Because of this, commissioners are often dependent on external advisory staff to help them become educated and informed on a wide range of topics. While some states allow PSCs to fill gaps in expertise by hiring external consultants, most state budgets barely account for this if at all. And where commissions have consulting budgets, the requirements necessary to utilize these budgets may be prohibitive to support time-sensitive goals.
Modernizing PSC's internal organization to match evolving industry needs can unlock innovative decision-making and outcomes that put communities and ratepayers first.
Policymakers should authorize additional funding and consider new approaches to securing these additional technical capabilities— particularly for meeting the specialized needs related to finance, modeling, equity, climate, and community engagement.
The Oregon PSC has traditionally allocated four full-time employees to its Research and Emerging Issues Unit. The unit's mission is to "advance policy discussions and Commission decisions concerning current and emerging issues that impact utilities and service providers regulated by the Oregon PSC and their customers."
Issue #3 - The Public Mandate
As nearly all PSCs are appointed by governors or through the state legislature, commissioners face mounting pressures to understand the public perceptions on these topics and respond with action.
Over the last twenty years, the proliferation of the internet and social media has amplified the voice of community members directed at utilities, and in turn amplified their criticism. As such, commissioners have a more direct view of the issues and concerns shared by the public.
One example of an overarching frustration heard by commissioners is deposit requirements for service activations. While sometimes viewed as a protective tool, to many community members, deposit requirements impact low-income account holders disproportionally. In many cases, when a deposit is required for service activation with one utility, such as an electric company, it's usually required by other utilities as well, like water and gas companies. These expenses can feel overwhelming to customers facing the additional expenses that occur when relocating.
Commissioners recognize that many customers lack an understanding of the triggers that dictate a deposit requirement or the conditions to satisfy a deposit return. With this in mind, commissioners have been open to meeting with industry partners offering alternative tools that satisfy these requirements. In doing so, commissioners are playing an essential role in reducing fractures between community members, utilities, and elected officials.
Policymakers should consider updating the definition of public interest through statute to include modern public needs. They should couple this with a review and recommendations of services that advance the broader needs of the public.
Examples of Success:
Since 2016 numerous commissioners have expressed interest in utilities offering an alternative deposit solution, such as the Deposit Alternative Plan (DAP). DAP assist low-income account holders by:
Offering a deposit option: the traditional fully refunded deposit; or DAP, a non-refundable charge, typically 40% to 50% less than the value of conventional deposits, to customers at the time of the account activation.
Account-holders selecting DAP enroll at the time of account activation.
If a DAP enrollee defaults on their account, Deposit Alternatives reimburses the utility up to 125% of the conventional deposit amount.
In offering the Deposit Alternatives Plan, electric companies lessen a burden many low-income customers struggle to overcome when activating services.
PSC Requirements for the 21st Century
PSCs are uniquely positioned to champion policies to support emerging public demands. But they need the right tools and resources to do the job effectively.
The need for modernization is urgent; the decisions that PSCs across the United States make today will shape the nation's energy-related strategies over the next decade and beyond.
About Deposit Alternatives
Deposit Alternatives, founded in 2016, is a leading innovator in the utility industry. Drawing on over seventy combined years of expertise in the utility and financial sectors, Deposit Alternative has disrupted the world of utility deposits to provide better service and greater customer satisfaction with innovative deposit solutions across the US.