Rate Regulation Redux

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Rather than quietly revive cost-of-service rate regulation, this Article argues that FERC should simplify reserve requirements, stop counteracting state clean energy programs, and support the development of competitive markets for services that support grid reliability. Specifically, FERC and grid operators need not administratively reprice resources or force load-serving entities (LSEs), which distribute electricity to consumers, to transact with specific generators. Instead, the Commission should support long-term resource procurement markets that would be built on top of today’s short-term energy markets. Wholesale markets would consist primarily of short-term energy dispatch and balancing markets. They would not be relied on to ensure that revenues are sufficient to maintain resource adequacy. If LSEs were permitted to determine for themselves how to comply with resource procurement requirements, they could balance renewable policies, flexibility needs, and reserve mandates. This approach would maintain reliability while respecting FERC’s jurisdictional limits. Most importantly, it would prevent the Commission from quietly reviving cost-of-service regulation in regions that ostensibly abandoned that market structure decades ago.

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