Does Fair and Forward-Looking = EFFECTIVE?

On February 12, 2014 the EEI/NRDC Issued a Joint Statement (“Joint Statement”) to State Utility Regulators at the recent NARUC Conference.

The objective of the Joint Statement is to stimulate accelerated “cost-effective and clean energy efficiency resources and grid enhancements.” It begins: “The future of America’s vital electricity sector will continue to be a promising one as long as regulatory policies are fair and forward looking.” Citing to traditional rate regulation, it advises commissioners that “policy makers should rethink how utility [fixed] costs are recovered.” It states that “Recovering the fixed costs is becoming more challenging.” Does that then mean charging higher prices to Main Street customers?

Alfred E. Kahn opined in the early 1970s that “The essence of [traditional rate] regulation is the explicit replacement of competition with governmental orders as the principle institutional device for assuring good performance.” The question arises, is “fair and forward looking” synonymous with “effective”? The effectiveness of regulation can only be determined empirically by comparing its results to its mandate. What is the mandate underlying traditional rate regulation and is the Joint Statement proposing a change to that mandate?
Since Analytica94 is a research organization we ask for comments that explain the specific mandate’s supporting rate regulation in the commenters’ jurisdictions. We will summarize the results into a Whitepaper and make it available for free at