Association for Public Policy Analysis & Management

In the U.S. and globally, jurisdictions have adopted policies that seek to reduce electric sector greenhouse gas emissions and transition toward greater use of low-carbon and decentralized sources of electricity. These policies are implemented, however, in a regulatory context that was designed to regulate monopoly utilities, and traditional approaches to utility regulation and rate recovery can pose institutional barriers to small-scale, low-carbon, intermittent sources of electricity. Scholars increasingly argue that existing institutions may need to change if the transition to low-carbon energy is to succeed.

Over the past 20 years, many U.S. states have made significant changes to the regulatory institutions that shape electric sector investment, procurement, distribution, and rate recovery. Nearly half of U.S. states have restructured their electric sectors to allow smaller-scale merchant generators to compete with utilities. A similar number of states have adopted resource planning policies that require utilities to undertake integrated resource planning that compares demand- and supply- side options under the oversight of regulators. In some states, both practices are used in hybrid market-and regulatory systems. In still other states, however, regulatory institutions remain largely unchanged and continue to focus on regulation of vertically-integrated utilities.

While there are many studies that empirically examine the effect of particular policy instruments – such as renewable portfolio standards, energy efficiency mandates, or GHG reduction goals – there have been few studies to examine how these broader regulatory changes shape electric sector outcomes. A handful of studies have empirically assessed the effects of electric sector restructuring on electricity prices and market competition, but there have been no similar efforts to document the effects of integrated resource planning policies, to compare electric sector outcomes across different regulatory approaches, or to evaluate which of these approaches is best-suited to encouraging the transition toward cleaner energy.

In this paper, we ask: how do different institutional arrangements for the electric sector affect key regulatory outcomes, such as resource diversity, use of clean energy resources, greenhouse gas emissions per capita, and electricity price? We answer this question with a mixed methods analysis. We identify three different approaches to regulation of utility procurement: traditional; market-based; and stakeholder-driven resource planning; and provide brief case studies of three states – Indiana, Connecticut, and Minnesota – that illustrate these different approaches, developing hypotheses about how different institutional arrangements might shape regulatory outcomes. We test these hypotheses with a multilevel panel data analysis. Using state statutes and regulatory documents from 1995 – 2015, we create categorical state-year variables representing states’ regulatory approaches. Then model the impact of these different institutional arrangements on state- and utility-level outcomes, such as resource diversity, renewable energy generation, greenhouse gas emissions, and electricity prices. Findings help identify the institutional arrangements that might facilitate – or hinder – the transition to a low-carbon electric sector.