Paper: Lessons from the Stimulus

The Past and Potential Future Impacts of Federal Policy on Utility Rate Structures

Historically, state commissions have presided over the development of utility rate structures, but Congress has occasionally required commissioners to consider new rate designs. Most recently, the 2009 American Recovery and Reinvestment Act included $3.1 billion for the Department of Energy’s State Energy Program. In order for a state to access its share of the funding, the governor had to notify the Secretary of Energy that state regulators would “seek to implement a policy that ensures that utility incentives are aligned with helping their customers use energy more efficiently.” While all 50 governors pledged to comply, little research has been published that determines whether this open-ended provision actually impacted electric utility rate structures.

This paper reviews federal attempts (ARRA and PURPA) to influence electric rate design and specifically examines the ways in which states responded to the ARRA request. ARRA’s provision had the potential to affect utility business models, but that potential has been largely unrealized. The paper also reflects upon changes occurring in the electricity sector, which are driving considerations of new rate designs, and explores the potential for additional federal policy options to impact utility rate structures.

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