EEI/NRDC JOINT STATEMENT TO STATE UTILITY REGULATORS

February 12, 2014

Introduction

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. As we move into a new age of innovation, the 

use of the grid is evolving, facilitating power flows in two directions, so that customers can 

engage in both purchases and sales of energy, and provide other services such as balancing, 

voltage support, and voluntary load management. Innovation is providing new incentives for 

customers to use the grid more effectively and efficiently, optimizing the use of existing 

infrastructure. 

Anticipating as much, we launched a joint campaign in 2008 to accelerate energy efficiency 

gains and encourage utilities to undertake a host of other cost-effective and clean energy 

resources and grid enhancements. Together, these changes have done much to promote clean 

energy and efficient electricity usage, but they also have highlighted the vital need for regulatory 

policies that will support fair and adequate cost recovery for maintaining the evolving grid.

Recovering the fixed costs of the grid is becoming more challenging. While customers are 

discovering new opportunities that enhance the value that the grid brings to them, policy makers 

should rethink how utility costs are recovered, with consideration needed for new rate designs 

and new approaches that balance the desire to promote innovation while still enabling recovery 

of the capital investment that recognizes the value of the grid to all customers and their new uses 

of the grid. Traditional rate regulation can at times incentivize utility retail sales growth; in turn, 

utilities sometimes leverage that growth between rate cases to meet system-wide needs for cost 

recovery and capital investment. 

Utility customers value electricity for the comforts, conveniences, and productivity it enables 

such as lighting, cooling, and mechanical drive provided reliably and just-in-time. In 2008, we 

outlined measures that would keep utilities whole for recovery of authorized non-fuel costs as 

electricity sales volumes fluctuated. We reaffirm that goal.

If properly done, utilities can adapt to the changing needs of customers, modern electricity 

systems, and technologies, while continuing to deliver safe and reliable service, maintain 

financial integrity by allocating costs of service fairly among customers, and continuously 

improve environmental performance. But utility regulatory and business model changes are 

necessary to accelerate progress and ensure transparent and equitable attainment of these 

objectives.
EEI/NRDC JOINT STATEMENT TO STATE UTILITY REGULATORS 2

The recommendations listed below reflect our strong belief in the promise of new technologies 

for enhancing grid performance while lowering emissions (e.g., communications infrastructure, 

smart grid technologies, distributed generation, demand response, and upgraded controls). This 

innovation surge is viewed as having potential for grid improvement (including reliability and 

cost-effectiveness), and increased value of connectivity. Innovation does not threaten the grid; 

collectively, technology advances are making the nation’s transmission and distribution systems 

more important than ever as drivers of economic and environmental progress.

Key recommendations:

1. The retail electricity distribution business should not be viewed or regulated as if it were a 

commodity business dependent on growth in electricity use to keep its owners financially 

whole. Instead, utility businesses should focus on meeting customers’ energy service needs. 

Therefore, recovery of utilities’ non-fuel costs should reflect their costs of maintaining and 

improving the electricity grid, and should not be tied to levels of retail commodity sales.

2. Traditional rate regulation allows non-fuel revenues to grow between rate cases in proportion 

to growth in commodity sales, which averaged more than twice the rate of population growth 

between 1973 and 2000 before slowing significantly. If regulators break the linkage between 

cost recovery and commodity sales, they should provide for reasonable and predictable 

annual adjustments in utilities’ authorized non-fuel revenue requirements.

3. “Net metering” programs in wide use across the United States have helped valuable 

“distributed” technologies such as rooftop solar power gain traction and improve 

performance, but additional approaches are needed now. Although such generation can 

reduce a grid’s needs for central station generation and other infrastructure, it typically does 

not eliminate its owners’ needs for grid services. For example, solar generation at a residence 

typically does not align perfectly with the occupants’ energy use, requiring some use of the 

grid as the equivalent of a battery. 

When they use distribution and transmission systems to import and export electricity, owners 

and operators of on-site distributed generation must provide reasonable cost-based 

compensation for the utility services they use, while also being compensated fairly for the 

services they provide. Customers deserve the opportunity to interconnect distributed 

generation to the grid quickly and easily.

4. Utilities deserve assurances that recovery of their authorized non-fuel costs will not vary with 

fluctuations in electricity use. Customers deserve assurances that costs will not be shifted 

unreasonably to them from other customers. Rate designs will continue to develop that 

reward customers for using electricity more efficiently. Examples include, but are not limited 

to, real-time pricing and variable demand charges that take advantage of digital meter 

capabilities where available.

5. It is appropriate to consider expanding investor-owned utilities’ earnings opportunities to

include performance based incentives tied to benefits delivered to their customers by costeffective initiatives to improve energy efficiency, integrate clean energy generation, and 

improve grids. In general, business models should include profit opportunities linked to 

utilities’ performance in delivering safe, reliable, affordable, and clean energy services.
EEI/NRDC JOINT STATEMENT TO STATE UTILITY REGULATORS 3

6. We will work together to ensure that energy efficiency services reach underserved 

populations, including the increased deployment of utility programs focused on affordable 

multi-family housing.

7. We reaffirm our goal of “helping electricity users take advantage of all cost-effective energy 

efficiency opportunities through an integrated combination of financial incentives to 

customers and minimum standards governing the performance of buildings and equipment,” 

and we rededicate ourselves to the five key elements of that campaign.

8. We also reaffirm our call to state regulators, when presented with a reasonable business case 

by utilities, to “support significantly enhanced utility investment in ‘smart meters’ and a 

‘smart grid’ that focuses on delivering new energy management tools to customers, enabling 

increased energy efficiency, supporting efficient new technology such as plug-in electric 

vehicles, and reducing the cost of integrating renewable energy generation with variable 

output into resource portfolios.” 

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