Editor's note: The first installment of this article looked closely at the frequently tense, frustrating relationship between utilities and public utility commissions, and author and former regulator David O'Brien identified where the sticking points were. In this, the second installment, he provides some experience-based recommendations on how the two sides can work together to remove the sticking points and work toward an efficient, equitable regulatory process. We suggest that you take a refresher look at the first installment before diving into the second.

By David O'Brien

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Once upon a time, energy efficiency was an unproven new idea. As with energy efficiency twenty-odd years ago, no knowledgeable regulator or utility executive would deny the tremendous potential of a digitized grid. The problem is the path from today’s grid to tomorrow's digital version is full of unknowns.

This uncertainty is no one’s fault. Nor can any one player eradicate it. Innovation means risk. We only find out by trying. That dynamic is everyday life in competitive industry but anathema to the stable, cautious electric utility business.

Orders such as the Delmarva Power case indicate that regulators, absent a clear policy mandate, want the risk of failure to lie with utility investors and zero with ratepayers. Having been a regulator, I can understand that emotion. The goal is to protect captive ratepayers from harm. But if you protect them from all downside risk, you are denying them any potential upside.