Weeks into one of the greatest crises the nation has faced in generations, we are all learning much about the importance of the resilience of our nation’s utilities. The work of countless control room operators, line workers and power plant engineers, to name just a few, has been heroic during the COVID-19 pandemic. Energy keeps our health care facilities powered and enables telework for other sectors of the economy. Reliable energy delivery is foundational to modern society.
Those that oversee our energy companies are also meeting the moment. From the Federal Energy Regulatory Commission, which oversees the reliability of the bulk power system, to state public utility commissions, which have responsibility for the direct interface between utilities and their customers, regulators are finding themselves in a critical position.
In the succeeding months, these critical infrastructure companies must have the wherewithal to keep the lights on and energy flowing to hospitals, homes and stores. For the near term, close to half the states have required, and all investor-owned utilities have voluntarily offered, a halt to utility disconnections. In addition, state utility commissions around the country have begun proceedings to proactively address questions related to recovering costs associated with the crisis, including how to account for things such as higher bad debt expense due to customers’ inability to pay for energy.
In the longer term, we should expect a renewed focus on regulatory mechanisms to ensure the viability of an essential industry that has high fixed costs but falling volumetric usage, as industrial and commercial demand plummets. These reforms will be important to both mitigating the effects of this crisis and positioning utilities to successfully meet the next one.
The good news is that well-understood regulatory tools exist to address these challenges. The key for regulators will be to consider both sides of the ledger. They will need to ensure compassionate policies exist to protect customers hurting financially, while seeing to the continued viability of companies that are delivering electricity and natural gas where and when it is needed the most.
Unfortunately, a crisis also presents an opportunity for misguided policies to find fertile ground. Recent days have seen a handful of such proposals. Even though utilities and states have the utility disconnection issue well in hand, approximately 100 members of Congress recently went on record to support a top-down federal takeover of utility disconnection policy. In another example, a university academic suggested that all utility customers simply be given a holiday from paying utility bills.
While perhaps well intentioned, these are the sorts of things that can turn a difficult, but manageable, situation into one that threatens the reliability of energy supply. As we have learned over the last several weeks, the beauty of federalism is that in a situation like the COVID-19 crisis, the states are often best equipped to tailor solutions that balance the different and specific needs of their citizens. Overreach into areas that the states are handling imposes rigid mandates that prevent them from addressing complex matters related to regulatory accounting and economics. Contrary to popular opinion, utility companies do not carry large stashes of cash reserves on their balance sheets. They require relatively predictable cash flows to maintain and operate their capital-intensive networks. Their work is too important to allow them to be treated like a bank of last resort for carrying untold amounts of societal debt.
This isn’t to say congressional leaders don’t have an important role to play. To give just one example, consumer energy assistance programs are a longstanding, and successful, federal-state effort to provide direct aid to utility customers facing economic hardship. These sorts of programs help customers in need while simultaneously maintaining the financial integrity of the energy company providing essential services. Programs like these will need to be fully funded, and they are more important now than ever.
Federal policymakers should direct their attention to where they can support the efforts of state leaders as it relates to utility policies. Overreaching in ways that destabilize one of the still-working cornerstones of our economy is a recipe for making the COVID-19 crisis even worse than it already is.
Tony Clark served on the Federal Energy Regulatory Commission from 2012 to 2016 and on the North Dakota Public Service Commission from 2001 to 2012. He is a senior advisor at the law firm of Wilkinson Barker Knauer, LLP, where he works with clients in the energy and telecommunications industries.