US state energy policies upend regulatory oversight, ratepayer advocates warn

This article is the first of a two-part series on state lawmakers' efforts to shape the changing US energy landscape. See the second part here.

A new law in Utah has alarmed state ratepayer advocates who say legislators are undermining decades-old utility regulatory practices by mandating that PacifiCorp invest in "dispatchable" fossil fuel-powered plants without justifying the cost.

The concerns of the Utah Office of Consumer Services and the Utah Association of Energy, a group representing industrial ratepayers, had little impact as S.B. 224 moved through the state legislature and to the governor's desk within a month. The law goes into effect May 1 and is not the only such policy to emerge from increasingly energy-focused state legislatures.

"They not only made significant changes to the policy — ironically, under the guise of maintaining affordability — but then they took away a lot of the oversight," Michele Beck, director of the state's Consumer Services office, said in an interview. "That almost turns into a blank check for the utilities. We will see higher bills as a result."

PacifiCorp, the state's only rate-regulated utility, which does business in Utah as Rocky Mountain Power, pushed to include language in the bill that prohibits the Utah Public Service Commission from "disallowing" costs associated with future investments in coal plants, said Sen. Scott Sandall (R), the sponsor of S.B. 224.

The utility needed assurance that the legislature would "direct the PSC to in a reasonable way make accommodations to keep those power plants open" if new pollution controls had to be installed or the price of coal would rise, Sandall said in an interview.

NJ lawmaker wants to change ratepayer advocate 'role'

In New Jersey, disagreements between the state's ratepayer advocate and clean energy champion Sen. Bob Smith (D) have sent the state senator on a mission to change how the state's independent Division of Rate Counsel does its job.

"I think people have to look at the bigger picture," Smith told Brian Lipman, the division's director, during a tense exchange at a November 2023 legislative committee hearing. "Which is why I'm going to change your role [as] the ratepayer advocate. It's not about you and me personally, but you really need to take into account the impact of us not doing enough about climate change."

Smith, who chairs the state senate's environment and energy committee, then reintroduced a bill (S211) for the 2024 legislative session bill requiring the rate counsel to help the state "fulfill its decarbonization goals" rather than focus solely on how rising energy costs affect homes and businesses. Since its introduction in January, there has been no additional action on the bill.

Lipman has repeatedly pushed back against provisions in proposed legislation that would codify New Jersey Gov. Phil Murphy's 2023 executive order requiring power companies to deliver 100% clean electricity by 2035. To avoid price shocks for consumers, the bill should include a cost cap and mechanism to scale back investments if costs get too high, the ratepayer advocate said during the November hearing.

"You can't just throw all the utilities' money into a pot ... take everything and hope that we get something that works," Lipman told Smith. "Let's put in the bill that it can't increase utility bills."

Utility rate case activity has accelerated in recent years, with about 140 decisions in 2022 and 150 decisions in 2023, the most in decades, according to Regulatory Research Associates, a group within S&P Global Commodity Insights. Citing current inflation and interest rates, Regulatory Research Associates expects the number of electric and gas rate cases to remain high this year.

It 'typically ends badly'

Other states have enacted laws that tie the hands of both regulators and utilities. Kentucky legislation enacted in 2023 prohibits the state Public Service Commission from approving a utility's plan to retire a coal-fired power plant unless the company can prove that doing so will not affect grid resilience or customer electric rates.

The legislation forces Duke Energy Corp. customers in northern Kentucky "to pay into perpetuity [for] the operation, maintenance costs as well as incremental capital investments that we may have to make for a plant that is no longer burning any fossil fuels and not producing any energy," Rocco D'Ascenzo, the utility's deputy general counsel, told a 2023 hearing on the bill.

Legislators have for years been overstepping their role to interfere with ratepayer concerns and to micromanage utility investments, but the trend is accelerating, said Paul Alvarez, president of the Wired Group, a utility industry consultancy.

Lawmakers "don't know the implications of what it is they're passing," Alvarez said in an interview. "And the utility has everything to gain and nothing to lose by padding these investment plans with as much stuff as they possibly can."

Alvarez co-authored a 2021 Electricity Journal study titled "Utility regulation through legislation: A cautionary tale for legislators, stakeholders and utilities." The analysis found that at least eight states had passed laws in the name of electric reliability that reduced the authority and independence of utility regulators. "This typically ends badly for both customers and shareholders," the authors warned.

The study said the first such legislation was enacted by Florida in 2006. The measure allowed Duke Energy Florida LLC to collect fees in advance for two nuclear power projects that were never built, leaving ratepayers with more than $2 billion in charges over 20 years.

In 2019, Ohio enacted H.B. 6, which provided subsidies for the operation of two nuclear plants in the state and two coal-fired plants owned by a number of Midwest utilities. Portions of the law were later repealed after it was revealed that utility officials provided millions of dollars to state legislators and lobbyists to push it through. The former speaker of the Ohio House of Representatives is currently in prison for his role in promoting the legislation, and two former utility executives were indicted in February.

In South Carolina, a member of the South Carolina Public Service Commission quit his post in March over concerns that proposed legislation (H. 5118) altering utility regulation in that state could lead to "another multi-billion disaster" like the failed expansion of the V.C. Summer nuclear plant. The bill, which would reduce the size and scope of the commission and provide quick authorization of a new gas-fired plant, has passed the state House but has met resistance in the state Senate.

'No free pass'

Back in Utah, Richard Garlish, Rocky Mountain Power's vice president and general counsel, disputed the notion that S.B. 224 abolishes scrutiny of the company's investments.

"There's no free pass for the utility in this bill," Garlish said during a Feb. 27 hearing. "We're still going to have to show up at the commission and prove that the actions we took are necessary and that the costs we incurred were reasonable in order to get recovery."

What has changed, critics argue, is that the new law relieves the utility of the burden of proof to show that such costs are reasonable.

The new Utah law is a "fundamental shift away from standard utility regulation and puts the burden on parties that don't have access to the utility's data or model results — rather than on the utility, which obviously controls all of that data and information," Beck said.

An upcoming Rocky Mountain Power rate case expected to be filed by the end of April may signal how the utility views the new mandates, Beck added.

"Maybe PacifiCorp has the best of intentions to continue presenting information exactly as it has in the past; that would be wonderful, and they do still have specific filing requirements," Sophie Hayes, a senior attorney for the environmental group Western Resources Advocate, said in an interview. "But it is no longer their responsibility to prove that the costs are reasonable. This is all about smoothing the path to cost recovery for PacifiCorp for investments it makes in its coal plants."

Utah residential ratepayers had the lowest average monthly bills among all states in 2023, the US Energy Information Administration said April 22,

Under the new law, the utility may recover costs associated with the "acquisition, expansion, maintenance, retrofitting, fueling or operation of a proven dispatchable generation resource, as well as the reasonable legal fees and costs associated with efforts to preserve the continued operation" of such plants.

Dispatchable power plants are available on demand, unlike wind and solar resources, whose availability depends on weather and time of day.

Sandall and other state legislators, saying coal-fired plants will be needed to keep lights on in Utah while nuclear and geothermal technologies develop, sprang into action after PacifiCorp announced in 2023 that it would retire its Utah coal plants by 2032 and were soon negotiating with the company.

Rocky Mountain Power was "very concerned" that utility regulators might disallow the recovery of investments in expensive pollution controls or those associated with rising coal fuel costs if it kept the plants open, Sandall said.

"We worked hand in hand with Rocky Mountain Power to make sure we got what we felt was the best for citizens of the state," the senator said. "We simply can't just walk away from over 50% of our baseload power in this state."

PacifiCorp has since announced that it will extend the life of its 909-MW Huntington coal plant until 2036 and the 1,363-MW Hunter plant until 2042, citing litigation that held up the implementation of federal ozone regulations. Those retirement dates were included in a 2021 resource plan.