Insight on oversight

A trio of tenets state regulators can use to maximize benefits from natural gas and emission allowance markets. A dramatic change has occurred in recent years in the role markets and competition play in achieving the nation's economic policy objectives. In regulating sectors as diverse as telecommunications and natural gas pipelines, change has taken the form of deregulation, service unbundling, and increased reliance on markets and competition to determine prices and industry structure. In environmental regulation, passage of the Clean Air Act Amendments of 1990 was a major step toward implementing economic incentive-based approaches to control environmental externalities through a system of tradable emission allowances. Public utility commissions governing local utilities are finding that unleased markets are remarkably fluid and complicated. With so many new options and players to content with, state policymakers are struggling with big questions: How do they fulfill their mandated obligations to ensure that local utilities are behaving prudently and providing gas and electricity under just and reasonable terms How do they ensure that utilities buying major inputs in newly created, or at least newly freed, markets act in the best interest of ratepayers This article describes the elements of state regulatory oversight of local distributionmore » companies and electric utilities that rely on competition and appropriate incentives.« less