This report is primarily addressed to state regulatory utility commissioners, who will preside over some of the most important investments in the history of the U.S. electric power sector during perhaps its most challenging and tumultuous period. This report seeks to provide regulators with a thorough discussion of risk, and to suggest an approach—“risk-aware regulation”—whereby regulators can explicitly and proactively seek to identify, understand and minimize the risks associated with electric utility resource investment. It is hoped that this approach will result in the efficient deployment of capital, the continued financial health of utilities, and the confidence and satisfaction of the customers on whose behalf utilities invest.
Additionally, this report seeks to present a unique discussion of risk and a perspective on appropriate regulatory approaches for addressing it that will interest numerous secondary audiences, including utility managements, financial analysts, investors, electricity consumers, advocates, state legislatures and energy offices, and other stakeholders with a particular interest in ensuring that electric system resource investments—which could soon reach unprecedented levels—are made thoughtfully, transparently and in full consideration of all associated risks. SCOPE While we believe that the approach described herein is applicable to a broad range of decisions facing state regulators, the report focuses primarily on resource investment decisions by investor-owned electric utilities (IOUs), which constitute roughly 70 percent of the U.S. electric power industry. The findings and recommendations may be of particular interest to regulators in states facing substantial coal generating capacity retirements and evaluating a spectrum of resource investment options.