Introduction

This paper focuses on electricity distribution, which falls under the auspices of state regulation in the United States (most frequently called "public utility commissions"). At odds with the prevailing view, it questions whether utilities should spend more on grid modernization (GM) and whether it should be done as quickly as possible. Changing regulatory incentives as they relate to GM investments, prompted largely by political pressures, regulators' greater (and arguably excessive) commitment to GM investments, and more liberal pass-through of costs to utility customers have raised concerns on three fronts: overspending on GM, failing to achieve net benefits for utility customers, and grossly unevenly spreading benefits across customers. These concerns adversely affect both economic efficiency and equity, which, as this paper argues, tend to jeopardize both the public interest and the "balancing act" of regulation. 

This paper will be part of the OGEL Special Issue on "State Aid and Competition Rules in the Energy Sector". More information here www.ogel.org/news.asp?key=840