Deregulation’s effect

The administration’s deregulation effort may affect your bills at work and at home.

The average person may be left to wonder exactly what the current administration’s deregulation agenda means for them at a practical level.

A broad pronouncement in an executive order that every proposal for a new regulation must be accompanied by the repeal of two existing regulations may sound attractive to consumers, because the presumption is that a reduction in red tape will correspondingly reduce the price that consumers pay for goods and services. However, not all regulations are created equally, and government agencies must be careful to avoid eliminating costeffective regulations in an attempt to slim government influence.

To put this point in a specific context, consider the amount that consumers pay for electricity from public utilities. To understand how regulation affects consumers’ power bills, it’s important to understand how public utilities work.

In the case of a traditional utility (such as OG&E in Oklahoma), the rates the utility charges for power are set by regulators (in Oklahoma, the Oklahoma Corporation Commission). Regulators set the rates so as to allow the utility to recover its prudent operating costs plus a reasonable rate of return.

The costs imposed by regulations — or the savings resulting from them — are generally passed along to consumers on their electric bills as part of these operating costs.

“Regulation” is a broad term, which incorporates actions that can affect costs to consumers in a variety of ways. When thinking about regulations, the first thing that comes to mind for most people is likely environmental and safety regulations on power plants — regulations that do tend to impose costs upon those plants, which are passed along to consumers.

For example, the Clean Air Act regulates the level of emissions of pollutants. Utilities that own their own power plants — like OG&E — incur costs in complying with the Clean Air Act, and those costs are passed along to the utilities’ customers in their electric bills.

However, these regulations promote important societal goals relating to the conservation of our environment and the integrity of the nation’s power grid. These goals must be balanced with the costs imposed on consumers.

However, not all regulations impose a cost on consumers and, in fact, some regulations operate to the substantial economic advantage of consumers. For example, regulations that take advantage of market efficiencies tend to reduce costs to consumers.

Power cannot be stored in large quantities and, as a result, electric grid operators are constantly “balancing” supply and demand — i.e., making sure that power plants are only producing enough power to satisfy consumers’ needs. If supply exceeds demand in a certain location, transmission lines can become congested and issues can arise regarding the integrity and reliability of the power grid.

One way to ensure the “balancing” of supply and demand is a market-based approach. On March 1, 2014, the Southwest Power Pool — the organization responsible for managing the power grid in Oklahoma — implemented a market-based solution to supplying power and managing congestion on the power grid. Under the new regulation, power plants offer power into the markets at a certain price. The grid operator accepts bids from these generators up to the point where supply matches demand.

In this way, the grid operator obtains sufficient power to supply consumer needs at a competitive price while avoiding an overload on the power grid. The Southwest Power Pool reported that this market-based approach to obtaining power had reduced the cost of obtaining power by $1 billion as of September 2016 as compared to the system that existed before — savings which are passed along to consumers.

In short, regulations in the electric utility arena come in a variety of shapes and sizes, and the question of how a particular regulation will affect consumers is not always a simple one.

While perhaps a worthwhile exercise, narrowing the scope of existing regulation requires close and careful consideration — not simply a numerical reduction of the regulations on the books.

Joshua D. Burns is an attorney with Crowe & Dunlevy and a member of the firm’s Litigation & Trial and Energy, Environment & Natural Resources Practice Groups.