The Energy Optimist Episode 1: What Is Energy Regulation, and Why Should I Care?

Episode Show Notes

Key Takeaways

1. Today’s guest, Karl Rábago, is a leading innovator and expert in the clean energy field with more than 30 years of experience that spans all sides of energy regulation, from serving as commissioner on the Texas Public Utilities Commission, to Vice President of the utility Austin Energy; Deputy Assistant Secretary at the US Department of Energy; and expert consultant in support of nonprofit and public interest organizations advocating for an equitable clean energy transition.
2. The episode walks through: 
   • What is energy regulation, and why it’s important to our daily lives;
   • Who regulates the energy sector at the federal and state level; 
   • How the energy system has traditionally been regulated and how our priorities are changing to prioritize energy equity, greenhouse gas emissions reductions, and other major policy goals.
3. Transforming the energy sector from the old way of doing things (with a focus on large-scale power plants and long-distance transmission lines) to a more distributed, renewable, and equitable system has a lot of challenges, but there are also many reasons for hope, including the leaders stepping up to the challenge.
4. Highlights:
   • “Public regulatory commissions are some of the most important and least known regulatory bodies in our everyday lives, but they impact everything about the way we live.”
   • “This is the most exciting time in energy regulation I’ve known and I’ve only been doing it for 32 years.”
   • “What gives me hope is that I do an awful lot of utility regulatory proceedings, legislative proceedings and things related to energy. And what really gives me hope is leadership. I see leaders emerging to meet the challenge.”

Resources and Further Readings

1. For a more in-depth primer on how the energy system is regulated (with a focus on electricity), see “Electricity Regulation in the U.S.” by the Regulatory Assistance Project.
2. Munn v. Illinois is a foundational case that recognized government’s right to regulate private enterprise for public good.
3. In October 2022, Karl Rábago and several other experts submitted expert witness testimony on behalf of the Just Solar coalition in Minnesota, on issues including energy equity, rate design, integrating distributed energy resources, and many other topics relevant to how we regulate the energy system now and how that needs to change.
4. In 1921, Albert Einstein was awarded the Nobel Prize “for his services to Theoretical Physics, and especially for his discovery of the law of the photoelectric effect.” The photoelectric effect is an integral part of solar photovoltaic power.

Episode Transcript

Radina Valova, IREC Regulatory Vice President and podcast host: Hello, and welcome to the Energy Optimist where we start with the bad news and end with what increasingly feels like a radical idea: that there are reasons for optimism. I’m your host Radina Valova, Regulatory Vice President with the Interstate Renewable Energy Council (or IREC), an independent nonprofit that’s been building the foundation for the rapid adoption of clean energy and energy efficiency for more than 40 years. 

Each episode, we tackle a thorny energy policy challenge in bite-sized interviews with leading experts. If you’re totally new to energy policy we’ll demystify it for you. If you’re a seasoned practitioner, we’ll hopefully leave you with renewed optimism to keep doing the work to improve our energy system—because hope is the fuel for change. 

We begin our inaugural episode with a foundational question, what is energy regulation? And why should you care? 

In our productivity-obsessed society, it’s hard to avoid articles that extol the virtues of a solid morning routine. Let me tell you a little bit about how I get my day started. And before you ask what on earth that has to do with energy regulation, I promise the story has a point. 

My alarm, which is an app on my phone, goes off at 6:45. My dog Jude, who is my second alarm, goes off a few minutes later. We take the elevator down and take a nice long walk, asking every five minutes “What did you just eat?” Spoiler alert this time of year she loves goose droppings. Yum. 

Back upstairs, I put on a pot of coffee and make breakfast and read a little, and then it’s time for work. My desk is a cornucopia of devices, my laptop, an external keyboard and mouse, and my phone. And the desk itself is a standing desk that rises and lowers at the touch of a button. 

So what the heck does any of this have to do with energy regulation? Well, nearly every moment of my morning routine involves some form of device powered by electricity, and products that wouldn’t exist without a constant flow of energy. And so does yours. 

From the water that runs in your faucets and showers to the electrons that power the phone you probably wish you spend less time on, and less obvious things too, like the clothes you put on and the dairy or non-dairy milk you pour in your coffee, and certainly the coffee itself. Energy powers nearly every aspect of our lives. Like water, it has become a public good that we can’t live without. And here’s the clincher: the way we regulate energy has profound impacts on our environment, on our communities, and on our future. 

We have created an energy regulatory system with rules and practices that aren’t always in our best interest. These rules and practices have also created an energy system that has had and continues to have disproportionately negative impacts and burdens on people of color and disadvantaged and frontline communities. 

If you’re new to energy policy. Today’s episode will give you a primer on what we mean by energy regulation. And then our guest today, who I will introduce in a moment, will help us answer the question, “why should we be optimistic?” Because hope is not optional.

Our guest today is Karl Rábago. Karl is a leading innovator and expert in the clean energy field with more than 30 years of experience that spanned all sides of energy regulation, from serving as Commissioner on the Texas Public Utilities Commission to Vice President of the utility Austin Energy, Deputy Assistant Secretary at the U.S. Department of Energy, and expert consultant in support of nonprofit and public interest organizations advocating for an equitable clean energy transition. 

Radina: Welcome to the show, Karl! Can you define energy regulation in 60 seconds or less?

Karl Rábago: No, but I’ll try! 

Energy regulation, to me, is how our society responds to the fact that the energy business is affected with the public interest. We know everything is connected to everything else. Everything people in the energy business do impacts us, the public, in good ways and bad. Energy regulation then is the processes, the rules, the institutions, the learning, and the practice that is supposed to ensure that we maximize the goods and minimize the bads.

Radina: That is a great 60-second introduction to what is energy regulation. Let’s break that down a little bit, particularly for listeners who may be totally new to this subject. I’m going to throw a couple of questions at you and you can answer them in any order that you like. So first of all, who are the major players within energy regulation? And how did we develop the regulatory system that we have today, how did it come about? Why is it the way that it is and what are the primary goals of energy regulation? So a lot to unpack there, take them one at a time, however you’d like. 

Karl: Sure. It starts with anyone who wants to be in the energy business, even if they’re not organized as a for-profit business—somebody who wants to be “in the business,” if you will, of the activity of providing goods or services relating to energy. Relating to energy in terms means anything from raw materials—coal, oil, gas, sunlight, wind, earth heat, biomass; conversion systems that make that energy into electricity, motive energy, or heat; transmission, distribution, delivery systems to get it where it needs to go; and systems of use—light bulbs, refrigerators, iPhones, cars, factories, and more. 

So the players are producers, converters, distributors, and users—and regulators of various kinds overseeing all of that to protect the public interest. We know the producers, converters, and distributors in the electricity space as utilities. They come in three forms: investor-owned, municipal, and cooperative. So it’s people in that supply chain / value chain of getting energy to us to use. That’s what the system is and what the players are. 

So how did we get here? First, we discovered the utility of energy. And once we discovered the utility of it, in our country and in a lot of other countries, we let businesses and governments organize, get together, and create institutions to provide those benefits of energy. And we made it profitable, especially, for businesses to build out energy systems, to construct the infrastructure that makes energy possible. And made it mandatory along the way for those businesses to connect customers to energy services, to provide it to them.

Then we realized that we have to steer those providers to do it right. So after we discovered the utility and we let businesses organize, we stepped in and said, “Oops. We need you to do this safely. We need you to do it in a way that is fair and just”—as much as possible, or as much as we thought was important at the time. Governance, regulation, and policy turned the motivation of providing energy utility for profit into the energy business that we know today. And it’s evolving, as we’ll talk about more in a minute. 

So what are the goals of that energy regulation, that oversight of those business activities that we allowed to be created? Usually, people summarize it as:

• universal—meaning everyone can have it; 
• affordable—meaning that it fits within the household pocketbook and budget; 
• reliable, in several ways, but available and performing the way it’s supposed to perform; 
• safe, because this energy stuff can, you know, “go kaboom;” 
• and then all provided on a non-discriminatory basis—at least that’s the aspiration: that you and I enjoy the same access to safe, reliable, affordable electricity as the multimillionaire or well-heeled business. 

So universal, affordable, reliable, safe energy services on a non-discriminatory basis. That’s what our energy service providers are supposed to be doing for us.

Radina: Can you talk a little bit about who does that regulating and how those regulators were set up, under what laws they operate?

Karl: With electricity, the first thing we needed to do is just rationalize it. Rationalizing the provision of energy service means making the system work in a way that delivers on those policy goals. It’s putting in place the changes to require energy service providers to provide safe service, to provide reliable service, to serve everyone on a non-discriminatory basis. So left to itself without any oversight, all sorts of crazy stuff happens. The very rich get electricity and the rest of us are burning, dried dung patties. 

But rationalizing the way electricity is provided is saying “Nope, you’re gonna put up a pole, you’re gonna put up a wire, you’re gonna connect every home,” and saying that as a regulatory mandate. 

And in return, the business says “Yeah, but what if I put all that up and somebody just comes in and undercuts me?” “Okay, then we’ll give you a monopoly.” 

Even though we live in a competitive free market economy here in the United States, as much as we can, it made sense to say it’s more rational that there be one provider, one system of infrastructure, one rate charge for each kind of customer, in order that those benefits of electricity, that utility of widespread electric service, would be available to all at the lowest societal costs—including environmental costs, economic costs, damage and danger costs, all those other things. A rational system does what’s best, even if it has to be nudged to do it by regulation. 

We started with how things have changed. The first thing we had to do was build it up. Now, in the United States, we have near universal service; everybody has access to electricity when they want it. And along the way, we realized though, that there were costs that came with it, there were better technologies that emerged, and there were different policy preferences. So the story of the change has always been along the lines of energy, policy, economics, and technology. Those are what you have to monitor and check on. 

Once upon a time, we had policy that didn’t care what kind of garbage we spewed into the atmosphere. Now, we not only care about the pollution that makes it hard to breathe, but we also care about the carbon dioxide that is odorless and tasteless, but is wrecking the climate of the Earth. Once upon a time, you could make electricity only available for people in cities where it was most economic to do it, but then we passed laws and said somebody’s going to do this for farmers because all the United States should have access to electricity and the benefits of electricity. 

At first, we started trying to use concentrated forms of energy: coal—hard carbon, compressed over millions of years underground, burning it releases huge amounts of energy; gas—a little less dense but lots of energy per pound; the ultimate, oh my gosh, a gram of uranium to run a city in a nuclear reactor. The engineering personality in our country, the technological personality of our country and of the world, really chased those concentrated energy forms in order to get energy service to as many people as possible. And the economics of the conversion facilities, the power plants, favored using those concentrated energy sources. But, we figured out how to do things less expensively with more distributed resources. 

So, though Einstein got his Nobel Prize for talking about the photoelectric effect back in the 20s, solar electricity really only started becoming cost-effective and widespread application in the 2000s. But now we can use the sunlight that just comes shining down to us, the wind that whisks through the environment. We can convert that. We can tap into heat from the ground, we can use small amounts of rotting garbage or biomass. So we’ve been shifting technologically and economically from having to pursue super concentrated energy to taking advantage of energy the way nature takes advantage of energy—using just enough wherever it’s available.

Radina: You mentioned distributed energy and concentrated energy. Can you talk a little bit more about what you mean by distributed energy resources?

Karl: There’s costs for every component of the energy system. There’s costs for a mine to mine coal, or costs for a power plant to burn the coal, and then costs for a transmission system to move the energy from the coal plant to the city. That’s how we see these sorts of these changes happening. To save on the cost of all that hardware, our original idea is to put the energy as close as possible to the customer.  

So getting it close to the customer has always been a good thing in terms of economics. But you can overcome the cost of a big transmission system, if you could make gigantic amounts of electricity really cheap. And so for a while, chasing that highly concentrated energy form allowed you to make lots and lots of energy, and even have it 100 miles away and still affordably light the lightbulb in your refrigerator. So the economics of power plants enabled and overcame the problems of the economics of transmission and distribution. And there were no real other affordable alternatives. 

Today, we actually have the economic, policy, and technological option of choosing cost-effective, large-scale clean energy that has to be moved with a transmission line, or cost effective local energy that doesn’t. And that is the heart of the transformation debate and event that is going on in our electricity industry today, and is so exciting.

Radina: You’ve highlighted some amazing technological transformations. And you also mentioned there’s this tension between having polluting power plants near where people live. And I think that’s a great tie-in to my next question, which is do you think the goals of energy regulation have changed over time?

Karl: The other thing I want to talk about that is big in the changes—that we have to talk about—is that over the past 120 years, we have also developed an evolving sense of energy justice. 

When Edison first started the Pearl Street Station, energy justice was “ignore the dirty” electrical supply for businesses who could afford it in Manhattan. And we said, “Wait a minute, everybody that lives in Manhattan and all five boroughs and in New York State, should have access to electricity.” And we said that’s more just than just having it for those commercial customers who could afford it. 

Along the way, we also then, as I mentioned before, in the 1930s and 1940s, we said electricity would be great on the farm too and we created the Rural Electrification Administration, and today’s oo-op movement (cooperative movement). So now we have electricity available for everyone. The distributional justice improved and the structural injustice was reduced. 

Then in the 70s and 80s, we started a process—late 80s especially, when I entered the business—we started the idea that everybody should have access to regulatory activities, give them equal say in the procedures of overseeing utilities and service providers, and we improved procedural justice, which helped accelerate paying attention to the distributional justice. And we’ve recognized the reality of many problems of injustice that still remain. And that’s recognitional justice that we’ve added to, so we can address the structural injustice, ensure distributional justice, and maintain and enhance procedural justice… and do that transition off of carbon; and do that transformation to a more local, distributed, empowering and empowered electric and energy system. And that’s why this is the most exciting time in energy regulation. I’ve known—and I’ve only been doing it for 32 years!

Radina: It really is exciting and I hope our listeners will walk away with a renewed sense of optimism as well. 

I want to dig in a little bit more for clarity for our listeners on who the regulators are that you have referenced and what does it look like within the law to have these requirements for safe and reliable service? What is the standard of governance, where is that standard located, and who are those regulators that govern this whole system?

Karl: Energy is a business as I said, and so it is subject to the legal and regulatory framework that we already set up. That phrase I used before that energy is affected with the public interest was actually from a U.S. Supreme Court decision in the 1800s that was related to grain silos—and you can look it up, Munn v. Illinois—and it’s sort of step number one in understanding energy regulation. Businesses affected with the public interest are subject to regulation. 

Now, we live in a federalism, so we have a federal government with federal regulatory authority. It has authority over all things in interstate commerce. Remember those big transmission lines we talked about, those big power plants that might be over 100 miles away—which means several states in New England, for example. A lot of electricity is automatically interstate commerce, meaning the electricity might be made in one state and ultimately used in another state, and pass through another state on the way. So federal regulators are present. 

For all things that aren’t federal and interstate, there is state regulatory authority. So for most utilities that provide electric service, their regulatory authority is a state regulatory commission—as well as state legislatures and a state governor / executive branch. That authority comes from what former constitutional law professors like me would make clear to call the “police powers.” Because it’s ultimately provided to people, it’s the state authority—that regulatory commission—that approves the rates, approves the construction of new power plants, approves the installation of infrastructure for siting and environmental permitting and reviews, and all those other ways in which state interacts with a business from a regulatory perspective.

Radina: Can you talk a little bit about what is that standard of governance? So you’ve talked a lot about the affordable and reliable and safe standard. Is that something that regulators get to choose to adopt or are they required to implement it?

Karl: So every state and the federal government have comprehensive energy laws that are set by the legislature signed by the governor or the president to put into effect, like any other law—like we learned on “how a bill that comes law” on Saturday morning cartoons. All of them that I’ve ever seen, have an early place position in the law that says “protect the public interest.” But of course, your public interest and my public interest might not exactly be the same, or we might not have the same prioritization. 

The next level down really comes to the fact that it is a service and it involves a requirement that the regulators ensure that the rates for the services provided are just and reasonable. That’s also nearly universal law in statutes across the country—and it’s definitely a big part of federal law—that utilities may only charge rates for their services that are just and reasonable. 

All these substantive debates and issues inform just and reasonable rates. In some cases, there are details written out in the statutes. In some cases, it’s really left to those three, five, sometimes seven commissioners, to hear the case, make a decision, issue an order, wait to see who’s going to appeal it to the courts, and then finally, we have the rates in place which they say are just unreasonable for us.

Radina: So it sounds like these are really important regulators?

Karl: These public regulatory Commissions are some of the most important and least known regulatory bodies in our everyday lives, but they impact everything about the way we live today. We have to make our energy systems more just on a local, on a statewide, on a national, even international basis.

Radina: That sounds like quite the heavy left. 

Karl: The task is huge. It’s nothing less than a fundamental reorganization of many aspects of our society. 

Radina: Easy peasy.

So we’ve talked a lot about the challenges with energy regulation. What gives you hope?

Karl: What gives me hope is that I do an awful lot of utility regulatory proceedings, and legislative proceedings and things related to energy. And what really gives me hope is leadership. 

I see leaders emerging to meet the challenge. For example, I just went through the final stages of a big rate case in Minnesota. I did testimony on how the rates that a utility was charging could be more just from an energy justice perspective, but my clients are people who have never been involved in an electric regulatory proceeding. 

They are people who work for energy justice, spend most of their time on the ground, bringing in volunteers, delivering benefits and improvements, advocating for better services for customers, for clients, for members who simply have so many things going on in their lives that they can’t do it. They’ve taken up the mantle of trying to advance energy justice, and they knew they had to get involved in this rate case in order to make that case for energy justice in a place that has too long overlooked it.  Absolutely essential to accomplishing the transformation. They stepped up, and they’re bringing people together and they’re educating people about how energy regulation works, and they’re doing some learning themselves along with the process. 

What gives me hope is that once these young leaders are made aware—for them, once the light goes on—they get to work. They’re creating the organizations, they’re leading the organizations, they’re convening the people to make this change happen. And it makes an older guy like me comfortable with the idea of someday retiring. It makes me know that we’ve been on the right path for the years that I’ve been working in it and the years that groups like IREC and others have been working in this area, and I know in the end will do better faster, because leaders are standing up, holding heads up, and getting into the fray.

Radina: Wow, that really is a powerful reason to hope. Thank you so much for that empowering close to a wonderful conversation. It has been great having you on the podcast.

Karl: Thanks, Radina. It’s been a real pleasure.

Radina: And that’s it for today’s episode. A huge thank you to Karl Rábago for being our guest and to you for tuning in. Join us next month where we’ll tackle a big question, “What is the future of energy?” Until then, yours truly with optimism, Radina.

This episode of the energy optimist was produced and recorded by Radina Valova, edited by Mari Hernandez, Gwen Brown, and the team at Podcast Engineers, and graphic design was provided by Nicole Wilson. If you enjoyed this episode of the Energy Optimist, subscribe to our email announcements about new episodes by visiting IRECusa.org/TheEnergyOptimist. Or you can find us on your favorite podcast streaming service.