This earth2tech post comments on a presentation from Rich Sedano at the Ceres conference this week in San Francisco. Rich has been working on electricity regulatory issues, demand response, and institutional design for a long time, and his insights as reported here are very important and frequently overlooked:
The way Sedano sees it, the Securities and Exchange Commission, which oversees Wall Street credit rating agencies, and state-level utility regulators have failed to communicate and, by extension, to establish consistent rules and incentives — leaving utilities “waiting for a sign that it’s safe to pull the trigger on an investment and hoping they don’t miss the opportunity to do the right thing.”
Not enough people realize the role that credit rating agencies, and/or a utility’s perception of a credit rating agency’s likely response, play in influencing utility investment decisions. I’ve often argued that the 100-plus year history of regulatory codependency between the regulator and the regulated reinforces a culture of risk aversion and cautious decision-making that stifles innovation and the adoption of new technology. The credit rating agency dynamic reinforces that pattern:
As Sedano noted, when it comes to considering investments, utilities keep credit ratings top of mind — and ultimately their very perception of how credit raters will view different investments can cause them to rule out certain options, thus avoiding or postponing investment in efficiency tools or smart grid technologies altogether. Instead of leading innovation, utilities are waiting for markets to catch up. Meanwhile, state regulators often focus on immediate stakeholders and overlook utilities’ place in the larger financial market.
Plus, he said, there’s a jargon problem — financiers don’t speak electricity, and utility regulators don’t speak Wall Street. Better communication between Wall Street regulators, credit rating agencies and state utility regulators, which control utility rates and investments, could help ease the gridlock.
On another note, why is it that conferences like this very cool-sounding Ceres one never include academics? I think academic economists who work on applied institutional design topics would add substantially to this conversation in the technology, investment, and sustainability space. Here I’m thinking not just selfishly, but also of outstanding economists and communicators like David Zetland.