1. Introduction

Technology advances in the electric utility industry are driving market participants and regulators to grapple with the fact that the prevailing business model upon which regulatory structures are built is changing before our eyes. Many state regulatory authorities and legislatures are addressing the changes wrought and sought by new market participants: distributed generation large and small, the increasing intersection of the effects of climate policy, concerns about water and the need to maintain reliable electric service now and in the future. The states of California, Hawaii, Minnesota, and New York have been particularly active in reviewing old assumptions about their electric regulatory regimes. In 1996, the Federal Energy Regulatory Commission (FERC) established the foundation for separate treatment of the generation, transmission, and distribution segments of the industry through Order No. 888 (which approved regional transmission organizations (RTOs) and independent system operators (ISOs)), based on economic and market structure imperatives for a business model assuming one-way flows of power from central station generation to load. FERC and the states now find themselves trying to incorporate distributed generation, demand response, and other developments that suggest the growth of bi-directional power flows on the grid. To add to the strains faced by traditional electric regulators to accommodate an emerging business model, the federal Environmental Protection Administration (EPA) has entered the fray by proposing that states take regulatory action under environmental statutes to reduce the emissions of greenhouse gases from electric generation by changing generator dispatch. Such initiatives, in the form of the Clean Power Plan and related actions, may affect FERC jurisdictional areas. In addition, states are actively investigating how to promote “clean” energy sources within the limits of their own jurisdiction.

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