Public utility regulators should stick to their knitting: setting just and reasonable rates and taking other actions that improve the long-term welfare of utility customers. After all, the raison d’etre for public utility regulation is to protect customers from “monopoly” utilities. Pursuing other purposes besides consumer protection only diminishes regulators’ ability to achieve this objective.

However, utility regulators have proven susceptible to rent-seeking efforts by various special interests at the expense of the general public. For instance, some special interests succeed at persuading regulators—often with incomplete and slanted evidence—that the special interests’ favored energy technology would best serve society and even save the world.

Climate change / The Federal Energy Regulatory Commission’s recent development of gas pipeline certification exemplifies this. The agency is under pressure from environmentalists to consider the climate-change effect of new pipelines. While one can sensibly argue that FERC should ignore concerns over greenhouse gas emissions, the courts so far have agreed with the environmentalists.

Here’s the problem: even if FERC has the obligation to consider the environmental consequences of major pipeline projects, assessing their effects on climate change—let alone measuring them—overstretches the commission’s capability as an economic regulator. This should in no way imply that we should refrain from mitigating climate change, but that responsibility should fall on environmental agencies and other governmental entities with more capability than FERC to address climate change. Even if FERC has an accurate measurement of net changes in greenhouse gas emissions (a big if) and a reasonable estimate of their effect on climate change, it is unclear how FERC should use that information in pipeline certification.

There is enormous uncertainty over what effect a reduction in greenhouse gas emissions would have on the economy and society in general. We need to be humble about what we know about climate change and not expend considerable resources—read: trillions of dollars—that could jeopardize people’s economic well-being. Make no mistake about it, viewing climate change as an urgent problem that must be mitigated at any cost would carry a high price, contrary to what some environmentalists have argued.

In combating climate change, some states like California seem to adopt a moral imperative to eliminate both fossil fuels and (puzzlingly) nuclear power from the mix of a utility’s generation portfolio. Studies and real-world experience have shown that such a scenario could drive up electricity rates substantially, reduce the reliability of electricity service, and inflict harm on the overall economy.

Studies have also warned that reducing greenhouse gas emissions to the so-called “80 by ‘50” target” (i.e., reducing carbon dioxide by 80% by 2050, the target of many climate advocates) would be prohibitively expensive and hard to achieve without the continued operation of nuclear power plants. One can ask whether California and other states are more intent on ending nuclear power than mitigating climate change. They believe that aggressively switching to renewable energy and electrification is the optimal strategy for fighting climate change. All eyes will be on what transpires in these “green” states from this grandiose experiment.

Whose benefit? / Before proceeding with any action, states should ask themselves what benefits electrification and high reliance on renewable energy offer relative to the costs. It is unlikely that any state would realize net benefits if the intent of these actions is solely to mitigate carbon emissions. It is somewhat puzzling why a state on its own (like California or New York), without cooperation from other states or the federal government or other countries, would revamp its energy sector at a high transition cost for a policy goal that would largely benefit the rest of the world.

If I were a state regulator, I would think twice before prioritizing climate change over the economic welfare of the citizens of my state, especially when it involves subsidies from those who stand to benefit little. Isn’t constituent welfare supposed to be the chief concern of state utility regulators?

Within the regulatory agencies themselves, emphasis on special-interest demands from clean air advocates, vendors, and others who are not utility customers has escalated to squeeze out public interest goals. Commissioners and managers are the guilty parties here, whether their political leanings are on the left or the right. One example is interest groups that regard anything less than a maximum effort to address climate change as a social injustice. But an obsession with climate change can threaten other policy objectives, like reasonable and stable rates, economic growth, and reliable utility service. California and other states may be going down this primrose road.

As pressures intensify for more clean energy sources, utility regulators have had to grapple more with the economic inefficiencies of cost socialization and subsidies. One path is for regulators to encourage distributed generation, electric vehicles, and other new technologies, but not to give away the store. Cost subsidization can be unfair to some customers as well as to competing third-party providers. Regretfully, the evidence confirms that some states have been on the forefront of bad policies that have inflicted a regressive-tax-type wound on lower-income folks.

Utilities, regulators, and legislatures don’t have to be leaders in supporting new clean-energy technologies, especially those whose futures are in doubt. As “free riders,” they can learn from the experiences—both positive and negative—of so-called leading states while still contributing to greenhouse gas reduction in the long run. The followers can view activities in states like California and New York as a public good. This posture seems rational in view of the highly uncertain future of most new technologies and other developments in the electric power industry.