ABSTRACT
Regulated electric utilities historically have undertaken several “public purpose programs” in addition to selling electricity. These activities range from offering rebates to consumers who purchase energy-efficient appliances—so-called demand-side management programs—to funding industrywide research and development of more efficient generating technologies. All have been made possible by the fact that regulators have, for the most part, allowed the regulated utilities to recover the costs of these activities in the prices that they charge electricity consumers.
In the newly competitive environment, utilities face greater pressures to reduce costs and, therefore, are reducing discretionary spending on optional activities, such as public purpose programs, that do not contribute directly to profits. At the same time, competition brings with it important changes in the incentives facing electricity suppliers and consumers that could eliminate or reduce the need for certain public purpose programs or require change in the means of provision to make them consistent with the reality of a competitive electricity market.
Public purpose activities traditionally funded by electric utilities on the policy agenda include demand-side management, use of renewable energy, research and development, and low-income support. Competition may affect the sustainability and implementation of these programs. However, competition also can change or eliminate the justification for public policies to promote these activities. New and proposed policies to promote public purpose programs may better suit a more open electricity market.
