Perhaps Professor Taussig’s flare for the dramatic overstates the case. Yet the issues of regulation and public ownership have indeed been central in much of the discussion concerning economic growth and the evolution of democracy in the last sixty years. Public utilities, in particular, provide the basic inputs to the modern economy and therefore do loom large in the growth of modern economies and, in turn, in the health of modern democracy. Wisconsin has a long and distinguished history in the field of regulation beginning with the passage of the so-called Granger laws to the early establishment of the state regulatory commission. Prior to the Potter Law of 1874 the governor and legislature of Wisconsin addressed, on a regular basis, the concern of, as then Governor Fairchild put it in 1864, “great complaints of unjust exactions of railroad companies in relation to prices charged for freight, and unjust discriminations against some localities in favor of others.” Miller (1971, p. 145) These themes of allowing a fair profit and of setting rates without undue discrimination would be a hallmark of the regulation to come whether of railroads, electric, natural gas, or telephone service. What was once termed the “strong” type of regulation was established after the experiments with railroad regulation by states. Glaesser (1927) In 1907, under Governor LaFollette, Wisconsin, along with New York under then Governor Hughes, became the first states to establish a strong regulatory commission. Following the example of these two states, and the legal framework developed in Wisconsin, others followed by expanding the jurisdiction of the regulatory body to encompass a number of other public utilities. Today, the Public Service Commission of Wisconsin (PSCW or Commission) is an independent state agency that oversees more than 1,100 Wisconsin public utilities that provide electricity, heat, water, and telecommunication services.
Wisconsin has been a leader in establishing regulation designed to fill the gap when markets seemingly could not protect consumers. Wisconsin continued this leadership role through the years by implementing marginal cost pricing, comprehensive planning and other measures that improved efficiency in both consumption and production decisions, mimicking the outcomes that would have been delivered had markets been able to play their proper role. In today’s marketplace where the electric industry has been largely restructured at the wholesale level as a result of technical innovations and policy decisions, Wisconsin has once again taken the steps to explore the role of markets and regulation through renewed conservation programs, the creation of statewide transmission organization (American Transmission Corporation (ATC)) and the combined use of competitive bidding and long term contracting to secure generation resources for the state.
The purpose of this report is to examine both the nature of the regulatory framework and the potential future market conditions within which it must operate, and examine the implications of the conjunction of forces for the design of future regulatory policies. This analysis will take into account historic, current and expected future trends in energy markets in combination with the existing purpose and design of regulatory institutions in order to identify potential areas in which regulatory changes may prove beneficial in protecting the public interest. These changes can range from greater reliance on markets for certain activities to adjustments in the process of regulation in order to more effectively capture the incentive effects where markets are not deemed effective.
Section II provides a review of the electric industry and the factors driving reform in both the US and Europe. Section III provides a brief summary of the factors driving costs and rates in Wisconsin. Section IV provides a review of regulation, its objectives and how regulation has been implemented in practice. Section V provides a status report on regulation in Wisconsin. Section VI reviews regulatory models in the US and Europe. Finally, Section VII concludes with an analysis of Wisconsin’s potential future and the role that alternative regulatory policies can play in enhancing the role of markets where it is feasible and reinforcing regulatory incentives where that will enhance the protection of the public interest.