Commentary: Utility regulation: too much or not fast enough?

In 2022, America’s utilities planned for about 24 gigawatts of new peak electricity demand over the following five years. By 2025, according to the consulting firm Grid Strategies, their forecasts called for 166 gigawatts, more than six times as much. Data centers account for more than half of that growth, and manufacturing is the next largest driver.

Those forecasts describe a different industry from the one I helped regulate. During my years on the Indiana Utility Regulatory Commission, the question before us was usually whether a utility was building too much. Today’s question is how quickly a growing economy can get the power it needs, and on what terms, and the public-interest standard that answers both has held steady.

When I joined the commission in 2018, American electricity demand had grown at well under 1% a year for two decades. Indiana’s coal fleet, which had supplied 90% of the state’s electricity as recently as 2010, was aging, and by 2020 its share had fallen to about 53%. Our work was to pace that transition: how quickly old plants should close and what should replace them.

The clearest test of that era came from Evansville. Vectren (now CenterPoint) had coal units scheduled to retire in 2023, so the issue was how much to build in their place and in what form. Its own forecast showed customers’ demand on the hottest summer days growing by fewer than 100 megawatts over 17 years, yet it proposed a single plant of roughly 850 megawatts, enough for about three-quarters of that peak, at a cost of $781 million. In 2019, the commission denied the request, and our order explained why. It found that the request for bids had been “unduly restrictive,” ruling out combinations of smaller resources; that one facility would have carried most of the utility’s baseload; and that the plant’s economics depended on wholesale market sales with no firm contracts behind them, a revenue stream the order called “a speculative influence that we find must be materially discounted.”

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That caution followed from how utilities earn money. A regulated utility earns an return on what it builds and owns, while power it buys from others under contract generally earns it nothing. The arrangement attracts the long-term investment the industry needs and inclines a utility toward building. Our job was to check that inclination before customers paid for a plant they might never use.

When we decided the Evansville case, we believed we were serving through the most consequential period in the industry’s history, which we called the energy transition. Our order considered how a changing industry might leave customers with an uneconomic plant, yet every change we imagined pointed toward the plant becoming unnecessary. Our decision fit the record before us, but within seven years, a short time for plants built to run 40, the outlook reversed, and a forecast like today’s would have made for a very different record.

Today the pressure runs toward building, and talk of transition has given way to talk of abundance. Data centers and new manufacturing are the kind of investment states compete hard to attract, and available power has become the first filter in choosing a site.

Under that pressure, the commission’s job is to test need on the record. A faster pace does not lower the utility’s burden of proof or the duty to keep rates fair for Hoosier households and businesses. Cost causation protects both: large new customers carry the cost of serving them, backed by long-term commitments, so households are not left holding the bill if that demand never arrives.

Expectations of regulators have also risen with their audience. Utility cases that once drew mainly lawyers and analysts now draw public comment and press coverage. That attention is healthy, because customers pay for every decision, and it rewards decisions that can be explained plainly and defended on the evidence.

Whether the question is how much to build or how fast, the answer has to come from the record, built through sworn testimony and cross-examination, with the state’s consumer advocate at the table for customers and the utility required to prove its case. That design weighed flat demand in 2019 and suits the growth Indiana is pursuing now. Forecasts will keep changing, and a public, evidence-based process remains the surest way for a state to build quickly and build well.