Regulating the Energy "Free Riders"

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This Article explores "free rider" arguments in energy policy. It focuses on the use of free rider arguments in three types of contemporary public utility regulatory proceedings—ratepayer funded energy efficiency programs, utility compensation for customer-generated rooftop solar energy, and utility investments in electric vehicle ("EV") charging infrastructure. It shows how the term "free rider" is used quite differently in each type of proceeding—as a helpful metric to determine program cost-effectiveness in the energy efficiency context, as a pejorative term synonymous with unfair cross subsidies in the rooftop solar context, and for both purposes in EV charging infrastructure proceedings.

This Article claims that in evaluating free rider arguments, regulators and the public should consider the source and motivations of parties making free rider arguments and, more importantly, both the present and future benefits of the program in question. This is particularly true for programs designed to support energy transition. In other words, if the goal of the program is to reduce barriers to building the infrastructure required to shift to cleaner energy resources or reduce overall energy demand, program evaluators should consider future program beneficiaries in addition to current program beneficiaries. Moreover, regulators should use a range of tools to develop appropriate metrics to determine cost-effectiveness of programs related to both distributed solar energy and EV charging investments that builds on work done over the past decades in the energy efficiency context. Finally, this Article suggests that regulators can and should use the precautionary principle in developing these programs. Use of the precautionary principle is justified due to the potential for significant harm associated with continued reliance on fossil fuels in the energy sector and the potential for significant benefits to utility customers and the public resulting from increased use of distributed solar and transportation electrification. Finally, use of the precautionary principle can address many of the fairness and cross subsidy concerns raised in these regulatory proceedings.


Work published when author not on Michigan Law faculty.