The Regulatory Contract in the Marketplace

For decades, energy policy has struggled to reconcile two distinct visions for the future: the first seeks ever-more-competitive, efficient, and dynamic electricity markets; while the second seeks an ever-greener mix of electricity generation sources. Caught within this push-and-pull dynamic is the regulatory contract — a nineteenth-century concept that stands more for ordered regulation than competitive markets. This Article examines how piecemeal pursuit of two energy visions has produced mismatches between rapidly evolving markets and governance institutions that cannot change as quickly. To better evaluate these mismatches, the Article develops a framework that accounts not just for market operation and environmental externalities, but also the technical constraints of grid operation and electricity fuels. Relying on the experience of nuclear power, the Article creates an account of how a fuel source can be priced out of the market despite its apparent advantages in reliability and air emissions. With this understanding, the Article evaluates the political economy and governance challenges associated with diverse policy options aimed at better capturing valuable attributes of electricity. Ultimately, this analysis furthers our understanding of the regulatory contract in the marketplace, suggesting an updated vision for its role in mediating the competing goals for electricity markets.