The traditional mode of regulation for the electric utility industry is cost-of-service
regulation. In this regulatory environment, the utility is recognized as a natural
monopoly and is obligated to provide service to all consumers within its authorized
footprint. It is regulated by a state utility commission. In return for its obligation
to serve, the utility is given the opportunity to receive not only its investment
and cost of providing service, but an opportunity to earn a fair return on its investment.
Although the traditional regulatory model was incredibly useful in its day, commissions
and utilities need alternative regulatory frameworks if they are to continue providing
the quality, reliability and reasonable cost American consumers have grown to expect.