July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
PUCs in Year 2000: Mixed Mission, Clear Challenge
You can look at the title in two ways: (a) "The sky is falling," or (b) "There's nothing new under the sun." But both views are wrong. Let me explain.
No one doubts that state public utility commissions (PUCs) must change. But we need not throw up our hands in despair or smile and pretend we've seen it all before. Yes, PUCs have seen major changes before. The 1930s expanded PUC authority from an advisory, sunshine role to serious oversight. The 1970s ended a long run of rate decreases and challenged PUCs to cope with financial distress at energy utilities. The 1980s broadened PUC regulation to include social concerns like environmental policy, conservation, safety nets, privacy, and health. And I believe that PUCs successfully accommodated all three trends with resilience, as I expect they will this latest round of change. But make no mistake: Current forces are so dynamic as to mark a difference in kind (em not just in degree.
Outward changes in regulated industries naturally occupy a good bit of attention at state PUCs. Introspection and self-reflection about internal changes at the PUCs themselves seem less common. Nevertheless, one can discern a few stirrings here and there.
The New York Public Service Commission recently underwent a major reorganization.1 The Wisconsin Public Service Commission now has a Strategic Business Plan.2 The Washington Utilities and Transportation Commission has called for agency renewal for several years.3 In July 1993, the National Regulatory Research Institute (NRRI) completed a report on total quality management (TQM) for the executive directors of the agencies that make up the National Association of Regulatory Utility Commissioners (NARUC).4 That report also cited TQM efforts in Colorado, Michigan, Oregon, New York, and Florida, and noted plans to consider TQM in Maine, South Carolina, and Texas, with Iowa and Missouri perhaps to follow. In April, the NRRI board of directors will convene a summit conference of state commissioners in Denver, dubbed "PUC 2000," to consider what PUCs should do at the turn of the century.
In tackling the changes that must be made, PUCs should prefer gradualism over a "flashcut" approach. Several reasons argue this tack.
First, virtually no one envisions complete deregulation. Rather, the debate centers on the degree and timing of relaxed regulation. Second, traditional regulation with modest adaptive modifications has served tolerably well for many decades, some of us believe. Regulation has suffered a number of bum raps; some comparisons are obviously unfair (for example, perfectly functioning Smithian markets vs. imperfect rate base regulation). Third, the persistent rhetoric from some quarters about utility regulation having "outlived its usefulness" is seriously flawed. Many of the original tasks of public utility regulation remain (such as guarding against the abuse of economic power). Even with customer classes bifurcated into core and noncore groups, the former still needs protection. And yet a fourth argument supports gradualism: Deregulation is asymmetric. Once regulators relinquish authority, they find it difficult to regain.
Looking toward 2000, PUCs must define a mission and a set of tasks to deal with "core" customers, competitive services, utility managers