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PUCs in Year 2000: Mixed Mission, Clear Challenge

Fortnightly Magazine - February 15 1995

and shareholders, and social objectives. Along the way, they must define the configuration, size, structure, and skill set they need to do the job.

Defining a Mission

First, the mission and concept of a PUC. As mentioned, two elements define the task: 1) the distinctions between core and noncore customers, and between monopoly and competitive services; and 2) what is to be done about the social agenda (conservation, environmentalism) that traditional regulation has recently acquired.

In general I do not picture commission regulation with respect to core customers as requiring great change. While price caps, rate freezes, and the like may increasingly replace rate-setting and force a decline in general rate cases, the conventional tasks of ratepayer protection remain for core customers. These tasks include 1) setting reasonable prices and returns, 2) prohibiting undue discrimination, and 3) ensuring adequacy and reliability of service. These things historically have been subsumed under the rubric of protection from the abuses of monopoly power. I predict that pervasive arguments by neoclassical economists (em calling for "consumer sovereignty" and "allocative efficiency" (em will not overwhelm commission considerations of equity, improper risk-shifting, and some preferential treatment for core customers. Institutional economic thought has always been important in PUC regulation, as was a focus on abuses of economic power, real and potential.

Nevertheless, the growing universe of noncore customers will force a rethinking of mission and concept at the PUCs.

Here's one helpful approach. Frame noncore services into new classes (em "workably competitive," "emerging competitive," and "noncompetitive" (em but keep in mind that these boundaries are imperfect and that migration can and should take place. To carry out this strategy, PUCs should continue a selective regulatory retrenchment (sometimes practicing outright forbearance) and rely increasingly on anti-trust law, public jawboning, and invidious yardstick comparisons to remedy utility excesses. PUCs should also shift their emphasis from financial regulation to quality-of-service regulation, while widening commission oversight of promotional and developmental (as opposed to regulatory) activities.

Other changes in self-perception of mission would seem to follow logically. In a competitive world, most industrial and commercial customers presumably can "take care of themselves" (certainly the large ones can). As we have already seen, The Electricity Consumers Resource Council (ELCON) has become a familiar player before PUCs and utility companies. With noncore customers persistently driving hard bargains with utilities on all fronts, PUCs can give proportionately less attention to these customers, except for worrying about the undue price discrimination and concomitant cost-shifting that can be involved in utility responses.

And the same goes for shareholders. The concept of the PUC sitting as impartial arbiter midway between consumers on the one hand and stockholders on the other appears to have eroded. A financially healthy utility is, of course, desirable, but PUCs may not need to work so hard to make it happen.

Finally, what happens to the broader agenda that PUCs have fostered over the last decade. Despite assertions to the contrary, some of the gains in the areas of environmental protection, conservation awareness, demand-side management, integrated resource planning, and corporate community citizenship may well lie