A survey sample of regulators on their dealings with peers, colleagues, staffers, and stakeholders.
Douglas N. Jones, an economist, is The Enarson Professor (emeritus) of Public Management and Policy, John Glenn School of Public Affairs and Director (emeritus) of the National Regulatory Research Institute, The Ohio State University.
Journalists and scholars commonly devote a good deal of attention to the decline in trust that citizens place in their government. And this worrisome fact should count double for regulatory agencies - those governmental entities whose task it is to provide social oversight of business activities. Yet our focus here points a different way.
This narrative on trust takes the individual state public utility commissioner as the center of analysis and then considers five crucial relationships that she or he might have with other important players. The question is this: To what degree does the representative public utility commissioner extend trust to each of the following groups of participants in the regulatory process:
• Fellow commissioners on the same PUC;
• The professional PUC staff;
• Other PUC's in other states;
• Representatives of the utilities being regulated, and
• The various advocacy groups that appear before the commission."1
For purposes of this inquiry the term "trust" simply means, "Can you believe what they say?"
Of course, this analysis is somewhat subjective. It draws heavily on the author's forty-five years in the public utility field, of which twenty were spent as Director of the National Regulatory Research Institute at Ohio State University, dealing directly with the 200 public utility commissioners who were in office at any one time.
Figure 1 - Summary of Findings
As such, I present this narrative partly as a point-of-view piece, based on close knowledge of commissioner practice and behavior on trust questions, but supplemented by surveying 43 former public utility commissioners, who could be expected to be candid in their responses (all are kept anonymous), and in the course of interviewing several others.
Matters of trust and non-trust abound at public utility commissions. Indeed, each plays a notable role in the smooth, or ill-functioning, of any regime. But trust also matters a great deal to the various constituencies. Large amounts of money are involved in the provision of utility services, and the enterprises themselves play a big role in the regional and national economy where they do business.
Dealings with Fellow Commissioners
As might be expected, there generally is a good deal of trust extended to fellow commissioners. Several reasons can be offered. Serving in a high-profile agency where the subject is arcane and where the issues are usually complex and often controversial surely heightens the need for trust and a considerable predisposition toward extending it. This finding is particularly true for new commissioners. The common circumstance that obtains for new commissioners - of suddenly becoming the object of many outside pressures - encourages a "circle the wagons" and "we're in this together" mentality, rather than a "go it alone" stance.
Because commissioners are inherently political (either by appointment or election), party affiliation can have some bearing on trust (though usually not on voting behavior). For example, a commissioner is probably quicker to extend trust to a colleague of the same party.
To their credit, however, PUC's operate with relatively little attention to party politics. Decisions generally are not made on "party line" voting, but rather on the evidence presented and shaped by a commissioner's view of the proper role of utility regulation. Remember that commissioners have great latitude in what they perceive their job to be. This is to say that some may take an activist stance and operate at the outer edges of commission authority - fostering economic development or social safety nets, for example. Others may choose a narrow judicial posture of focusing strictly on the record presented, to the exclusion of policy pursuits of one kind or another. Both are appropriate choices.
Considerable trust often is extended to commissioners who come to the task with special expertise or experiences in the utility field. A particular demonstration of this is a PUC whose practice it is to informally "divide up" the work so that, say, each of the commissioners "leads" in overseeing one of the major sectors, energy, telecommunications, and water. Thus, a commissioner would be trusted to perform the initial assessment of whatever was at issue in a matter before the agency. The other commissioners would not, of course, lose their authority to act freely on the case, but would benefit by their colleagues prior work (which might include recommendations). Such an efficient arrangement is certainly not universally found and may change over time. Not surprisingly, it does not characterize PUC operations where commissioners have widely different regulatory perspectives or just plain don't like each other.
Nevertheless, there are several factors that may work against extending trust among commissioners. A structural one is that an individual commissioner's power is fundamentally vertical in origin and not horizontal. That is because all commissioners have the same authority (except for the chairman), have one vote each, and ultimately answer "upward" to the governor and "downward" to the consuming public.2 There is no real requirement to accommodate laterally, though there may be incentives to be a "team player."3 Further, the strict application of open meeting laws and ex parte prohibitions hampers the generation of trust. However meritorious on other grounds, these restrictions prevent individual commissioners from conferring with each other on a case except in a public hearing room. Hence, the sharing of views by informal discussion, the offering of exploratory analyses and tentative conclusions - experiences that can lead to trust generation - are largely lost.
Finding: The survey suggests that commissioners typically extend considerable trust to their fellows, with 27 out of 30 replied "Always" or "Most of the Time" (7 indicating "Always").
Dealings with PUC Staff
The professional staffs of state PUC's provide the main analytical resource for commissioners. They vary widely in size (California with over 900 and Vermont with 27), but less so in expertise. They are counted on for analysis and advice on the work before the PUC and provide valuable "institutional memory" about the actions of prior commissions. Individual commissioners typically extend a great deal of trust to the staff - at least as much as to each other. Yet there are several qualifiers to this assertion.
A main one is the distinction between a situation where technical staff are themselves a party to a case versus one where they are acting in an advisory capacity only. In the former instance, commissioners extend somewhat less trust to staff, treating their participation more like any other advocate group pursuing a particular outcome.
Another operational distinction can be made between a PUC where each commissioner has direct access to professional staff members and those where commissioners must "go through" an executive director (or even the chairman) to reach staff. The latter arrangement discourages contact somewhat and thus extension of trust.
A third encumbrance to trust from commissioner to staff may occur where each commissioner has a special assistant. While a helpful structure for some purposes, the appearance of an intermediary or "layer" between a commissioner and the technical staff probably hinders the generation and extension of trust. Finally, while fortunately not common, there is a circumstance that can cause trust to change from positive to non-trust and that is if it is believed that staff are actively resisting a major change in agency direction desired by the commissioners. The most notable recent example was the view at a number of PUC's in the 1990's that the paradigm shift toward deregulation of major elements of utility operations (e.g., electricity generation) or a whole sector (e.g., motor carriers) was being frustrated in its implementation by technical staff clinging to traditional regulatory methods and opposing reliance on competitive market solutions.4
A special instance that demonstrates a substantial amount of trust extended from commissioners to staff is that of PUC's which use hearing examiners or administrative law judges to essentially "pre-try" cases by gathering evidence, narrowing the issues, building a record, and presenting commissioners with a recommended outcome. Adopted to improve commission productivity and efficiency the legal staff obviously is extended very considerable trust in this system.5
Finding: Survey respondents gave slightly higher grades of trust to technical staff than to each other, with 29 out of 30 indicating "Always" or "Most of the Time".
Dealings with Other PUC's
With 51 PUC's in the U.S. - all being members of the National Association of Regulatory Utility Commissioners (NARUC), as well as participating in five regional groupings with similar regulatory authority and missions over the same utility sectors - there is ample opportunity for trust relationships to develop. Interaction by individual commissioners with counterparts at their "sister PUC's" is facilitated by annual conferences held by the regional associations and three each year by the national one. An elaborate committee and subcommittee structure covering the main industries and generic topics has commissioner members only, and this is complemented by a parallel structure of staff subcommittees.6
Note, too, that the utility companies that are the object of state regulation typically operate in multiple jurisdictions, usually regional in scope and sometimes spanning several collections of states.7 This setting allows and indeed encourages the phenomenon of policy transfer among PUC's. Further, this diffusion equates with the extending of trust by one set of commissioners (in the adopting state) to another set of commissioners (in the innovating state).
And it's worth noting just how well the considerable literature on diffusion models fits our subject. Though often designed for explaining the migration of tax or economic development policy from state to state, the various components of these interaction models apply quite well here.8 Many examples of the policy transfer process at work from invention to early adoption to emulation by later adopting states to general adoption by regulators can be cited. Seven are identified and briefly treated.
Least-Cost Integrated Resource Planning was a regulatory response to the 1980's experience of high energy costs coupled with environmental concerns. Recall the original idea - that the single-minded focus on the supply side of should give way to allow equal consideration of demand-side approaches, particularly recognizing conservation and efficiency advances. Demand-side Planning was introduced in a few states in the face of considerable skepticism, but spread rather quickly to most jurisdictions.
Lifeline Rates, appearing initially in the electric and gas sectors and then in telecommunications, helped proivide a safety net for low-income utility customers as the cost of these services rose beyond their reach in the late 1980's and early 1990's. Thus, either through the tax system (public funding) or more commonly through cross-subsidization from full pay customers (private transfer), this welfare goal was achieved.
Favoring a different class of utility customers - business and commercial - PUC's devised and adopted so-called Development and Retention Rates to attract and keep industry in the state. These policies marked an example of both the "neighbor models" of interaction with surrounding states and the "inducement model" where state legislatures or the business community itself helped force change.
The broad category of Incentive Regulation is comprised of a whole range of inventive/emulative actions by PUC's in the 1980's and 1990's. While traditional public utility regulation involved comprehensive oversight of pricing and profits, the new idea was that more efficient utility company behavior could be gotten by relaxing strict profit and pricing constraints and allowing variable rates of return through some sharing mechanism between company and customers - e.g., a "band" of acceptable profitability and shared savings beyond that limit. The most well known and widely adopted device accompanying this transition was the Price Cap, where utility rates can be adjusted by the company in accordance with a formula that recognizes inflation and productivity changes. First introduced in the U.K., Price Cap Regulation was first adopted by the California PUC, subsequently diffusing to the majority of the states for both energy and telecommunications applications. The PC story is thus one of both national interaction and "leader/laggard" models.
Certainly the biggest and most consequential example of policy transfer in the public utility regulatory arena was the paradigm shift from comprehensive regulation to deregulation over the last several decades.9 Initially found to be successful in the case of transportation (airline and surface) the utility sectors of natural gas and telecommunications followed in the 1990's. Less successfully tried and therefore less widely adopted was partial deregulation of the electric utilities.10 The pace of adoption by successor state PUC's was abruptly slowed - in some cases stopped or even reversed - when deregulation of the California electric utilities imploded in 2000 with astronomic run-ups in price, artificial shortages, rampant price manipulation and systemic perverse incentives.11 The "learning model" was effective in this instance first as a powerful force for adoption and then the opposite.
What about regional or even local differences? As we know, state public utility commissions are very protective of their regulatory authority, and the invoking of "states' rights" is common rhetoric.12 Still, state commissions traditionally look to the FERC and the FCC for guidance and leadership, particularly on difficult or new policy issues, given the major analytical resources and the national vantage point of the federal agencies ( the "learning model"). They also are the recipients of policy mandates in the telecommunications and energy fields when national legislation prescribes them (the "coercive" or "vertical influence model").13
Finding: Survey respondents confirmed a notable amount of trust extended to "sister" PUC's, with 18 out of 30 marking "Always" or "Most of the Time" and only one indicating "Rarely".
Dealings with Utility Representatives
State public utility regulation in the U.S. is basically an adversarial process. In such a context it is not surprising that commissioners are quite cautious about extending high levels of trust in this relationship. After all, the job of utility representatives is to present the company's case in the most favorable light and in the most persuasive manner. In the main they represent management and shareholder interests - not the broad public interest (though they do have a number of widely accepted public service obligations).14 They also enjoy an informational advantage in that they know more about the company's business than the regulator does. Accordingly, utility representatives in their dealings with commissioners may not be fully forthcoming, may tend to shade the data by selectively citing, or may exaggerate the negative consequences of not receiving approval of their position.
For all of this, there are real incentives for truth-telling in this setting. One, of course, is the personal importance of a good reputation. Likely a more important one, however, is the recognition that a utility company has "many fish to fry" with the PUC and will be appearing before the same commissioners a number of times in the future. The value of a longer term relationship characterized by some degree of trust is understood by most utility executives. Finally, it can be said that certain institutional factors may make the development of trust - or even the need for it - less salient than would otherwise be expected. The admirable practice of "arms length dealing" and ex parte prohibitions inhibit closeness. Expanded claims by the utility of proprietary information can also work against the building of trust.15 Importantly, the paradigm change toward relying on market competition to replace comprehensive commission oversight to some extent makes moot the occasion for trust/non-trust relationships in the first place. Of course, certain dimensions of utility-PUC dealings require considerable good faith cooperation by the companies, e.g., accurate reporting of consumer complaints and operational efficiencies, timely notice of plant outages and capacity expansion planning.
Finding: Slightly less than a fourth of the commissioners extended trust either "Always" or "Most of the Time" with 21 doing so "Some of the Time" and 2 "Never." In other words: "trust but verify."
Dealings with Advocacy Groups
Here the question of trust is similar (but not identical) to the case with regulated utilities. Both take mainly an advocacy stance, and as such the prudent commissioner is wary of automatically extending much trust. Unlike utility representatives, however, advocacy groups typically lack a public service obligation. Rather, they are narrowly focused on some single interest, usually utility pricing or service availability.
In their credit, advocacy groups are often helpful in making the case record more complete by sharpening certain points or providing useful technical information. In any case they are legitimate to be heard.16 As might be expected, however, some organizations have earned "better reputations" than others and therefore may enjoy a higher level of trust from a commissioner. Certain environmental groups, social welfare organizations, and "good government" groups may be cases in point.
Finding: Survey responses are similar to those for utility representatives. Six extended trust "Most of the Time", 22 "Some of the Time", and 2 "Rarely".
What We've Learned
Though perhaps more intriguing if they are, the findings of any inquiry need not be counterintuitive. Those presented here are not.
As one might have expected, commissioners extend the greatest degree of trust to their fellow commissioners and to the professional staff at the commission on which they serve. Next most trusted, are commissioners of other PUC's - especially in neighboring states - but with a substantial drop-off. Commissioners extend relatively less trust in dealings with utility representatives and advocacy groups. Yet even for these last two categories, over two-thirds of survey responders answered "Some of the Time" or more.
Can we trust these results? The analysis admittedly is limited and static in nature. It is personalized with the author, but corroborated by the experiences of representative commissioners at the end of their service.
Of interest would be if and how their trust-extending changed over the course of their terms. A good presumption is that it most likely increased through positive experiences.
Endnotes:
1. Other significant relationships exist, of course, e.g., with governors, legislatures, attorneys general, investment houses and bond rating firms.
2. The trust relationship between a commissioner and the commission chairperson presents an ambiguous situation. On the one hand trust may be extended to the chairperson on grounds that she is the external face of the PUC regularly involved with the governor, the legislature, and the public in an agency leadership role. On the other hand, if a commissioner perceives the chairperson to have "an agenda" beyond the commission, like higher political office for example, trust may be largely withheld.
3. In those states where commissioners are elected verticality of power is especially clear.
4. Reported in "Missions, Strategies, and Implementation Steps for State Public Utility Commissions in the Year 2000", Proceedings, the 1995 Commissioners Summit, Denver, Colorado.
5. At some PUC's the examiner/judges serve at the discretion of the commission, and at others they have civil service protection.
6. Some 43 committees and subcommittees are listed in the NARUC Membership Directory for 2013.
7. For a discussion of the opportunities for and difficulty of regional regulation of multistate utilities see Douglas N. Jones, "Revisiting Regional Regulation of Public Utilities", Journal of Economic Issues, December 1993, pp. 1219-1239.
8. The subsequent discussion employs the main diffusion models identified in F. S. Berry and W. D. Berry, "Innovation and Diffusion Models in Policy Research", a chapter in Paul Sabatier's 1999 book, Theories of Policy Process; also C. R. Shipan and Craig Volden, "The Mechanisms of Policy Diffusion", American Journal of Political Science, October 2008.
9. For a good summary and tracing of the deregulatory phenomenon see Richard D. Cudahy, "Whither Deregulation: A Look At the Portents", New York University Annual Survey of American Law, 2001.
10. Fewer than half the states adopted major restructuring of their electric sectors. In states where deregulation of the electrics was adopted an interesting policy dilemma arose that resulted in very close scrutiny state-to-state as to its best resolution. This was the question of how to respond to the realization of the electric utility industry that the new public policy of encouraging competition meant that competitors would inevitably bid away some of their customers, leaving the utility with excess capacity and a cost structure based on its prior exclusive supplier position. Accordingly, they argued they should be compensated for these "stranded costs" in some fashion. The main approach chosen by some commissions that were persuaded by this reasoning was Securitization. California, New York, and the Pennsylvania PUC led in this direction, but wide adoption was not forthcoming because most PUC's saw the issue as so state-specific as to not fit a broad diffusion model.
11. For a good discussion of the event see Paul Joskow, "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000", E Kahn- Power Engineering Society, Summer 2001. The California debacle also had the effect of causing a number of countries to halt or slow their deregulatory initiatives.
12. For a discussion of shifts in regulatory authority from state to federal primacy see Douglas N. Jones, "The Rational Division of Regulatory Authority Between the States and the Federal Agencies", in Public Utility Regulation in an Environment of Change, Michigan State University Institute of Public Utilities, 1987.
13. Examples of this are the Public Utilities Policy Act of 1978 and the Telecommunications Act of 1996.
14. These include honest and efficient management of the utility and non-discrimination in pricing and service.
15. While PUC's have subpoena power to secure information from a utility, use of the power is obviously not a trust builder.
16. Moreover, the idea behind encouraging broad access for advocacy groups is that the various competing interests may lead to a more balanced outcome, say, between consumer representatives and business interests.
References
Berry, F.S. and Berry, W.D., 1999, "Innovation and Diffusion Models in Policy Research", in Paul Sabatier, Theories of Policy Process.
Cudahy, R.D., 2001, "Whither Deregulation: A Look At the Portents", New York University Annual Survey of American Law.
Jones, D. N., "The Rational Division of Regulatory Authority Between the States and the Federal Agencies", 1987, Public Utility Regulation in an Environment of Change, Michigan State University Institute of Public Utilities.
Jones, D.N., "Revisiting Regional regulation of Public Utilities", Journal of Economic Issues, December, 1993.
Joskow, P., "A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000", E. Kahn-Power Engineering Society, Summer, 2001.
"Missions, Strategies, and Implementing Steps for State Public Utility Commissions in the Year 2000", Proceedings, the 1995 Commissioners Summit, Denver, Colorado.
Shipan, C.R. and Volden, C., "The Mechanisms of Policy Diffusion", American Journal of Political Science, October, 2008.
Lead image © Can Stock Photo Inc. / Gajus
