Question: What is your relationship with the state legislature? Do lawmakers in your state show interest in utility regulation? Should PUCs work more closely with state legislatures?Response by Boyce Griffith, Chairman, West Virginia Public Service Commission:

The West Virginia PSC's relationship with the legislature is good. The West Virginia legislature has been active in utility regulation. I believe West Virginia utilities already work closely with the legislature and will continue to do so. [End of Boyce response]

Response by Steve Ellenbecker, Chairman, Wyoming Public Service Commission:

The Wyoming PSC has a positive and open working relationship with our legislature that has served it well during the rapid emergence of competitive forces in the natural gas, telecommunications, and electric industries. The relationship is not confined to times when the legislature is actually in session, but is characterized by continuing contacts and collaboration throughout the year on utility matters ranging from state and national legislative developments to constituent questions and infrastructure problems. This relationship has been strengthened through the process, begun in May 1994, of successful

collaboration in the development of the Wyoming Telecommunications Act of 1995 and a companion bill covering gas and electric utilities, both of which give significant flexibility to the PSC and to regulated industries in meeting the challenges of developing healthy competition in the marketplaces. The active participation of our governor has reinforced the entire process.

Some Wyoming legislators entered into this collaboration as experts in various regulatory topics; many others became experts during the development of this legislation. One of our PSC's strengths is that most of Wyoming's lawmakers are interested in utility regulatory matters, and many share interests in constituent service and economic development issues to which vigorous and competitive utilities can make a positive contribution.

It is important for PUCs to work closely with state legislatures. The utility issues that PUCs and legislatures will be asked to address are developing too rapidly and are too complex to be handled effectively through sporadic communication. Both groups can contribute strengths to the partnership. Because it is the PUCs and not the legislatures that address utility issues on a full-time basis, it is up to the PUCs themselves to be proactive in bringing issues to the attention of legislators and seeking out their perspectives. Because legislators are in touch with their local businesses and communities to a greater extent than PUCs, they can be of significant help to commissions regarding service problems and trends before they become major problems. This base of common understanding will make legislative and regulatory progress more effective and more efficient. Because we and the state legislatures serve basically the same constituency of citizens, businesses, institutions, and industry, we must understand one another and work together. [End of Ellenbecker response]

Response by Lawrence B. Ingram, Chairman, New Mexico Public Utility Commission:

We have an excellent working relationship not only with the New Mexico State Legislature, but our congressional members as well. One of the key elements is to keep them informed on a continuing basis. For example, our legislature started looking at retail wheeling during the 1993 legislative session, with the introduction of several varieties of wheeling proposals. None were passed, but an interim legislative committee was formed to look at not only wheeling bills, but the whole industry. The committee has examined and heard testimony on just about every aspect of the utility game, and had most of the major experts present testimony at their meetings. The PUC assisted the committee with analyses and tons of information. In fact, I would say that our legislators know more about the industry and how it

operates than some in the industry. As a result, committee chairman State Sen. Sanchez (D) was selected to serve on the National Council on Competition and the Electric Industry. In addition, we funded a study by the National Regulatory Research Institute in 1994 for the legislature's use: Overview of Issues Relating to the Retail Wheeling of Electricity. It has been a NRRI best seller. We have also funded two more studies that will be published by the fall: Impacts of a Retail Wheeling Statute in New Mexico: An Evaluation, by New Mexico State University, and A Quantitative Analysis of the Economic Impact of Retail Wheeling in New Mexico, by the Bureau of Business Research at the University of New Mexico. These were done to assist our legislature in understanding the complexity of the industry and the potential economic impact of wheeling. A PUC must develop a working relationship with its legislature, on a regular personal basis, to where the legislature has facts as well as confidence in what the PUC says and does. We have found that the legislature welcomes our input and comments; to do otherwise invites trouble with a capital T. [End of Ingram response]

Response by Hugh A. Wells, Chairman, North Carolina Utilities Commission:

Our relationship with our General Assembly has been satisfactory. Generally, our legislators do not show lack of interest in utility regulation, but perhaps manifest less concern than they do for other pressing issues - e.g., educational funding, revenues sources, and crime and punishment.

PUCs, including ours, should work more effectively to communicate to legislatures the state's vital interest in effective public utility regulation and in avoiding or preventing federal preexemption. [End of Wells response]

Response by Roger Hamilton, Chairman, Oregon Public Utilities Commission:

The big lesson learned from this year's legislative session was that legislators do not understand what the PUC does, and do not have an appreciation for the challenges facing monopoly regulators. The quest for reduced government and the belief that federal deregulation should be imitated at the state level converged this year, resulting in a wrecking-ball approach to the PUC structure that eliminated our transportation function. We are now picking up the pieces, and in my view, in spite of the pain, we may be a leaner and more focused agency in the bargain. I am less confident that shippers and the general public, particularly in rural areas, will be better off with truck and rail safety, railroad crossings, and household goods regulation now housed at the agency that builds and maintains the highways.

The remedy, if we feel unappreciated and misunderstood, is of course to work on our external communications. I have a few suggestions:

* Keep a public information professional staff in the face of pressures to trim budget and people. Marketing public policy and PUC actions is as relevant as it is in a commodity business.

* Maintain close contact with major media editorial boards. Provide them with current and timely information, and hold personal interviews on a regular basis.

* Hold information sessions with key legislators, committee staff, and the governor's office. Don't assume any basic knowledge of the principles of regulation or economic theory. Give them some history and information on how we fail by not paying attention to history's lessons - such as when we allowed imprudent investments in large nuclear plants without adequate resource analysis.

* Don't cloak frustration in self-righteousness, but also don't give up on the fundamental mission of ensuring the welfare of future generations while guarding the rights of existing customers.

We failed to communicate and educate effectively, and we ended up with a new state agency structure that is arguably less efficient and has been set adrift from its public policy moorings. The lesson is that our remaining regulatory functions and public goals may be at stake if we continue to neglect effective legislative communication and education. [End of Hamilton response]

Response by Ken Stofferahn, Chairman, South Dakota Public Utilities Commission:

We have a decent working relationship with our legislators. It always could be better. Our legislature meets for about two months each year, and our issues are obviously only a small part of their workload. There are always many voices and opinions to fit within limited time, so it's useful to work on resolution among the parties before seeking legislative answers. The legislature seems receptive to this approach.

Again, obviously, our legislators are interested in matters affecting their constituencies and the state. Priorities play a part in the attention given. The legislators have shown great interest in some matters and less interest in others.

Our PUC operates under authority grated through statute. Fundamental change will likely require statutory change as a prerequisite. It is axiomatic that we will need to work more closely with the legislature to condition change. [End of Stofferahn response]

Response by Al Mueller, Chairman, Missouri Public Service Commission:

While I think most lawmakers have an interest in utility regulation, I think most have had a very limited contact with the process and are therefore not terribly familiar with the role of the state PUC. Lawmakers are apt to hear more of the negative aspects of both the industry and its regulators, since they are most often contacted when a constituent has a problem with either the utility or the regulator.

In recent years, we have made a substantial attempt to provide more information to the legislature, to try to help them understand the problems we have as well as make them more comfortable with participating in the process. These attempts have been variously received - sometimes because we are caught up in the controversial proposed legislation on which they are being heavily lobbied.

State regulators should work closely with state legislators, especially now when the utility environment is changing so fast and so drastically. Legislation may be necessary or helpful to accommodate the transition to a more competitive utility environment. And the ability to get good legislation passed may depend on our relationship with the legislature. [End of Mueller response]

Response by Cody L. Graves, Chairman, Oklahoma Corporation Commission:

The only way I can truly meet my obligations under the Oklahoma Constitution is to work closely with the legislature. As telecommunication technology changes on what seems to be a daily basis, I must educate, inform, and work with the legislature to revise statutory language that in many instances hasn't been altered in over 60 years. Failure to work with the legislature to resolve these kinds of differences is a failure to meet your responsibilities as a regulator.

The Oklahoma legislature has shown a great deal of interest in utility policy over the last several years. They established a Commission on Natural Gas Policy to review all aspects of the natural gas market from production to consumption. They also established a special legislative committee to review telecommunications policy on an ongoing basis. More recently, the legislature has begun to review policy changes in the electric utility. At all times, our commission staff has participated in the process. Perhaps the most

important function we can perform is to inform, advise, and manage the process of change. Many times, the legislature does not have the luxury of time to really analyze the myriad of issues involved with changing utility policies. We can play a very important role by providing indepth analysis of issues. We can afford to spend six months or a year working through the policy changes. But we can only do that when the legislature understands the role we are playing and, more importantly, respects the judgments we make. Nothing could be worse than to have the legislature make sweeping changes in utility policy on the basis of limited hearings, if any, during a statutorily mandated 90-day session. That is not to say we don't have differences with our legislature; we do. However, we have made a concerted effort since 1992 to work closely with the governor and the Democratic and Republican leadership in the legislature. The issues are too big, and the stakes too high, to do otherwise. [End of Graves response]

Response by Robert J. Hix, Chairman, Colorado Public Utilities Commission:

As an agency of state government, the Colorado PUC has a very good relationship with the legislature. Such was not always the case, and a great deal of credit for that improved relationship goes to the PUC director, who manages our operations. Director Bruce Smith joined the PUC in 1992 and has successfully cultivated an enhanced level of communication between the PUC and the state legislature. When circumstances have required legislative changes in the regulation of major aspects of the telecommunications, electric, natural gas, and transportation markets, the PUC, as an agency, has successfully communicated with bill sponsors and others to develop a fuller understanding of the complex issues.

Lawmakers in Colorado have strong interest in utility regulation. For matters of major policy and development of proper authorities, the legislature plays a key role in providing guidance to the PUC. At the same time, the PUC acts as a resource to the legislature in providing expert opinion on matters of significant regulatory policy and administrative efficiency. I believe that PUCs should work more closely with their legislatures to build confidence in the laws and system designed to bring benefits to the consumers of utility services. [End of Hix response]

Response by Reginald J. Smith, Chairman, Connecticut Department Public Utility Control:

The regulatory framework envisioned by most legislators today will be radically different from that currently employed by most states. With rare exception, virtually all state legislative initiatives with which I am familiar seek to severely proscribe the powers of the regulatory community and substantially reduce its contributory role to that of a market arbiter and a steward over any common resources critical to the success of participants in any relevant utility market.

The problem I see in such an approach is that the self-interest of the few (i.e., industry) may be overshadowing the interests of the many (i.e., the public). The banner of competition so quickly waved by the industry is too often the "end" objective and not merely the means to a greater end - a marketplace in which greater choice between products, prices, and providers of utility services is available to all members of a community.

In my view, it is imperative to question seriously any further erosion of regulatory participation in the future of the utilities markets. Regulators can play a valuable role in deliberating and deciding public policies for the utilities industry. To that end, regulators today must confront the legislators of their states to assist them with their greater responsibility to the public that elected them. Regulators offer legislative colleagues:

* an independent body of subject matter experts available to analyze and assess various alternatives under consideration by the legislature

* an effective counterbalance to any unified effort by industry sponsors to introduce discriminatory or self-serving initiatives

* a source of alternative and even independent legislative proposals that offer greater public benefit than those under consideration.

In each instance, the regulatory community represents resources not otherwise available to the legislatures. Ignoring the availability of those resources, by intent or by disinterest, denies the general public adequate representation, and the legislature the opportunity to fully and fairly consider all of the implications of legislative change.

My views in this area have been, in part, influenced by the DPUC's ongoing interaction with the Connecticut legislature, interaction that plays an integral role in shaping the state's regulatory framework and markets for the future.

In 1993, the legislature empowered a task force, in which the DPUC actively participated, to recommend how Connecticut could best deal with competitive trends in the telecommunications industry. The legislation that resulted from the task force's efforts has introduced sweeping telecommunications reform in Connecticut, but relies on the expertise of the DPUC to pursue the legislative goal of an effectively competitive telecommunications market while protecting the public interest.

Likewise, in December 1994, my fellow commissioners and I undertook an investigation of the restructuring of the electric industry in Connecticut. During the course of our investigation, the Connecticut legislature passed legislation creating a task force to determine how best to implement retail electric competition. At the conclusion of the DPUC's study in July 1995, our report, including numerous recommendations, was presented to the task force. Although the task force will not complete its findings for over a year, the DPUC will continue to offer its expertise and assistance and will implement any policies and procedures required. [End of Smith response]

Response by Nancy McCaffree, Chair, Montana Public Service Commission:

Take a Republican governor, a GOP-controlled State House and Senate, and five elected Democrats on the Montana PSC - not a recipe for warm and cordial relationships. The utility industry, its lobbyists, and legislative supporters saw the makeup of the 1995 legislature as a once-in-a-lifetime window of opportunity.

Like regulators everywhere, the MPSC found itself thoroughly chastised. We were vilified as the antithesis of this new breed of legislators that demand less government and control. These were trying days for an agency whose sole existence is to perform such duties.

When all was said and done, we survived. The MPSC was leaner and meaner, battle scarred, and considerably wiser. In retrospect, I must say that we learned some good lessons. We may have become too smug and complacent and too enthralled in our belief that we are the end-all, know-all in protecting the public.

Because many of the energy and telecommunication battles of the 80's and 90's were pitched in regulatory hearing rooms, we have forgotten that regulation is a legislative function of government. As regulators, we must remember that legislative interference is just legislators seeking to reclaim powers they once delegated to regulatory PUCs. I believe it is the regulators' challenge to convince legislators that the hearing room with all the protection of

administrative law is still a better place to resolve utility issues than the floor of the legislature. We need to remind legislators why they created PUCs like ours, and ask that they only rarely and thoughtfully reclaim issues that we consider better suited for ourselves and our staffs.

To do this we must convince legislators that regulation does have a transitionary role in the immediate future, as we continue down the road to competitive marketplace. Further, we must convince legislators that we are proceeding in a fair manner, with deliberate speed, to accommodate the changes taking place in the industries we have traditionally regulated. If we fail to do both, we can only whine as the legislature steps in and preempts us.

Communication is important. I am doing my part by sending notes of reconciliation to legislative leaders. As Joan Rivers said, "Let's talk." [End of McCaffree response]

Response by Kenneth Gordon, Immediate Past Chairman, Massachusetts Department of Public Utilities:

Historically, the Massachusetts legislature has accorded the DPU broad scope in carrying out its legislated mandate. With a quite small number of exceptions, the legislature has deferred to the DPU's policy directions, while maintaining a continuous oversight through two or three major committees. In return, the DPU has tried hard to keep the legislature as informed as it wished to be. For the most part, it has been an "arms-length" arrangement between the commissioners and the legislators themselves, with staffs keeping more regular contact.

Such approaches, however well they have worked in the past, may not suffice as major markets are restructured and, in various measures, deregulated. Customers' (voters') and legislators' expectations with respect to industry performance are firmly entwined with existing legal and regulatory structures. Consequently, attempts to shift to a greater emphasis on customer protection through expanded choice rather than traditional rules and regulation may meet legislative resistance. This resistance has the potential to derail the process, absent understanding and cooperation in the legislature. Indeed, in most states, a degree of active support through statutory change will be needed if markets are to realize their full potential.

The need to proceed in closer step will raise new tensions between PUCs and legislatures. Regulation of rates by independent bodies, always legally a legislative function, has permitted legislatures to distance themselves to some degree from policy actions that, while beneficial overall, had painful consequences for one or another subgroup. In short, independent regulation diluted political accountability for particular actions. As legislatures become more involved in such issues, the tensions between long-run goals and short-run consequences will grow. Yet without legislative involvement, in at least some areas, competitive markets will remain underdeveloped, perhaps imperiling gains already made. Walking this tightrope will provide yet another challenge to regulators, who already face many. [End of Gordon response]

Response by Dan Miller, Chairman, Illinois Commerce Commission:

Our relationship with the state legislature is no better than fair. Many legislators - including some of the most articulate and highest-profile officials - view the commission as a nest of reactionaries trying to protect their jobs by devising more regulations when they should be working themselves out of a job through

deregulation and more reliance on market forces.

In previous years, that negative attitude among legislators discouraged commissioners and some staff from direct contact with elected officials. In the last 18 months, however, the commission has consciously tried to open lines of communication with legislators of both parties, positioning the commissioners and staff as experts in electricity, telecommunications, and natural gas, with a political agenda devoted to protecting those without market power and advancing the public good.

Part of our message also is an unalloyed acceptance that legislators hold the ultimate decisionmaking authority over the pace and direction of change in any regulated Illinois industries.

We've made some progress, but much more needs to be done.

The General Assembly's lack of faith in the commission has resulted in attempts by some legislators to involve themselves directly in regulation. For instance, the General Assembly had to be dissuaded last spring from enacting a flash-cut to competition in telecommunications that would have tipped the playing field steeply in favor of new entrants. Legislators suspected the commission of foot-dragging to retain regulatory control.

Improving this climate can only come from honest, informed communication with legislators. [End of Miller response]

Response by Jim Sullivan, President, Alabama Public Service Commission:

The traditional answer to this question is that the Alabama PSC is a body created by the legislature to handle the regulation of utilities and common carriers in the state. As such, the statutes we operate under and enforce are the will of the legislature. In the past, the legislature has accorded the PSC a degree of deference in supporting proposed legislation that we felt necessary to carrying out our mandated duties. In addition, the legislature and executive branch have been open to input from the PSC concerning legislation proposed and sponsored by other entities.

I would not say that the Alabama legislature shows an inordinate amount of interest in utility regulation. To state the obvious, regulation is driven by politics as well as economics. Sometimes these goals are compatible; other times they are not. When these goals appear to be in conflict, I would prefer to err on the side of economic efficiency rather than political expediency. As a practical matter, the executive branch sends a request for a PSC response on any proposed legislation that will affect us or a utility we have jurisdiction over. At that time, we are free to point out any problems

we may detect in the proposed legislation, and to propose amendments we feel might be appropriate. This system works well and includes the PSC in charting our direction.

The future direction of regulation will necessarily require our PSC to work more closely with the legislature. Statutory language will likely require change as the industries are shaped and changed by actions at the federal level. Rules concerning authority over new areas of interest, or change toward more flexible processes, may require legislative action and direction. At the same time, the PSC will need to educate the legislature to ensure that our operational resource base is not compromised by a misunderstanding of the PSC's future role. Such interaction between the commissioners and the legislature must occur to clarify the link between competition, deregulation, and the public interest and promote recognition that the work of the PSC is vital to all concerned. Based on the past record, I would say that this process will come about to the benefit of all. [End of Sullivan response]

END OF RESPONSES TO QUESTION TWO

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