Tag Archives: utility regulation

The Accountability Conundrum

IUPUI’s Spring semester started yesterday. Mid-day, I convened 42 undergraduates, and last night faced 19 graduate students. As with all new classes, some students show promise and others not so much. Time will tell.

An interesting exchange in my graduate Law and Public Affairs class raised a question that has nagged at me since: I had asked the class to describe the differences they would expect to see between the behavior of public officials serving in an autocratic regime and those serving in a democratic one. How would the nature of the regime affect the practice of public service? A student suggested that accountability would be different–that in liberal democratic regimes like our own, public administrators are accountable to the people; in an autocratic system, accountability runs up the bureaucratic chain of command.

It was a good answer. In theory, he is exactly right. But in practice, the increasingly complex and technocratic nature of our government is making a mockery of genuine accountability in multiple arenas.

Take utility regulation. After I discussed the issues surrounding the coal gasification project in Southern Indiana, Grant Smith, Senior Energy Policy Advisor for the Civil Society Institute, wrote the following:

As Indiana enters the 2013 legislative session, the influence of the investor-owned gas and electric utility companies looms large.  Not that they didn’t have influence before.  Whether the Democrats or Republicans have control of the Indiana House (the Indiana Senate was gerrymandered into a permanent Republican stronghold long ago), utility companies and their friends in the coal industry (namely, Peabody Energy) dominate the discussion.

Their lobbyists walk with swagger and always seem unusually relaxed in the heat of the session.  They are able to reflect this air of serenity because they are enabled.  They are enabled by state regulators at the Indiana Utility Regulatory Commission as well as many legislators on both sides of the aisle.

The legislature has failed to pass pro-ratepayer legislation on behalf of residential and business customers for 30 years.  The sad thing is that the one bill passed to avoid another power plant boondoggle, i.e. another Marble Hill (nuclear) power plant debacle that occurred in the early 1980s, has been rendered useless through administrative fiat.  The deal, thirty years ago, was that electric utilities had to prove that a plant was needed and to provide least cost service.  Our regulators eviscerated that part of the statute by interpreting the statute on behalf of electric utilities.  To them, least cost means that utilities must only review but not implement least cost options.  If the statute were interpreted as originally intended, we wouldn’t be dealing with the scandal of Duke Energy’s Edwardsport coal gasification plant.  It certainly is not needed in an era of very low projected electric demand and at $3.5 billion and counting obviously not the least cost option to provide service.

It’s absolutely amazing that since the passage of the certificate of need law mentioned above that the IURC has never denied a power plant on its own volition. Never.  If a plant did not go forward, it’s been because the utility or the non-utility, power plant developer decided to pull the plug.  The Commission was wrong about Marble Hill – prior to passage of the law.  The lights, as claimed by Public Service Indiana (now Duke), did not go out because the plant wasn’t built.  The additional unit at Northern Indiana Public Service Company’s (NIPSCO’s) Shahfer coal plant was not needed.  NIPSCO’s been over-built for years.  The Commission even continued to approve merchant power plants (in the wake of deregulation of electric wholesale markets) when it was obvious that the bottom had fallen out of the market.  Many of the plants that were built barely ran for years or were sold for pennies on the dollar.  Nearly 100 billion dollars were lost nationwide by the industry.  Utilities whose subsidiaries built merchant plants not tied to their captive rate base rushed to get regulators to put them in the rate base, as Indiana regulators did on behalf of Cinergy (now Duke) at its subsidiary’s CinCAP VII Plant in Henry County.  And with electric demand projected well under 1% for years to come, cheap energy efficiency measures and mature wind and solar technology whose costs continue to decline, Edwardsport was never needed.

 How can an institution with vast amounts of expertise and experienced staff inevitably be wrong?  It’s always wrong because the regulatory process is rigged.  The scandal surrounding Edwardsport and excellent reporting at the Indianapolis Star and Indianapolis Business Journal proved that.  The only reason that Duke is eating some of the costs of the plant is that they and the Commission were caught.

 What we need is more transparency at the IURC where regulators oversee more money than we pay in income taxes every year.  What we need is an elected Commission that is held accountable to the public and not working in the shadows behind closed doors in collusion with utility companies.

 As it happens, electric and gas utilities have systematically dismantled ratepayer protections at the legislature and before the Commission.  They have become monopolies with little to no business risk.  Their business plans and mistakes are dumped on ratepayers in the form of rate increases without the slightest pushback from either elected officials or regulators.  They are awarded incentives for what they should be doing anyway.  They are systematically throttling the promise of a strong renewables market in Indiana in favor of their obsolete coal plants and, with this strategy, maintaining a status quo that is expensive, dirty, and economically disastrous.

 This session they will be back with more risk-shifting legislation to relieve themselves of any business risk or management responsibility they may still face, with no thought to the burden they will impose on their customers.  With their captive ratepayers, captive legislators, and captive regulators, they will essentially become unregulated monopolies.  What a deal – for their stockholders.  What an injustice to the rest of us. And most likely without an opposing word from our regulators.

 The IURC is charged with balancing the interests of ratepayers and utility companies.  Such balance is regrettably nonexistent.  The Commissioners have lost sight of the law and their charge.  Many legislatures have been equally negligent, mandating their constituents unwillingly and sometimes unknowingly to rubber stamp utility malfeasance and incompetence.

I dare say that this is the situation in many jurisdictions in the US given the corporatization of government.

Now, I do not have the background to evaluate the particulars of this complaint. But that’s the point–few of us do.  References to “certificates of need” and the URC and the intricacies of the rules governing utility rates are at best unfamiliar territory to most of us, and at worst, Greek. How do we ensure accountability of this government agency? How do we know when it has been “captured” by those it ostensibly regulates?

How does the average citizen judge the merits of Grant Smith’s allegations, or the URC’s inevitable defense?

The same question applies to the EPA, the FCC, the FAA….to all of the federal and state agencies charged with regulating activities involving significant specialization and expertise.

Just how accountable is our “democratic” government, really?