From the Baltimore Sun:

Meddling in utility panels criticized
Lack of commission independence said to hurt consumers
By Paul Adams
sun reporter
Originally published June 12, 2006
State utility commissions, historically, have been sedate
institutions. Regulators could often count on two things: anonymity
and job security.

But commissioners today are apt to find picketers outside their
offices or homes, and their average tenure nationally is less than 3
1/2 years.


In several states - including Maryland - where prices are rising as
the effects of electricity deregulation take hold, consumer and
political backlash is growing. Not since the upheaval in the nuclear
power industry after the 1979 accident at Pennsylvania's Three Mile
Island froze nuclear plant construction and spurred higher rates have
regulators faced such scorn.

Some warn that growing political interference with commissions could
make it more difficult to find well-qualified nominees. That could
pose problems in deregulated states that potentially face years of
difficult solutions to rising energy costs.

Some Maryland lawmakers have said firing the five appointed members of
the state's Public Service Commission will be a top priority when the
General Assembly convenes Wednesday in a special session to tackle the
projected 72 percent average rate increase for Baltimore Gas and
Electric customers.

The commission, which works full time, is designed to be a
quasi-judicial body that takes testimony, analyzes facts and makes
decisions about rates and other matters.

Outright firings have been rare in more than a century of utility
regulation in the United States. But in an era when all forms of
energy are soaring in price, concerns are growing about regulatory
independence - a bedrock principal of utility oversight and one that
the power industry depends on to attract investors.

"I think it's a sense of despair," said Harry Trebing, an economics
professor emeritus at Michigan State University and former head of the
Institute of Public Utilities. The same legislative bodies that were
sold on deregulation a few years ago are finding the transition to a
free market more expensive than expected and are looking for someplace
to direct their anger, Trebing said. Utilities and regulators are
prime targets.

Most states take steps to insulate commissions from politics by
staggering their terms so that no one governor can replace the entire
board. States also make it hard, if not impossible, to remove a member
for political reasons.

In many states, commissions must be made up of members of both parties
to ensure balance. In about a dozen states, commissioners are directly
elected by voters, and in two - Virginia and South Carolina - they are
elected by state legislatures.

"They do yeoman's service, and it is not glorious and not popular in
the sense that they get to preside over rate increases," Stephen L.
Teichler, a utility and regulatory law expert with Duane Morris in
Washington, said of utility commissioners in general. "They often get
a bad rap for things beyond their control."

A generation ago, new safety requirements led to massive cost overruns
for utility projects, driving up consumer rates. Utility commissioners
in California found their offices overrun by protesters in one
instance. Others received threatening calls in the middle of the
night, and a commissioner in an Eastern state had his mailbox blown
up, recalled Charles Gray, executive director of the National
Association of Regulatory Utility Commissioners.

"There was a visceral reaction," Gray said.

But retribution against regulators is a dangerous game, industry
experts said. It can have long-term consequences - for the utilities
being regulated and their customers, experts said. Commissioners who
constantly fear for their jobs are less likely to make decisions based
on independent reasoning, the theory goes.

"If the commissioners are always concerned that if they do something
considered unpopular that they'd be sanctioned or even removed, that
impacts their independence," said Kenneth Rose, an Ohio-based industry
consultant.

Maryland's commission was hardly immune from accusations of political
patronage and industry connections throughout years of Democratic
appointments. But critics of Republican Gov. Robert L. Ehrlich Jr.
contend his naming of Kenneth D. Schisler as its chairman was
destructive because of the staff upheaval that followed.

Schisler fired five top PSC staffers for what some allege were
political reasons, which the chairman denies. The firings made waves
in the relatively small world of utility regulators, who generally
rely on professional staff for expert advice and analysis.

"To come in and run them off was kind of outrageous," said Doug Jones,
professor of economics and public utility regulation at Ohio State
University.

Jones believes that the Maryland PSC failed to properly devise a plan
to phase in higher utility rates in the transition to deregulation.
Still, he said, the concept of commission independence should be
inviolable.

"I would almost always say that, other than impeachment, no matter how
poorly they perform, that [firing] should never happen," he said.

If utilities feel they can't get a fair shake from state regulators,
experts said, they might be wary of investing in new power plants or
other infrastructure. In addition, credit reporting agencies such as
Moody's, Standard & Poor's and Fitch keep detailed records of the
actions taken by each state's utility commissions, assigning a grade
to each one. Those seen as too unpredictable get a low grade, which
can result in a lower credit rating for every utility in a state. That
leads to higher borrowing costs, which are passed to consumers in
their rates.

That's what happened to BGE and other Maryland utilities after
lawmakers first threatened this year to fire PSC commissioners and
interfere with a merger between BGE's corporate parent, Constellation
Energy Group, and a Florida-based utility owner. Credit reporting
agencies quickly downgraded the utility's debt and have threatened to
take further action if the feud persists.

A similar situation arose in Illinois, where rate caps imposed as part
of the state's move to deregulation will expire next year. Regulators
voted to require utility Commonwealth Edison to procure power in an
energy auction similar to the one that led to BGE's rate increase.

Illinois Gov. Rod R. Blagojevich pressured the chairman of the
Illinois Commerce Commission to resign. He eventually nominated the
head of a consumer advocacy group, a known auction foe, to replace
him. The day the news hit, utility investors meeting in New York went
into a panic, believing that credit downgrades for all Illinois
utilities were coming.

"These kinds of things move markets, it's true," said Gray, of the
regulatory trade group.

The Illinois Senate refused to confirm Blagojevich's choice after
heavy lobbying by utilities, who feared they couldn't get a fair
hearing from the commission under the new leadership. A different
nominee was approved, but some say the episode illustrates how utility
commissions have been breached by politics as deregulation spreads.

"I think the perception of the public is that the Commerce Commission
has favored utilities perhaps more than they should," said David
Kolata, executive director of the Illinois Citizen's Board, whose
former boss, Martin Cohen, was Blagojevich's rejected choice for the
commission. "I certainly don't think it's a coincidence that the first
known consumer advocate ever appointed to the commission became the
first commissioner ever rejected by the Senate."