Can California Regulators Protect Consumers from the Utilities?

PUCProbably not, according to a retiring commissioner on the state Public Utilities Commission.   On January 16, 2014, Commissioner Mark Ferron announced his early retirement because of health issues.   He spoke unusually frankly;  it is a candor spawned by his two-year battle with a particularly aggressive case of prostate cancer which has forced his retirement.    His blunt assessment of utility regulation in California was sobering.  Prior to his appointment to the Commission, Ferron worked in global finance businesses for 25 years, so brought a great amount of insight and experience into the position.  He is a thoughtful and very smart person, so his warnings should carry weight with state lawmakers and regulators.  Without saying it outright,  his own battle with prostate cancer mirrors the regulator’s own battles with a different kind of cancer:  one that is attacking from both within and without:

“We at the Commission need to watch our utilities’ management and their (the utilities) legal and compliance advisors very, very carefully: it is clear to me that the legalistic, confrontational approach to regulation is alive and well. Their strategy is often: “we will give the Commission only what they explicitly order us to give them”. This is cat and mouse, not partnership, so we have to be one smart and aggressive cat.”
“I suspect that they (California utilities) would still dearly like to strangle rooftop solar if they could.”
 “Many of the more influential members and veteran staffers (of the state Legislature) seem to display an open, almost knee-jerk hostility toward the CPUC. (Hopes the state Legislature will see) just how chronically underfunded the CPUC is.”
 “The Commission will come under intense pressure to use this authority to protect the interest of the utilities over those of consumers and potential self-generators, all in the name of addressing exaggerated concerns about grid stability, cost and fairness.”
“We (the Commission) have not had the right calibre of management to implement (safety reforms) effectively. We are hopelessly out-gunned in terms of the resources necessary for our mission – in particular, our audit and finance functions have been woefully inadequate.”
“We also have a serious governance problem at the heart of the Commission: Commissioners rightly are held responsible for what happens in this building and yet we do not have any effective means to provide guidance and oversight to the CPUC’s permanent management and staff.”

Ferron leaves on an upbeat note when he observes that “we are at an inflection point where the convergence of new technologies, changing economics and, I hope, an added urgency to address our deteriorating climate, will combine to create exciting new business and policy opportunities.”    But his fears about the Public Utilities Commission’s ability to function effectively to help realize California’s energy future are well founded.     As an active participant in the PUC regulatory practice his concerns are probably understated.   The agency is, indeed,  an underfunded, understaffed agency that faces a “demographic time bomb, with its  younger talent leaving for private industry and its most experienced staff on the verge of retirement.    The utility-influenced Legislature uses the agency as a whipping boy, eviscerating its ability to do its job in numerous ways.

While we don’t share Ferron’s optimism about the health of the Commission,  we do fervently hope he is able to recover from his personal health challenge and return as a very capable and invaluable public servant.   Regrettably, the state will need more than what medical science can offer to rescue the PUC from its own regulatory cancer.

 

2 replies
  1. Steve O'Guin
    Steve O'Guin says:

    Oh please. Protect the consumer? The first thing to remember is that the State has granted an exclusive monopoly to the ‘public’ utilities which guarantees their profits no matter how inefficient they are. They are , have always been, and will always be in bed together until utilities are truly allowed to be governed by the free market.

    Reply
    • admin
      admin says:

      Your skepticism is shared by many, Steve. And there’s some truth to what you say. However, having been an advocate in the regulatory field for over three decades, I can tell you with no equivocation that free markets don’t function well in industries that require high capital costs. You need only look at how telecom has been deregulated to see how the markets consolidate and then create duopolies. Its happening in the airlines as well, as it has with trains, car manufacturing and others. Markets also don’t function well when customers have difficulty understanding how to value a service or item (example: health care and military manufacturing just to name two). Second, I’ve worked with a number of regulators; some have been co-opted by the industry. Most haven’t. The real challenges to regulators are that they don’t have access to the same information as the regulated entities, thus are at a perpetual disadvantage. And they are often constrained by politicians who are more readily coopted via campaign contributions. These are the major impediments to effective regulation, where regulation is dictated. In those markets where entry is relatively easy, let the market blossom and the buyer beware. Don’t fool yourself into ever thinking that deregulation in the electricity markets is going to work — there’s a LOT at stake. But your skepticism is somewhat warranted and I share some of your fears about regulatory co-option.

      Reply

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