Now that Mississippi’s Public Service Commission has a budget, the commissioners have permission to redirect staff to tasks they requested and the new PSC budget wasn’t expanded to pay for the redirected staffers, let’s address the question of elective versus appointive public utility regulators.
Mississippi is one of only 11 states that elect their own public utility regulators – the rest are Alabama, Arizona, Georgia, Louisiana, Montana, Nebraska, New Mexico, North Dakota, Oklahoma and South Dakota.
Researchers at the W.P. Carey School of Business at Arizona State University in 2008 addressed the question of whether state’s should elect or appoint their utility regulators. The report cited these findings:
“While utility regulation processes vary by state and by industry, in the U.S., rates are typically calculated as the utility’s cost plus what the commissioners deem a fair rate of return, or profit. In many states, rates are set based on historical information, and they’re not adaptable to changing circumstances, such as rapidly rising fuel costs.
“That lack of adaptability affects everything from the utility’s ability to plan for long-term infrastructure costs to its ability to transition to new technologies to its ability to borrow money.”
Here’s the ASU research team’s “bottom line” on the question, cited verbatim from the report:
* “Contrary to expectations, utility rates tend to favor the utilities when commissioners were elected rather than when they were appointed.
* “When elected commissioners make decisions, they may well be responding to their voters. But their voters – those citizens who take an informed interest in the commissioners’ election – may not be voters in general.
* “Because elected commissioners generally allow utilities more profit than appointed commissioners, the implication is that utilities in an elected-commissioner environment would be more able to plan for huge long-term infrastructure costs.
* “Long-term planning and transitions to new technologies are much more successful when the utilities and their regulators collaborate.
* “Certain backgrounds – accounting, finance, economics and engineering – among utility commissioners support more informed decisions and an ability to understand more complex rate-setting processes.
* “Simplistic rate-setting processes which don’t allow utility rates to adapt to changing economic circumstances adversely affect the utility’s ability to plan for long-term infrastructure costs and its ability to transition to new technologies.
* “With rates that include a “reward” factor, which translates into profit for the utility, utilities can be incentivized toward certain behaviors (transitions to cleaner technologies, for example).
* “If voters gave public utility commissioners a different mandate (other than to keep rates low), we might see policies that were more amenable to long-run goals of cleaner energy generation.”
In Mississippi, we like to elect every official from governor to dogcatcher. That’s unlikely to change, particularly at the PSC.
But the ASU reports makes clear that demagoguery in public utility regulation harms the ratepayers, the taxpayers, the utilities and the environment.
Contact syndicated columnist Sid Salter at (601) 961-7084 or e-mail firstname.lastname@example.org.