Utilities: the regulated and the regulators

Sunday, December 9, 2007 | 6:53 p.m. CST; updated 3:52 p.m. CDT, Monday, July 21, 2008

JEFFERSON CITY — When a top utility executive briefed Missouri’s top utility regulator about the proposed sale of his company last January, it wasn’t the first time an industry official had given a regulator a private heads-up about a hot topic.

But if there is ever a next time, the public may know about it.

The chairman of the Missouri Public Service Commission, which regulates utilities, and the state’s official consumer advocate both say they will support a policy change requiring public notice when utility officials are to meet privately with utility regulators; the door to the room might still be closed, but the public would know who’s inside and their intended topic of discussion.

Public attention has focused on the relationship between the regulated and the regulators as a result of a $1.7 billion sale proposed Feb. 7 of the financially troubled utility Aquila Inc. to its more stable rival, Great Plains Energy Inc.

The utilities filed for approval with the Missouri Public Service Commission on April 4. But even before the sale was proposed, they had private discussions with Missouri regulators.

The public remained unaware of the meetings until e-mails referencing them were revealed last week as part of the PSC hearing on whether to approve the merger.

As a result of the ensuing controversy, PSC Chairman Jeff Davis removed himself from the case; Public Counsel Lewis Mills, the state’s consumer advocate, pledged to seek the recusal of three of four other PSC members; Gov. Matt Blunt asked the PSC to review its conflict of interest policies; and the utility companies voluntarily delayed their merger case until January to give them time to regroup.

The issues stem from a regulatory culture that has allowed, even encouraged, utility officials to privately communicate with regulators about concerns or upcoming events, not necessarily bad or illegal.

Like a judge, a public service commissioner is not supposed to privately discuss a case he or she is considering (e.g., a rate increase or proposed utility sale) with one of the parties involved. If any communication occurs, the commissioner must publicly disclose it.

But Missouri law says commissioners may communicate with utility officials, the public and other governmental officials about any issue that is not the subject of a case pending before the commission at that time, which occurred in January when Aquila chief executive Richard Green met with Davis to explain the company’s plans to request a rate increase and a sale to Great Plains, the parent of Kansas City Power & Light Co.

Whether Green revealed too many details — and elicited any sort of pledge of support — remains a point of contention. Davis denies any wrongdoing in that regard.

A code of conduct for the Public Service Commission requires employees to avoid any activity “which improperly influences, or gives the appearance of improperly influencing, the conduct of their official duties.”

It’s that appearance of improper influence that Mills cites when suggesting that most of Missouri’s other utility regulators also should step aside from deciding the proposed Aquila sale — a move that could effectively kill the deal or force the companies to start over, which is why Mills and Davis are now talking about changing the process.

In response to Blunt’s request for a review, Davis sent the governor a letter Friday pledging to gather public suggestions for changes during the week of Jan. 7.

One solution, Davis said, is to develop some way to notify the public in advance of a private meeting between a utility official and a regulator and to publicly describe the meeting’s purpose.

Mills would like to require a transcript to be kept as an indisputable record of what was discussed.

But Mills isn’t proposing an outright prohibition on private utility discussions, which would be difficult to enforce and problematic when such discussions might be appropriate.

Former PSC Chairman Kelvin Simmons says he, too, had private discussions with utility executives, often encouraging them to share the same information with other PSC members.

Simmons cautioned that commissioners must walk a fine line.

Consumer advocates already have been waiving red flags over the proposed Aquila sale because of the potential for a resulting rate increase. If Aquila and Great Plains respond by altering their proposed merger, they might find it more difficult to provide a private briefing to regulators.

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