August 10, 2011
West Virginia Public Service Commission: Good? Could Be Better?
Pam Kasey of the State Journal recently wrote an article reporting on whether the West Virginia Public Service Commission (PSC) is its job, based on her interviews with observers and participants in PSC proceedings. As stated in her article, the persons she interviewed “are keen observers of the commission and their thoughts represent the range of truths about its workings.” The article is an interesting read, especially when she refers to the comments of the lawyers who represent applicants as speaking “cautiously and favorably.”
The job of the PSC is a difficult one. This writer spent five years with the New York Public Service Commission, and spent 22 years handling rate cases before PUCs in eight western states and the Federal Energy Regulatory Commission. Ratemaking is a complex undertaking, and requires considerable judgment and expertise by the commissioners. Utilities are entitled under the U.S. Constitution to earn a reasonable return on their investments in assets devoted to providing utility service, and arriving at that “reasonable return” is an issue about which lawyers, economists, accountants and engineers can fight for months, and there is no one right answer. As the U.S. Supreme Court stated in Duquesne v. Barasch, 488 U.S. 299 (1989), “[t]he economic judgments required in rate proceedings are often hopelessly complex and do not admit of a single correct result.” The PSC is required to balance the interests of customers and investors in a manner that allows the utility to maintain its financial integrity and raise capital on reasonable terms, while protecting customers from excessive rates and preventing the utility from recovering in rates the costs associated with imprudent actions or investments. The decisions are difficult to explain to the public, given the complexity of the subject matter, and thus the PSC will often lose in the battle of “sound bites.” The fact that rates go up is easy to capture in a headline in order to bash the PSC. The explanation, on the other hand, cannot be captured in a “sound bite,” but requires a detailed explanation and an understanding of the regulatory framework within which utilities operate. Most members of the public simply don’t have the patience or the interest in plowing through this subject matter and deciding for themselves whether the PSC is doing its job. Thanks to Pam Kasey and the State Journal for shedding some light on the process by soliciting the comments of the observers and litigants who know the agency best. It gives the public a good start in understanding how the PSC operates, and the difficulty of tackling the contentious issues coming before the agency.