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The PRC needs to be fixed to serve the public good

These remarks reflect both my views from working for state public utility commissions around the country for almost 30 years at a national research institute and a study I coauthored in 2017 for the Legislative Counsel Service. The study focuses on internal problems preventing the Public Regulation Commission from serving New Mexicans.

Good utility regulation means well-informed decisions directed at the public interest. It strives for efficiency, balance and justice.

The three mortal sins of utility regulation that obstruct its public interest mission are ideology, inertia and ignorance. Acting excessively on political beliefs, insufficient information and archaic conditions is a recipe for poor regulation. These sins make it difficult for any regulatory agency like the PRC to do its job in advancing the public interest.

The PRC seems to be guilty of all of these sins. Ideology threatens the balancing of consumer, utility and other interests, which has been the hallmark of good utility regulation since its inception over 100 years ago. Here in New Mexico, as well as in other states, political pressures from both the governor and legislature have become more prevalent in recent years. Within the PRC, emphasis on special interest demands has escalated to squeeze out public interest goals.

Inertia sets in when staff has inadequate understanding of new industry, technological and market developments. Their tendency is to fall back on what they know best and stick to outdated practices that do more harm than good.

Regulatory agencies like the PRC must constantly adapt to new economic, policy and technological conditions. One salient observation is that the PRC has failed to keep abreast of dramatic changes occurring in the utility industries. Staff, among other things, is not getting the necessary professional development and continuing education.

Some of the problems facing the PRC are common across state utility commissions, but others are outliers. Similar to other state commissions, the PRC faces growing demands from the Legislature (e.g., the Energy Transition Act) and stakeholders with grossly insufficient resources. This death-spiral-type condition has seriously jeopardized the capability of the PRC to adequately address the increasingly complex issues brought before it.

The LCS study made three major recommendations. The first is for the PRC to hire technical advisory staff for commissioners and bolster its advocacy staff (e.g., staff who provide testimony) to provide stronger support in major cases. (Staff here refers to accountants, economists, engineers, financial analysts and public policy experts.) The PRC is especially extraordinary among state utility commissions by its gross understaffing of technical advisers that directly serve commissioners.

Both advisory and advocacy functions help to produce well-informed PRC decisions. This is especially important as the PRC faces increasingly complex and politically charged issues. With inadequate technical staff, utility commissions tend to be overly political, in addition to being captured by special interests.

New Mexico is one of a few states that return most of the monies collected as utility fees and assessments to the general fund. As a second recommendation, in line with the majority of other states, the PRC should directly use the assessments and fees, to be recovered from utility customers, to fund the agency.

Such funds would (1) make utility customers, who benefit from regulation, responsible for the agency’s costs; (2) treat assessments and fees as payments for service rather than taxes; (3) represent a more stable, reliable source of funds for the agency; (4) lower administrative costs; (5) reduce the agency’s financial dependence on the Legislature; and (6) be more transparent from knowing the specific uses for the monies.

The LCS study also recommended that the Legislature conduct a comprehensive audit of the PRC. An audit will enable the Legislature and the general public to better understand and evaluate how the PRC operates and its internal organization. It would hold the PRC more accountable, uncover serious internal problems and make suggestions for improving the agency’s performance.

While adequate resources do not guarantee good regulation, without them, regulation would more likely be captured by individual stakeholders, rather than serving the public good. This does a disservice to New Mexicans.

Ken Costello of Santa Fe is a regulatory economist/independent consultant.

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