PRC hearing examiner’s behavior raises concerns

Public Regulation Commission hearings in September over Public Service Co. of New Mexico’s request for a rate hike took some unusual, even bizarre, twists and turns that have drawn renewed attention to agency efforts to improve operations.

During nearly three weeks of hearings from Sept. 5-22, Hearing Examiner Anthony Madeiros harshly berated one participating case attorney for raising a legal “objection” during a line of questioning. Then, in response to that incident, Madeiros imposed a new rule to expel lawyers from the hearings who “argue” with examiners overseeing the process.

Also, in a separate incident, Madeiros and assistant Hearing Examiner Christopher Ryan both speculated about the need for “consequences” against PNM executives for allegedly “imprudent” decisions regarding utility investments in generating plants, raising concerns among some local business leaders about potential bias in the case.

The hearings, which took place completely online, were recorded in their entirety and posted on YouTube, allowing the Journal and others to directly review the incidents.

In one interchange on Friday, Sept. 8, attorney Kelly Gould of the New Mexico Affordable Reliable Energy Alliance, or NM AREA — which advocates for large-scale and industrial electric consumers — objected to a “bench request” by Madeiros and Ryan asking PNM to provide more detail on litigation expenses in the case that the utility wants to recover. Gould said written testimony by PNM and rebuttals by opposing parties had already been filed in the record, and allowing PNM to submit additional information without opportunity for responses by others raises concerns.

Madeiros immediately overruled the objection, and then, as Gould started to respond, Madeiros abruptly shut her up.

“No. Not one more word,” Madeiros said sternly. “… The objection is overruled as if it had never been asked.”

Gould then said she wants the objection lodged for the record, provoking a visibly angry response by Madeiros, who replied to Gould that she “already did” file her objection.

“Off,” Madeiros yelled at Gould while pointing and waving “goodbye” into the online camera. “Off the screen. Goodbye. Have a good weekend, Ms. Gould.”

One last comment by Gould asserting that she’s “allowed to make a record” provoked another harsh tirade from Madeiros.

“You made a record,” Madeiros barked. “You’re arguing with me. Goodbye, Ms. Gould. You’re off for today. We’ll see you Monday. Off.”

When the hearings reopened the following Monday, Madeiros did apologize to Gould and other participating attorneys for his behavior, but then followed up with a lengthy lecture about not arguing with hearing examiners, which he called “disrespectful to the dignity of the bench.” He then announced a new “order.”

“Arguing with the bench, or the tribunal, is strictly prohibited,” Madeiros said. “Any violation of this rule is grounds for ejection from the hearing. Subsequent or repeated violations of this rule is further grounds for permanent expulsion.”

Those incidents inspired some case attorneys to complain to PRC Chief of Staff Cholla Khoury, who later had a discussion with Madeiros about the incidents.

Khoury called Madeiros’ behavior “unacceptable,” but said the stress of complex hearings and a heavy workload is hard on PRC staff.

“We expect utmost professionalism at the PRC,” Khoury told the Journal. “… I’ve been in hearings myself where everyone is on edge. It happens, and it’s not OK, but I’ve dealt with Mr. Madeiros and feel I’ve addressed it.”

Biased comments?

In a separate incident during questioning of a PNM witness, both Madeiros and assistant examiner Ryan candidly discussed the need for PNM executives to face “consequences” for “imprudent” investments in power plants.

The witness provided testimony about past utility investments in the coal-fired Four Corners Generating Station and the Palo Verde Nuclear Generating Station in Arizona, which is under examination in the rate case to determine if PNM should be allowed to fully recover those investments. The witness said the utility has faced penalties, such as being denied full recovery by prohibiting PNM from earning a return, or profit, on its investments.

In the case of Palo Verde, that would amount, over time, to about an $80 million penalty against PNM, according to the witness, who called that a “haircut,” rather than full denial of recovery.

That inspired a discussion about appropriate penalties.

“(If) there was a finding of imprudence, I mean there has to be some penalty paid,” said assistant examiner Ryan. “Otherwise, I don’t know, the whole system sort of falls apart.”

But, the witness responded, “They got an $80 million hit. ... That is significant.”

Madeiros then stepped in.

“Where is the deterrent effect on the executives in the Executive Suite acting imprudently on the next big decision if they know they can get off scot-free without facing any haircut, or maybe even just a minor trim?” Madeiros said.

Ryan said that’s a concern.

“There needs to be, at all levels, consequences,” he said.

Those statements raised concerns among some local business leaders about potential bias by the hearing examiners, who are supposed to remain completely impartial to reach a balanced conclusion about issues in the case. The examiners are now preparing a “recommended decision” on PNM’s rate request that will later be presented to PRC commissioners to make a final decision on the issues.

New Mexico Chamber of Commerce President and CEO Rob Black, who reviewed the hearing transcripts, said the language used by the hearing examiners raises concerns about “regulatory uncertainty” at the PRC, which investors and utility industry executives are closely watching.

“The hearing examiners’ comments come across as both antagonistic and prejudicial,” Black told the Journal. “This lack of professionalism has a chilling effect on economic development. Companies don’t want to invest tens of millions of dollars in a jurisdiction where their regulators, acting in a quasi-judicial fashion, behave this way.”

Khoury did not directly address the question of potential bias, but said the final decision on the rate case is up to the commissioners themselves, who can accept, reject, modify or even ignore the recommended decision from hearing examiners.

“The commissioners will use their full authority to enforce the law, taking into account all sides to balance the public interest in their decision,” Khoury told the Journal.

PRC reforms

The incidents in the hearings provide a limited peek into some of the inner workings at the PRC, which has undergone extensive statutory and administrative reform in recent years.

A constitutional amendment approved by voters in 2020 converted the PRC from a previous, five-member elected commission to a three-member body appointed by the governor with direct oversight from the state Legislature. That amendment, approved with overwhelming bipartisan support from legislators, aimed to “depoliticize” and “professionalize” the PRC, allowing high-quality industry and regulatory experts to lead the agency with greater impartiality than elected officials who must weigh voter support for their actions while struggling to balance the public interest in decisions.

The reform followed years of political scandals and conflict between elected commissioners, state legislators, and the governor’s office over controversial PRC decisions on utility matters and other issues. Those conflicts reached a crescendo in 2021, when the governor and some legislators unsuccessfully attempted to transfer administrative authority over PRC staff to another state agency.

That same year, Gov. Michelle Lujan Grisham’s administration evicted the PRC from the PERA building in Santa Fe, a rent-free office complex where the commission had resided for more than two decades. The agency now leases limited space at the Bokum Building just west of the Santa Fe Plaza that’s insufficient to fully house the PRC’s current 111 active employees, said PRC spokesman Patrick Rodriguez.

But since the three new commissioners took office last January, relations with state officials have immensely improved, and the commission has demonstrated much greater professionalism and expertise in regulatory decisions and agency administration, said Senate Majority Leader Peter Wirth, a Santa Fe Democrat who led the PRC reform effort along with two Republican legislators.

“The good news is, we’re no longer getting lots of requests for new laws to govern the PRC, which arose in the past from decisions made by the old elected commission,” Wirth told the Journal. “We’re not seeing that anymore, and I think that’s a positive result of the new format.”

Black agreed. “We’re seeing a more deliberative process where the new commissioners are individuals with a lot of experience who are working diligently on decisions,” he said.

But significant improvement is still needed at the staff level, he added.

“We need to see a greater level of professionalism and consistency among staff,” Black said. “We hope to see more professional staff hired and more training for existing staff.”

Administrative overhaul

Under the new commissioners and Khoury, who took over as chief of staff in February, the PRC is undergoing an extensive process of internal modernization to make agency operations in general much more efficient, including a significant increase in staff levels to handle the PRC’s excessive workload and more professional training for existing employees.

The agency has been understaffed and overworked for years, making regulatory and administrative processes difficult, Khoury said.

“The PNM rate case is a perfect example of the complex litigation we manage, which leads to long work hours and high stress levels,” she said. “These are high-stakes (processes) that take a long time and everyone gets tense. … Our hearing examiners and employees handle hundreds of cases, so we need to be properly staffed and trained for all that.”

Part of the problem is the extensive statutory responsibilities assigned to the PRC, which include regulatory oversight of electric, gas and water utilities, plus transportation companies like ambulance and taxi services, pipeline safety, and consumer advocacy.

Under the agency’s current budget, the PRC has 116 approved positions, but when Khoury took office in February, the commission only had 99 employees on payroll. It’s since staffed up to 111 now, with expectations for reaching the full 116 by year-end.

The commission also plans to ask for an extra $2.82 million in next year’s legislative session to add an additional 24 employees, which would raise its annual base budget from $14.87 million now to $17.37 million.

In addition, it’s requesting $4.84 million in one-time, non-recurring funding that, among other things, would finance a $2.5 million overhaul of the agency’s information technology system. That will modernize the PRC’s administrative processes across the board, better facilitating hearings and communication among staff and parties that intervene in cases, while also making all agency information more readily available to the public, Khoury said.

The commissioners themselves have also initiated a range of new policies and procedures that could have a significant impact on all PRC proceedings and administration going forward.

For one thing, the commissioners agreed in June to move from the yearslong practice of weekly open public meetings to a biweekly schedule to give commissioners and staff more time to examine issues before making final decisions.

And, in August, the commission launched a series of strategic planning sessions to establish a long-term vision for the agency. That includes an internal and external survey to collect feedback on PRC procedures and operations to improve operations at all levels, Khoury said.

The agency can expect a lot of support from the Legislature as it works to develop and carry out internal reforms, Wirth said. That includes additional money to increase the PRC staff.

“As we prepared the constitutional amendment, we became aware of how commissions work in different states,” Wirth said. “Our staffing levels are dramatically lower in New Mexico than in other states, and we need to work on that.”

In this year’s session, the Legislature voted to move transportation regulation out of the PRC and into the state Department of Transportation, which will take place next year to allow the PRC to concentrate more on utility oversight.

“We have a much more professional commission now with regulatory experience, so let’s have them focus specifically on regulating utilities,” Wirth said.

The Legislature also approved a bill for the state to acquire the Educational Retirement Board’s current building near the South Capitol Rail Runner station in Santa Fe after the ERB constructs a new building and moves out in late 2024 or mid-2025. That will allow the PRC to move in rent-free, said PRC spokesman Rodriguez.

And, among the PRC’s non-recurring capital requests planned for next year’s session is a $190,000 special appropriation to finance the forthcoming move to the ERB building.

“I look forward to discussing what additional resources are needed with the PRC chief of staff,” Wirth said. “We need to figure out what the PRC needs to do its job and provide them with the tools and resources to succeed.”

Editor's note: this article has been clarified to better reflect the interaction between Chief of Staff Cholla Khoury and Hearing Examiner Anthony Madeiros.