When politicians direct capital

By KELLEY WILLIAMS,

Bad things often happen when politicians direct capital. A recent lead editorial in The Wall Street Journal provided some examples. One was some of the highest electric rates in the country. That sounds like Mississippi Power’s monopoly service area in southeast Mississippi. But the WSJ editorial was about California’s PG&E utility. Its rates are up 40 percent in the last 10 years versus 15 percent nationwide. One reason is a 2006 state law requiring the utility to get 20 percent of its power from renewables such as wind and solar. Green energy is expensive.

Mississippi Power Company’s experiment with green energy (the Kemper County Lignite Plant) caused its rates in 23 counties in southeast Mississippi to rise too. They were already higher than those in counties served by Entergy. Both companies are monopolies regulated by the Mississippi Public Service Commission (PSC). Why are Mississippi Power’s rates higher?

There could be several reasons. Its lawyers and lobbyists may be slicker (unlikely). Its engineers may not be as smart (doubtful). Its executives may be shrewder (they are all pretty shrewd). It may be more favored by powerful politicians like the former charismatic governor (definitely in the case of Kemper). It may not be watched as closely by Mississippi’s attorney general who has a case pending against Entergy for overcharging (possible). The PSC which regulates rates may not be doing its job (probable). Or all of the above to some degree.

This is about the PSC. It’s not doing its job. And about the Mississippi Legislature which makes the rules (laws) about how the PSC works - or doesn’t work. The legislature is pussyfooting around some needed and useful changes to the law. Lawmakers are slow-walking change. They may be listening to utility lobbyists. Utilities and regulatory bureaucrats don’t want change. They like things the way they are. (Small business and residential retail ratepayers can’t afford lobbyists.) It’s a one-sided game now. Here’s how it’s played.

The PSC was created by the legislature to assure adequate, reliable and economical service by public utilities. And to promote the “inherent advantage” of regulated public utilities. (That “inherent advantage” obviously doesn’t speak for itself in the case of Mississippi Power.)  There are three elected commissioners. They are supposed to act as judges to decide rate cases. Judges need clerks. But the legislature hasn’t funded enough clerks for the commissioners to act as judges.

So, the commissioners have farmed out rate decisions to the Public Utilities Staff (staff). It was created by the legislature in the 1990s in the wake of Grand Gulf scandals that sent two commissioners to prison. It has an executive director with a six-year term appointed by the governor and a budget approved by the Legislature for a staff of 28 professionals. You would think the legislature doesn’t trust the elected commissioners, but does trust the appointed executive director.

The distrust may seem earned in view of the Grand Gulf scandals and the predictable pro Kemper votes by two former commissioners politically indebted to the governor who promoted the Kemper gasifier experiment. But the ballot box replaced those pet commissioners. (Elections can act as checks and balances against abuse of power.) Their successors voted against the unworkable $6 billion gasifier along with the third Commissioner who voted against it from the beginning. So, Mississippi Power paid for it. But the decision left ratepayers on the hook for $1 billion cost for part of Kemper. It could have been worse. It could also happen again.

 

Why? The game is rigged. It favors utilities. They make money from big expensive plants - needed or not. Expensive plants cause rate increases. Big customers cut sweetheart rate deals with the utilities. Small ratepayers can’t afford lawyers and don’t. There are no checks and balances to protect them.

The staff could provide those checks and balances. But it doesn’t. It could represent the interests of ratepayers. Only ratepayers. Utilities are well represented by their lawyers, engineers, and consultants. They don’t need help. But the staff now represents the interests of both utilities and ratepayers — and tries to “balance” those interests. It tries to carry water on both shoulders. It stumbled and spilled a billion dollars of extra cost on ratepayers to pay for part of Kemper’s expensive unneeded plant.

The way the process works now is the staff hears both sides (customers and utilities) in a rate case and makes a Solomon-like decision (recommendation) to the PSC, which rubber stamps it. But the staff only hears from customers who “intervene” — who make timely intervention petitions in accordance with PSC rules and procedures.

The rules and procedures are complicated. Too complicated for most lay-persons. Utility lawyers are specialized and expensive. Big customers pay lawyers to intervene and negotiate lower rates for them. Few small customers can afford lawyers to intervene. No one speaks for most of them. Or negotiates for them. They get stuck with the check.

The staff doesn’t seek out small ratepayers to understand and represent. How can it speak for them? How can it “balance” their interests? It shouldn’t try to “balance” their interests. It should just represent them. Only them. Utilities can take care of themselves.

Part of the staff should represent all ratepayers before the PSC. The utilities should represent themselves. The PSC should be Solomon, not the staff. Part of the staff’s budget and professionals should go to the PSC so it can perform its judicial role. Many states do it this way. It seems to work better.

The legislature can change the current rules. And reduce the risk of another Kemper. It should do it while memories of Kemper’s abuses are fresh.

What do small ratepayers in Mississippi and the New Orleans Saints have in common? Bad officiating. And an NFL commissioner and a staff executive director who are ignoring it. Odds are NFL rules will change. The PSC’s should too. Why wait?

Kelley Williams, a Northsider, is chairman of Bigger Pie, a think tank promoting free markets and efficiency.

 

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