Breaking news: State regulatory procedures do not favor consumers

Lynne Kiesling

As is the vernacular these days, your response to the title of this post is probably “I know, right?” Or, if you prefer sarcasm, you may say “no, really?” This is the conclusion of an all-too-rare piece of investigative journalism from Dan Garino at the Columbus Dispatch:

Ohio’s unique system for setting electricity rates has created a quagmire of regulations that have benefited industry over consumers. …

The rate increases stem from a complex regulatory approach unlike any other in the country, one that combines elements of both regulated and free-market systems.

Beyond that, The Dispatch found during a yearlong investigation that the state’s regulatory structure misses what many observers see as the underlying problem: Utility companies have tremendous political power that tends to overshadow consumers’ needs in the process.

This lengthy article goes into detail on the legislative history of electricity restructuring in Ohio and the political economy of utility lobbying of legislators, as well as the role of the Public Utility Commission as regulator in this hybrid restructured state. If you are interested in electricity or the political economy of regulation, it’s a worthwhile read — a case study in public choice theory.

In its early years of restructuring, Ohio was held out as a leader with strong potential for consumer-oriented retail competition, but over time that competition has not emerged. One of Ohio’s institutional innovations was “aggregation”, or allowing municipalities to act as a retail aggregator on behalf of a set of customers, in that case its residents. But Ohio’s legislators and regulators did not pay adequate attention to the unintended consequences of the political compromises they made that would continue to serve as entry barriers to potential retail competitors, including aggregation.

In terms of the PUCO regulatory procedures and the processes through which debate and discussion are supposed to happen, the article makes a lot out of the unanimity of the Commission’s decisions, but does not dig into the very formal (and formulaic, I think) procedures for filing comments on cases. That process, and its positive and negative consequences, is in and of itself worthy of a lengthy analysis; because of that process, most issues that the commissioners have are likely to be resolved before the ultimate vote, so unanimity is not that surprising. It’s not unique to Ohio, though.

I don’t want to comment on the particulars of Ohio, but I think that most of the states that have implemented regulatory restructuring have a similarly tortured legislative and regulatory story to tell. This Franken-restructured status arises out of a politically-motivated desire to “ring-fence” competition, to capture the benefits of utilities being able to purchase power in competitive wholesale markets, but to control and manage the retail market in ways that create the (realistic, IMO) impression that retail customers are still subject to the regulated monopoly. Ohio’s record on that front is not good, but Ohio is not alone in that camp.

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One thought on “Breaking news: State regulatory procedures do not favor consumers

  1. Lynne,

    I understand why the term “deregulation” did not appear in your post, as it does in almost all media coverage of such issues. In every case of which I have any knowledge, what occurred in the states was anything but deregulation. Rather, it was re-regulation designed to provide the appearance of greater competition, while assuring that the commission retained effective control.

    I would argue, having worked in an Ohio natural gas utility during “deregulation”, that the utilities’ zeal in protecting their franchises was as much a reaction to the presence of Enron in their markets as it was anything else. Enron was a rapacious, ethically-challenged “competitor” which “used” its customers in a concerted effort to increase its profits and make the utilities look incompetent.

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