PSC warned to prepare for utility competition

Monday, Sept. 30, 1996 | 11:59 a.m.

CARSON CITY -- The state Public Service Commission needs to end its public squabbling, reduce its high turnover and prepare to regulate in a new era of competition in the utility industries, a private consulting firm says.

There is a lack of clear leadership in the agency because of the division of duties," according to the report by Synergy Consulting Inc. of Sacramento, Calif. The staff doesn't "understand who is in charge of day-to-day administrative activities," the consultant says.

The firm found some duplication in the handling of applications filed with the commission, whose job is to oversee the rates and services of 463 public utilities and transportation companies.

There's also a mixture of computer operating systems in the PSC that has led to higher costs and inefficiencies, the consulting firm said.

As competition arrives, Synergy warns there could be higher rates for homeowners and demands by the current utilities for higher profits. The commission had better prepare for a "significant increase" in consumer complaints, the firm says.

Commissioner Tim Hay said the study "provided very little useful information overall. ... We were hoping for a report with suggestions on how a commission should be structured in the future."

Consultant got off track

He suggested that Synergy "got off track" by reviewing all issues and didn't concentrate on the major problems.

Commissioner Donald Soderberg, who acted as a liaison with the consulting company, said commission Secretary Clay Holstein was already working on six of the eight problem areas. Soderberg and Hay said the next step is to turn the $153,500 study over to the National Regulatory Research Institute for its review. The institute is an arm of the national organization of public utility commissions.

There is no timetable for making any changes and some of them may have to go to the Nevada Legislature for approval, Soderberg said.

Soderberg said he also was disappointed the study did not go further in fashioning the structure of the commission to meet its future challenges.

Synergy said the staff and utility officials have observed the disagreements that have arisen at PSC meetings over administrative issues. This creates the perception of a "limited ability" of the commission to deal with items such as hiring staff and other internal matters.

"The PSC will need to overcome the perception that there is dissension among commissioners at agency meetings," the study says.

Shift administrative matters

The policy of the commission, says Synergy, is to handle these matters in an open meeting. But it said there was no need for a public forum on many internal commission issues. It suggested an administrative committee be established to decide what issues don't have to go on the public meeting agenda.

"Commissioners spend valuable time at agenda meetings on administrative matters that could be better spent on policy or regulatory issues," says the study.

Hay said the commission has five independent members and unless the law is changed, these items probably will have to be done in public. "When in the past you had chairman like Scott Craigie and Tom Stephens who enjoyed confidence of the other members, there was less of that," he said, referring to the recent bickering. "Now you have a chairman (John Mendoza) who will not let you buy a magazine."

Soderberg said Synergy executives attended their first commission meeting on the day of a blow-up between Mendoza and Commissioner Judy Sheldrew. He and Hay said things have quieted down since then.

Asked about shifting some items off the public agenda, Soderberg said, "One of the criticisms of the commission is it spends a lot of time on administrative items. Policy items cause little dissension. But when we get to the administrative agendas, look out."

He said taking some of these items off the public meeting agenda "could be a sensitive issue and have a lot of ramifications."

The commission's management responsibilities are divided among the chairman, the commission secretary and the director of regulatory operations. This has led to staff confusion, says Synergy, which recommended creation of an executive director to handle the day-to-day responsibilities.

The study says the commission has retained "many highly qualified staff" despite a high employee turnover in the past two years. It says the commission needs to improve staff morale by telling employees the vision of the agency and providing more training.

Soderberg said many key vacancies have been filled and he felt there was a "strong management" team in place, citing the hiring of Holstein, a former city manager in Reno, Crystal Reynolds as assistant secretary and Donna Varin as administrative officer.

Competition changes role

As competition arrives in the electric industry, Synergy says, "Regulators may feel increased pressure to shift risks to utilities, allow utilities to earn higher rates of return, and give utilities increased flexibility in their pricing, operation and planning decisions."

Power is cheaper in Nevada than California. But as the neighboring state permits open competition, Nevada utilities may sell their power there.

"Without proper controls the Nevada electric customers face the possible, unintended consequences of higher rates as a result of Nevada-generated power being purchased by other states," the study warns.

As mining operations and other large power users switch to alternate outlets, the electric companies may be forced to seek higher rates from homeowners to offset the loss of revenue, Synergy's report states. In addition, environmentally sound but costly geothermal and solar power may not find any buyers on the market.

To deal with the emerging changes, the PSC may have to be less "adversarial" and work closer with utilities, says the report.

"In the new regulatory environments experts anticipate that oversight agencies will form new collaborative relationships with industries, within the context of the open meeting laws, in order to provide more flexible oversight."

There "may be less need for the state to set prices and quality of service for a monopoly, but more need to regulate transactions between competitors," says Synergy.

"There will also be a need to protect consumers from deceptive advertising practices, abuse of market power and anti-trust violations."

Hay said the consensus among regulatory analysts is that commissions will become more interested in protecting the consumer rather than trying to balance interests of companies, stockholders and consumers. "It will not be up to the commission to protect companies from inappropriate decisions" when competition arrives, Hay said.

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