"Regulatory Settlements":
When Do Private Agreements Serve the Public Interest?

It is the policy of this commission to encourage settlements.
— Multiple sources

Settlements seem somehow to reach the lowest common denominator in many instances, and often end up defying the public interest.  They are often used to tie commissioners' hands, not to help them resolve vexing problems.
— Former state commission chair

*   *   *

State commissions are seeing more filings: rate cases, requests for pre approvals, corporate restructurings.  Commissions also are instigating proceedings themselves: carbon reduction options, transmission construction, and renewable energy.  Staff sizes are dropping due to retirements and hiring freezes. 

The resulting workload-resource squeeze makes settlements attractive as work reducers.  But settlements are double edged swords:  They have positive value if they solve public-interest challenges, negative value if they edge the commission out of its statutory role.  This distinction is not always easy to discern.

Is "settlement" a misnomer?  First, a clarification of terms.  A regulated utility may conduct no commerce—provide no service, charge no rates—absent commission approval based on filed documents.  This "filed rate doctrine" distinguishes utility regulation from ordinary commerce.  In regulation, a settlement settles nothing substantive; it is only the parties' proposal.


Benefits of Settlements

Informality:  Settlement processes involve informal exchange.  Informal exchange enhances understanding of each entity's technical problems and private goals.  Both effects spiral upwards.  As technical fluency grows, commissions defer to the parties' solutions, encouraging more informal exchange, more technical understanding, and more commission deference.   Mutual exposure to parties' private goals spurs settlement solutions that align private interest with public interest—if the commission has established public-interest parameters first.

Expedition:  Settlements can save decisionmakers time.  Two caveats:  First, the parties' time matters too.  When unguided settlement processes combine with resource differentials, large parties can grind down the small, making "settlement" a euphemism for "take it or leave it."  Litigation, when disciplined and efficient, can make resource differences less relevant.  Second, saving decisionmakers' time is not an end in itself; success is measured in high-quality decisions, not per year dispositions.


Risks of Regulation-by-Settlement

A settlement culture can induce regulatory passivity:  The less they get into the parties’ business, the less they (a) engage mentally, (b) learn about the regulated businesses, (c) gain confidence, and (d) lead objectively.  A stance of "Let's see what the parties say" leads to "Let's see what the parties want" and, ultimately, "Who are we to stand in the way of their deal?"  There is risk of atrophy:  Muscles unused become muscles less able.  This spiral points downward:  As the commission becomes less engaged and less alert, it becomes less respected and less relied upon, leading to more settlements and more atrophy . . .


Testimony, Papers, and Presentations

This tesimony relates to the modification of rates, charges, and tariffs for retail electric service in Oklahoma.
The testimony relates to AltaGas’s proposed acquisition of WGL Holdings, Inc. and Washington Gas Light Company.
The testimony addresses the following: the effect of the transaction on consumers, including: (1) reasonableness of the purchase price, including whether the purchase price was reasonable in light of the savings that can be demonstrated from the merger and whether the purchase price is within a reasonable range; (2) whether ratepayer benefits . . .
Testimony addresses the issues of whether the proposed transaction affects the interests of ratepayers; the ability of JCP&L and MAIT to provide safe, adequate, and proper utility service at just and reasonable rates; and whether the proposed transaction is in the public interest.
This expert report was submitted to a federal trial court in May 2016 on behalf of City of Jacksonville, Florida. The litigation, and report, involve a 1943 disaffiliation of a gas corporation from its holding company, as mandated by the Public Utility Holding Company Act of 1935. The report explains why the disaffiliation did not prevent liability for the costs of environmental cleanup, if such liability exists under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, from passing to the new corporation.

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Hempling Appearances

Energy Bar Association
Panel on Practice Principles for New Regulatory Lawyers

UDC Law School Panel
Is the Exelon Takeover of Pepco in the Public Interest?

Nigeria Electricity Regulatory Commission
3rd Judges’ Seminar

Telecom Forum
Asamblea Plenaria REGULATEL

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While we will dearly miss you as NRRI's Executive Director—where you have been so invaluable—I am delighted that you will now be in the classroom enlightening and sparking the interest of the next generation.
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