Regulatory Principles:
Old Thoughts for the New Year

          Newcomers to utility regulation bring disparate ideas about its purposes and processes. These young professionals, a talented group of whom shared thoughts with me recently, deserve more clarity on what we do, how we do it and why. Here are five subjects requiring our attention.

 

Purpose of regulation

          The purpose of regulation is performance. Effective regulators first define the desired performance, in terms of product mix, quality, cost, and safety. Then they determine the market structures—the mix of monopoly and competition—most likely to attract the players whose actions will most cost-effectively produce that desired performance. Then they provide ways to pay, or penalize, these performers for their performance. Effective regulation is leadership regulation: defining performance, then holding companies accountable for their performance. Sitting back, waiting for parties to say what they want, presiding instead of leading? That's not regulation; it’s abdication.

          One newcomer compared utility regulation to highway safety regulation. Yes, in part. Speed limits, like all regulation, align private behavior with the public interest. But safety regulation emphasizes protection. In the utility space, consumers are not mere victims to be protected; they are actors to be empowered. So regulators must empower as well as protect. When we re-examine decades-old monopoly market structures, when we test whether competition can improve monopolists’ performance, we empower both consumers and competitors: Consumers reveal their diverse needs; new competitors strive to satisfy those needs. Performance improves. Effective regulators don’t merely prevent harm; they demand excellence. If regulators satisfice while sellers maximize, we get lopsidedness.

 

"Protect" from what?

          Protecting implies danger. Identifying dangers makes some regulators skittish, because no one likes to impute negative motives to nice people. But to design effective protections, we must be explicit about the dangers. Four are beyond dispute. First, every monopolist strives to keep and grow its monopoly. Second, every competitor seeks to become a monopoly, because (as economist John Hicks wrote) “the best of all monopoly profits is a quiet life.” Third, consumers and sellers alike value their short-term interests more than the public's long-term interests. Fourth, if in regulatory proceedings winning depends on obscuring, distracting, and deceiving, some parties will do all three if the chance of success is high and the penalty, if caught, is low. So protecting the public interest means exposing these dangers, expressly and directly. Wishing them away, looking the other way, favoring comity over candor—regulatory weakness lets dangers thrive.

 

"Balancing" what?

          There must be something in the regulatory drinking water.  Newcomers routinely describe regulators as "referees," and regulatory decisionmaking as "balancing stakeholder interests" after "looking at both sides."  Substantively and psychologically, these sentiments are wrong. . .

Services

Testimony, Papers, and Presentations

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.

Books by Hempling

Regulating Public Utility Performance

“[A] comprehensive regulatory treatise …. In all respects, it merits comparison with Kahn and Phillips."

Regulating Public Utility Performance:  The Law of Market Structure, Pricing and Jurisdiction

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Preside or Lead

Preside or Lead?
The Attributes and Actions of Effective Regulators

Now Available on Kindle

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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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Electricity Jurisdiction

Testimonials

I highly recommend Scott Hempling. I have known him since 2003, since he was a consultant for the Hawaii Public Utilities Commission on various important and cutting-edge policy regulatory matters in Hawaii, through his time as the Executive Director at the National Regulatory Research Institute. His expertise, knowledge, and experience in all regulatory and energy matters is unmatched, and he would be a highly valuable resource and asset in any such endeavor.
— Carlito P. Caliboso, former Chairman, Hawaii Public Utilities Commission