Businesses Love to Hate the Hawaii PUC

But there's a plan to build a better regulator

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Critics say

The state Public Utilities Commission is slow, inefficient and secretive, but this small agency has a lot on its plate. It regulates:

4 electric utilities;
1 gas company;
176 telecommunication companies;
38 private water and sewer companies;
4 water carriers;
1,272 trucking and bus companies.

Legislators say they want to reform and properly fund the PUC, but it’s not a done deal – or an easy fix.

The mood was tense in the packed Senate hearing room in December, as angry Neighbor Island businessmen, farmers and representatives from community organizations testified before the Committee on Commerce and Consumer Protection against the Public Utilities Commission. The immediate cause for the rancor was an interim decision by the PUC in September that allowed Pasha Hawaii Transport Lines to begin limited interisland cargo shipping between Honolulu and Kahului and Hilo.

Before this ruling, interisland cargo service was provided exclusively by Young Brothers – a monopoly contingent on the barge company serving not only the state’s large, profitable ports, but also the smaller, unprofitable ones, such as those on Lanai and Molokai. But the interim order imposed no such obligations on Pasha.

That’s what caused the stir. In the wake of all the discontent, Sen. Rosalyn Baker, chair of the committee, spoke testily of the need to reform the PUC, a process that this blowup may have both hastened and complicated.

     Outgoing Chair Carlito Caliboso Photo: Rae Huo

The intent of the Pasha decision, according to the previous commission chair Carlito Caliboso, was simply to find out if more competition among water carriers would help improve service and lower costs for consumers. Young Brothers, and many of its Neighbor Island customers, had a different take. They viewed the PUC’s ruling as fundamentally unfair to the highly regulated interisland barge company, and potentially lethal to the businesses that depend on its service, particularly those on Molokai and Lanai.

Even worse, they viewed the process the PUC used to reach its decision as opaque and capricious. As Baker points out, the commission held no public hearings, let alone Neighbor Island public hearings, before making its ruling. Then, one day before the Senate hearing, the commission denied a Young Brothers’ request to reconsider its decision. “I thought the commission behaved most arrogantly to the folks that came in from the Neighbor Islands to be heard,” Baker said later.

But assigning blame for the commission’s failings is more complicated than it seems.

Quasi-Judicial Agency

The PUC is a small state agency with astonishingly broad regulatory powers. According to its 2010 annual report, it is responsible for regulating electric utilities, telecommunication companies, water and sewer companies, and bus and trucking companies. In other words, a huge part of the state economy falls under its jurisdiction; yet, early last year, the agency had a staff of fewer than 40 people. For most purposes, the three PUC commissioners operate like a quasi-judicial body, with the chair presiding over lawyers, engineers, analysts and accountants who conduct research and provide technical assistance. This small cadre of professionals has to provide the expertise to regulate the diverse industries under their jurisdiction.

The Division of Consumer Advocacy is in even worse straits. In 2010, this agency, which is supposed to represent the public’s interest before the PUC (and is funded out of the PUC’s special fund), had only 11 staff positions filled. Yet, the division is responsible for much the same analytical and policy footwork as the PUC. In fact, PUC actions often can’t proceed because of delays caused by the division’s understaffing. For a while, the division simply stopped processing certification applications from telecommunications providers, according to a legislative report. Consumer Advocacy officials didn’t respond to repeated requests to comment for this story.

     Sen. Rosalyn Baker, head of the Senate's Commerce Committee,
     has had some run-ins with the PUC. 
     Photo: Courtesy of Senator Roselyn Baker

It’s not surprising that the most common complaint about the PUC is that it’s slow and inefficient. However, that fact has to be viewed in the context of how the agency works. Regulated companies typically bring cases, called dockets, before the commission for consideration. Dockets range from something as simple as an application to operate a motor carrier, to a petition for rate relief from a water carrier, to something as complicated as decoupling, a new policy that fundamentally changes the business model for the electric company. A docket isn’t that different than a court proceeding: There are motions, opportunities for interveners to join the docket, and periods for discovery and rebuttal. All of which take time.

And there are a lot of dockets. In 2010, 330 new dockets were filed before the PUC. In addition, there were still 271 dockets pending from 2009. Altogether, the commission completed 448 dockets over the course of the fiscal year, and left 153 pending. All those figures are improvements.

Diverse Complaints

Even though few individuals are willing to go on the record – their companies are still regulated by the commission, after all – criticism of the PUC is widespread and diverse. For example, among motor carriers, by far the largest group of companies regulated by the PUC, the standard complaint is that there isn’t enough regulation: It’s too easy to get a certificate, and there isn’t enough rate enforcement.

Young Brothers, as we’ve seen, complains that it’s held to a different standard than its competitor – much the same complaint Hawaiian Telcom representatives make privately about its competitors.

It’s within the electric sector that we see the most complaints: that the PUC is too cautious, that the consumer advocate is too closely aligned with the utility, and that the PUC chair should be more of a vanguard. Almost all this criticism, though, comes back to those two words: slow and inefficient. Most of the complaints are justified, but that’s not the whole story.

For example, not everyone is convinced that the commission is responsible for many of these problems. Carl Freedman, an electric utility regulatory expert and frequent intervener before the commission, notes that, under the Caliboso administration, the PUC undertook an enormous number of major policy dockets. In fact, it’s largely trying to deal with those energy-policy initiatives that accounts for much of the commission’s slowness. “I think it’s a fair criticism of the PUC to say it’s not fast enough,” Freeman says. “But I don’t think that equates to criticism of (Caliboso), or even the staff. That’s a criticism of the whole state.”

Similarly, Freedman isn’t sure that slow and cautious are necessarily bad things, at least when it comes to these major policy decisions. “Some people want to see the commission be more of a vanguard. But I think cautious is certainly also one of the things we want the PUC to be.”

Caliboso also isn’t convinced that the charges of slowness and excessive caution are merited. Some of the slowness, he points out, is built into a fair and deliberative process. “You can’t really say this docket took a year, so it’s slow, for example. You really have to look at each one to see when the parties were really done with it, when was it submitted for a decision. A lot of times, it’s the parties involved in the case that slow things down, because they want time for things like review and discovery before they submit their positions and make their arguments. And all that takes time.”

Caliboso also points out that sometimes the PUC’s new responsibilities conflict with its traditional regulatory role, particularly in the complicated field of energy policy. “If you’re assuming the complaints are that we’re not moving fast enough or far enough in a particular policy direction, then you really have to look at what is the policy direction being given to the PUC from the Legislature, because we’re a creature of statute. The law says we’re supposed to be a traditional regulator. Those duties deal with trying to make sure the rates that customers pay are reasonable – so, keeping costs down. And then, we’re responsible for making sure the utilities provide reliable service and earn a reasonable rate of return. It’s all connected.

“At the same time, you’re telling the commission to try to implement these new energy policies, which should help get us off of fossil fuels, improve our energy security, reduce greenhouse emissions, improve our environment and make things more sustainable. That’s fine. I understand that task, and we’re driven to implement these policies. But those traditional regulatory responsibilities have not gone away. So, when somebody says we’re not going fast enough, maybe it’s because we still have those traditional objectives to look out for.”

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