State Regulatory Relations

NY PSC Appoints New Chair

The New York Public Service Commission (NY PSC) on January 2 welcomed Garry Brown as its new chairman. Appointed by Governor Eliot Spitzer, Chairman Brown replaces former Chairwoman Patricia Acampora, who will remain as a commissioner.

Chairman Brown has nearly 30 years of experience in the public, private and not-for-profit energy and electricity sectors, including previously holding a position as Senior Policy Analyst for the former New York State Energy Office, which had been charged with developing a sustainable and sound energy policy and promoting energy efficiency, while protecting the environment and fostering economic development.

Immediately prior to his appointment, Chairman Brown had been Vice President of External Affairs at the New York Independent System Operator, a not-for-profit company that manages New York’s electricity transmission grid and oversees New York’s wholesale electricity markets. He has worked for Sithe Energies Inc. In addition, he has served on the board of directors of the Independent Power Producers of New York. Due to his position as chairman, Mr. Brown also becomes chairman of the New York State Board on Electric Generation Siting and the Environment. He sits on the board of the New York State Energy Research and Development Authority, the New York State Environmental Board, and the board of the Regional Greenhouse Gas Initiative Inc.

Mr. Brown is a member of the New York State Council for Universal Broadband and the Governor’s Economic Security Cabinet. Chairman Brown received his B.S. from State University College of Plattsburgh and his Master’s of public administration from the Rockefeller School of Public Affairs at the State University of New York at Albany.

Illinois Commerce Commission Appoints New Commissioner

Sherman J. Elliott was confirmed by the Illinois Senate as the newest member of the Illinois Commerce Commission.

Commissioner Elliott was appointed to a four-year term by Governor Rod Blagojevich in December. He replaces Kevin Wright who left the commission at the conclusion of his term in early 2007.

“First, I must thank the Governor for this appointment. I am honored to serve the people of Illinois. I look forward to working with my fellow Commissioners on the cases that are currently pending at the Commission,” Commissioner Elliott said, “and to tackling new policy questions that arise as the industries evolve. It’s a great challenge.”

Commissioner Elliott formerly served as manager of State Regulatory Affairs for the Midwest Independent Transmission System Operator (MISO). In that role he was responsible for monitoring state and federal regulatory filings as well working with legislative, utility, regulatory and other stakeholder communities for those states in which MISO provides service.

Prior to joining MISO, Elliott was employed as a senior energy policy advisor to commissioners regarding state and federal issues for eight years. He also served as a senior economist in the rates section of the ICC’s Public Utilities Division where he developed and provided testimony on issues ranging from embedded cost of service rate design and rate planning matters in electric and natural gas cases. He received his bachelor’s and master’s degrees in economics from the University of Illinois, Springfield.

ICC Commissioner Lula Ford Reappointed To Second Term

Commissioner Lula M. Ford has been reappointed by Illinois Governor Rod Blagojevich to serve a second term on the state’s public utility commission. “I am both honored and humbled to serve the citizens of Illinois,” said Commissioner Ford upon her reappointment. “I will continue to bring an open mind and dedication to the very important business of utility regulation in this state. It’s a tremendous responsibility, and I embrace the challenges ahead.”

For nearly 35 years, Commissioner Ford served as an elementary schoolteacher, administrator and principal in the Chicago Public Schools. She received the Principal of Excellence Award and Principal of the Year Award and has won accolades from President Bill Clinton and Chicago Mayor Richard M. Daley for her excellent job performance and contribution to Chicago’s inner-city schools.

During her tenure at the ICC, Commissioner Ford has served as chair of the ICC’s Gas Policy Committee and was recently appointed to the U.S. Department of Transportation’s Technical Pipeline Safety Standards Committee.

Commissioner Ford also serves as president of the Organization of PJM States. PJM Interconnection is a regional transmission organization (RTO) that plays a vital role in the U.S. electric system.

Commissioner Ford also holds a master’s degree in urban studies from Northeastern (Ill.) University, and a master’s degree in career education from the University of Illinois. Appointed to a five-year term, she remains the first African-American woman to serve on the ICC in its 95-year history.

ICC Commissioner Erin O’Connell-Diaz Earns Second Term

Illinois Commerce Commissioner Erin O’Connell-Diaz was recently confirmed by the Senate to a second five-year term on the commission.

“I am both honored and humbled that the Governor has asked me to continue to serve the citizens of Illinois,” said O’Connell-Diaz upon her reappointment. “I am grateful to have this opportunity to continue working on some of the most significant issues of our time. I look forward to dealing with the complex issues of the day , including changes in electricity markets, enhanced consumer protections for utility customers, improved safety at railroad crossings, and ensuring that the trucking and moving companies provide safe and reliable service in our state.”

Commissioner O’Connell-Diaz was appointed by Governor Rod Blagojevich in December to a second term. She was originally appointed to her first term by Governor Blagojevich in 2003. On the national front, Commissioner O’Connell-Diaz serves on the National Association of Regulatory Commissioners’ Committees on Electricity, International Relations, and Water. She currently serves as the chairman of the ICC’s Water and Transportation Committees.

Prior to her appointment in 2003, she served as assistant director of the Administrative Law Division, as an Administrative Law Judge handling all aspects of utility regulation including electric, natural gas and water utility rate cases, consumer complaint cases and telecommunication arbitration and certification cases.

Earlier in her career, she served as an Assistant Attorney General in the General Law division of the Attorney General’s Office, where she represented state agencies in matters ranging from complex construction contract litigation to prisoner civil rights.

Commissioner O’Connell-Diaz earned her undergraduate degree in history and government from St. Mary’s College of Notre Dame, South Bend, Ind., and her Juris Doctorate from Loyola University School of Law, Chicago.

NRRI Study Provides Insight, Data on Private-Equity Utility Buyouts

A new study on private-equity buyouts of public utilities provides state utility commissioners with critical information and analysis on how these transactions can be addressed by the regulatory community, the National Association of Regulatory Utility Commissioners said (NARUC).

The study — “Private Equity Buyouts of Public Utilities: Preparation for Regulators” — was authored by Stephen G. Hill under the auspices of the National Regulatory Research Institute (NRRI), an entity funded by NARUC members. It gives substantial details about how private-equity buyouts differ from public utility mergers. The study also offers actions regulators should consider taking to ensure that if and when such arrangements arise, they are structured to promote the public interest.

“In this post-PUHCA world, State regulators need to be armed with as much information as possible,” said NARUC President Marsha Smith of Idaho. “This study will help inform commissioners as they deal with private-equity buyouts and potential impacts on end-users.”

Importantly, the study does not provide a determination on whether private equity buyouts are good or bad; rather, it identifies aspects where such transactions could diverge from the public interest so regulators can act appropriately — both before such transactions are fashioned and when they are presented for commission approval.

For example, the study urges regulators to be aware of firms that may only wish to hold onto a utility for a short time. This arrangement could run counter to the public interest, the study says, because the utility business is one with a long-term focus.

“The term structure of a normal private-equity deal envisions a holding period of five to 10 years — shorter in nature than utility plant life and shorter than the planning period necessary for future utility plant additions,” the study said. “If the investment horizon of management is not aligned with the long-term nature of utility service, a potential for conflict between public and private interests exists.”

The study’s author, Stephen G. Hill, is an expert in regulatory finance and corporate structure.

The study is available online at: http://www.naruc.org/Publications/NRRI%2007-11%20private%20equity%20buyouts.pdf.

NARUC Winter Committee Meetings Filling Up

Due to the high interest in the upcoming Winter Committee Meetings, a few nights at the host hotel — the Renaissance Washington — are already sold out. If you have not finalized your travel itinerary, please do so soon and cancel any rooms you do not plan to use. Rooms released by Jan. 26 will be made available to other NARUC attendees. To change your reservation prior to that date, please call 1-800-266-9432.

The NARUC Water Committee will also hold meetings during the Winter Meetings. NAWC members will be presenting at these committee meetings. Mr. Jeffrey Hines will represent York Water as the featured individual jurisdictional water company. There will be a panel discussion on pricing considerations related to reclaimed water including representatives from Aqua America, American Water, and Utilities Inc. There will also be a panel on Sarbanes Oxley featuring Water industry representatives and Commissioner Holland. Mr. Bill Koska and Mr. Floyd Wicks, American States Water, will present information on the California Water Quality Litigation Decision. There will also be a resolution on how the California Public Utility Commission has strengthened water quality standards.

For more information, log on to: www.winter.narucmeetings.org.

California PUC Concludes Annual Review

The California Public Utilities Commission (PUC) has concluded its annual review of public utility return requirements and has issued an order establishing the 2008 ratemaking return on common equity (ROE) for Southern California Edison Company (SCE), San Diego Gas and Electric Company (SDG&E), and Pacific Gas and Electric Company (PG&E). The test-year 2008 ROE for SCE is 11.50 percent, resulting in an overall rate of return (ROR) of 8.75percent, which is two basis points lower than its currently authorized 8.77 percent ROR and produces a revenue requirement reduction of approximately $9.6 million. SCE's last authorized ROE had been 11.60 percent. For SDG&E, ROE is set at 11.10 percent, translating into an ROR of 8.40 percent, which is 17 basis points higher than its currently authorized 8.23 percent ROR and results in a revenue requirement increase of approximately $9.6 million. SDG&E's most recently approved ROE had been 10.70 percent. Finally, PG&E was authorized an 11.35 percent ROE, mirroring its 2007 ROE allowance such that there was no change in either its ROR or its revenue requirement.

Several of the utilities had asked the commission to increase the allowed ROE to reflect unexpected and unaccounted-for business risks. The PUC noted first that it has done much to mitigate investor risks since the height of the California energy crisis, and that there is no basis to conclude that it would do otherwise in the future. It added that with recent action leading toward a more defined California electric industry, the procurement risks reflected in earlier ROE cases should subside. Nevertheless, the PUC concluded that based on informed judgment, a 50-basis-point premium for debt leverage, debt equivalence, and procurement risk should be added to the ROE base range for SCE and PG&E, while a 40-basis-point premium for debt leverage, debt equivalence, and procurement risk should be added to the ROE base range for SDG&E.

The commission also addressed the question of whether a return premium is need for regulatory risk. It ruled that even though most observers give high grades to the regulatory environment in California, the regulatory risks still perceived by most investors warrant a 10-basis-point upward adjustment to the base ROE ranges adopted in the proceeding. Re Southern California Edison Co. et al., D.07-12-049, A.07-05-003 et al., Dec. 20, 2007(Cal.P.U.C.).