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Minnesota’s PUC is no energy-policy powerhouse

The Public Utilities Commission has never had a major role in setting Minnesota’s direction in policy matters because the Legislature prefers to keep that power to itself.

Ellen Anderson

By now everyone realizes that Ellen Anderson wasn’t going to steer Minnesota’s Public Utilities Commission in a rabidly anti-coal or irrationally pro-solar direction, as the Republicans who ousted her would have us believe. Others have checked her record as PUC chair and found just six votes over the last year in which she took a minority view, none of them on momentous issues. 

But this leaves a more interesting question: Could any appointee to the PUC chairmanship – the most fanatical, tireless, politically gifted, coal-hating, green-power devotee imaginable – use that role to dramatically redirect energy policy in Minnesota?

In a parallel universe, maybe. In this one, not so much.

Officially, the PUC’s role includes policymaking on energy matters, at the the direction of the Legislature.

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Realistically, the Legislature has always reserved the big policy questions, and sometimes smaller ones, for itself.

Legislature gives, and takes away
Indeed, lawmakers have sometimes taken policy-tinged powers away from the commission – for example, when they decreed pre-emptively that the Mesaba coal-gasification project would be entitled to PUC approval, or when they decided that they, too, should have a role in distributing money from the Renewable Development Fund, formerly a commission responsibility.

For their part, the commissioners have seemed content to operate at a comfortable remove from the margins of their policymaking mandate.

So what does the PUC actually do with its broad authority, busy dockets and staff of roughly 50 folks? And to what extent is its work shaped by partisan conflict?

The civics-textbook answer can be summarized like so, with emphasis added:

The PUC “regulates three cornerstone service industries in Minnesota’s economy, i.e., electricity, natural gas and telephone,” in the current words of its website, and its “mission is to create and maintain a regulatory environment that ensures safe, reliable and efficient utility services at fair and reasonable rates.”

From a paragraph from a 2002 PUC annual report:

“In resolving specific disputes, the commission acts like a court. In setting broad industry policies through investigations or rulemaking, the commission is a policymaking, or legislative, body. In enforcing statutes and rules, the commission is an administrative body.”

In other words, the commission functions like each of the three branches of government without belonging to any of them. And while it may resemble familiar federal agencies, like the Interstate Commerce Commission or Federal Communications Commission, “The PUC is the sole example of a true ‘independent regulatory commission’ in Minnesota,” according to a remarkably engaging recent history of its formation and reformations.

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By law, the PUC’s five commissioners are appointed by the governor – subject to Senate confirmation, as we’ve recently been reminded – and serve six-year, staggered terms. (The remaining four commissioners were appointed or reappointed by Tim Pawlenty.)

No more than three can be of the same political party; at least one must be living outside the metro area when appointed; none can be removed from office except for misconduct. No particular qualifications are required but the idea is to pick people with expertise in some aspect of utility  operations, like engineering or accounting.

Like court proceedings, the commission’s work is conducted under strict rules designed to create a detailed record and prevent back-channel communications with people having business before it.

Setting rates, not policies
With all that expertise, power and protection, you might expect the commissioners to demonstrate the kind of policymaking activism that Anderson’s detractors claimed she would pursue. But again, not so much.

I called several longtime observers of the PUC’s actions on energy matters and asked if they could recall any instances of bold, substantive, independent policymaking by the PUC. With a partial exception, noted below, they couldn’t. From my 12 years of writing about such issues for the Strib editorial page, I couldn’t think of any, either.

“Timid” is the word that came to mind for David Morris, an economist who has been studying American energy systems and their regulation for more than 30 years, when I asked him to compare Minnesota’s PUC with utility commissions in other states.

“I can’t necessarily see it as conservative or liberal, or Republican or Democrat,” said Morris, who heads the Minneapolis office of the Institute for Local Self-Reliance. “It just doesn’t engage the issues of the day in energy, or telecommunications for that matter, in the way that other (states’) commissions do.”

The reasons for this may be partly historical in that Minnesota came late to the business of regulating electric and gas utilities; our lawmakers waited until 1974 to follow the lead of 47 other states and assign these responsibilites to a specialist agency, instead of leaving all oversight to the Legislature and courts.

While Morris finds the PUC’s policy involvement comparatively slight, he also considers it an above-average producer on the administrative, rate-setting side:

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“The PUC now makes decisions on almost a daily basis that affect almost everybody in Minnesota, and sometimes affect them quite powerfully, and people don’t really think about it. But if you have to pay a higher bill for your electricity, or your natural gas, or your phone service, that request had to come through the commission.

“Sometimes they approve it in full, although that’s rare; most times they approve it largely; sometimes they deny it completely, and in most cases they cut it by 30 or 40 percent. Add it all up and – well, I don’t know the exact amount, but I imagine you’re talking about half a billion dollars of rate increases a year in all the sectors it oversees. If we were talking about a tax increase of that magnitude, people would sit up and take notice.”

On Minnesota’s targets and timetables for developing renewable electric generation, on the future role of nuclear power, on the conditions under which utilities can import more coal-fired power from, say, North Dakota – in all of these policy matters and more, Morris and others said, the Legislature has always made the big decisions, and always will.

This leaves the PUC to apply the law to “policy” questions like: Should a new high-voltage powerline along the Midtown Greenway be buried or not? Last week the PUC said it should be buried, while postponing a decision on who should pay the extra cost.

Endorsing agreements made elsewhere
Since Xcel Energy had already dropped its early opposition to burying the line, the commission was able to side with both a regulated utility and its challengers. This seems to be a preferred outcome.

One of the PUC’s bigger decisions in recent years was approval of Xcel Energy’s move to clean up three of its dirtiest metro-area coal plants, repowering two with natural gas and adding new emissions controls to a third. It did so after, and only after, the Legislature had rewritten state policy to make such steps financially attractive to utilities – and also after a wide array of environmentalists, business customers and other competing interests had settled their issues with the plan.

Over at the Izaak Walton League’s Midwest office, energy programs director Nancy Lange agrees that the PUC doesn’t make policy so much as it applies policy directives from the Legislature.

But she points out the PUC’s responsibility to constantly balance progressive goals and timetables against the needs and interests of ratepayers – and she thinks the PUC sometimes deserves more credit than it receives for ambitious action despite a complicated set of mandates.

When Minnesota’s renewable-energy objectives were still voluntary goals rather than statutory requirements, she feels, the PUC pressed more aggressively than absolutely required to move the utilities forward. And in the Big Stone II case, she said, the PUC was bold to require in 2009 that if carbon regulation or other costs pushed the project’s price tag above certain ceilings, Otter Tail Power and its partners would have to pay the excess out of their own pockets, and not just pass it along to ratepayers.

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“Remember, (the PUC commissioners) didn’t do it to kill a coal plant,” she said. “They did it to keep ratepayers from getting stuck if the company went ahead and expanded despite all the figures projecting much higher costs.”

At the time, of course, Big Stone II’s opponents felt the PUC had more than enough basis for turning down Otter Tail Power outright – including financial analyses from its own administrative proceedings and an outside expert review it commissioned.

Several months later, the project died on its own. The utility decided that rising costs and falling markets – the same trends the PUC reviewed but found unpersuasive – had made a new coal plant economically unattractive.

Maybe the PUC’s cost caps were a deciding factor. Maybe not.