Former Regulatory Chair Tells All, Suggests Reforms at State Level
WASHINGTON, D.C. - The move toward a competitive marketplace in the digital age is being made more difficult by state utility commissions that engage in “regulatory impressionism” rather than objective decision-making. That is the view of a former state regulatory chair turned think tank president, who is telling all and calling for reforms.
In a just-published article, “Regulatory Impressionism: What Regulators Can and Cannot Do,” Progress & Freedom Foundation President Raymond L. Gifford describes the inner workings of state commissions, exposes systemic limitations and pressures, and suggests what regulators can and cannot do well. He begins with a diagnosis: “Regulatory impressionism accurately describes the way state commissions regulate,” writes Gifford in the Review of Network Economics. “The motives, analysis and actions of state regulators stem from an amalgam of quickly processed information and decision points. Likewise, the institutional structure of state commissions – how they work and who serves on them – works against deliberated, principled decision-making.”
According to Gifford, the commissions’ constraints include structure, resources and the ability of their members. He says commissions suffer from “hav[ing] been put at the vanguard of implementing competition policy” by the FCC’s interpretation of the 1996 Telecommunications Act, which “conferred regulatory duties on the states that cannot be performed well, perhaps not by any entity, but certainly not by the states.” Add to that “roomy and broad” operative standards – ‘public interest’, ‘public convenience and necessity’, ‘just and reasonable’ – that were more useful when regulators’ primary tasks were to constrain monopoly pricing or police rate-of-return.
According to Gifford, “The epitome of what state commissions cannot do” is TELRIC pricing. “Like the fabled search for rates that mimic market outcomes, there is no analytical or empirical place to begin in pricing a theoretically most-efficient network.” Rather, he argues, it has become “a vehicle for creating a margin between wholesale and retail rates” to assure ‘competitive’ entry.
Holding no hope legislatures will enact reforms, he says “it is up to the commission to constrain itself.” Two reforms are needed: First, “applicable legal standards will have to become better defined and more reliable over time.” That can be done by defining vague operating concepts or changing focus “from ex ante prescriptive rulemaking to ex post, dispute-specific complaint resolution.” Second, state commissions must “return to recognizing their core competencies.” The Progress & Freedom Foundation is a market-oriented think tank that studies the impact of the digital revolution and its implications for public policy. It is a 501(c)(3) nonprofit organization founded in 1993.