Private utility talks could become more public

JEFFERSON CITY, Mo. -- When a utility executive briefed Missouri's top utility regulator about the proposed sale of his company last January, it wasn't the first time an industry official had given a regulator a private heads up about a hot topic.

But if there is ever a next time, the public may know about it.

The chairman of the Missouri Public Service Commission, which regulates utilities, and the state's official consumer advocate both say they will support a policy change requiring public notice when utility officials are to meet privately with utility regulators.

The door to the room might still be closed. But the public would know who's inside and their intended topic of discussion.

Public attention has focused on the relationship between the regulated and the regulators as a result of a proposed $1.7 billion sale of the financially troubled utility Aquila Inc. to its more stable rival, Great Plains Energy Inc.

The utilities announced the proposed sale Feb. 7 and filed for approval April 4 with the Missouri Public Service Commission. But before they did either of those things, they had private discussions with the Missouri regulators who would later be handling their request.

The public remained unaware of the meetings until e-mails referencing them were revealed last week as part of the PSC hearing on whether to approve the merger.

As a result of the ensuing controversy, PSC chairman Jeff Davis removed himself from the case; Public Counsel Lewis Mills, the state's consumer advocate, pledged to also seek the recusal of three of the four other PSC members; Gov. Matt Blunt asked the PSC to review its conflict of interest policies; and the utility companies voluntarily delayed their merger case until January to give them time to regroup.

In the meantime, the Public Service Commission itself is regrouping.

"I don't want these problems to happen again," Davis said in an interview Friday.

The problems stem from a regulatory culture that has allowed -- sometimes even encouraged -- utility officials to privately communicate with regulators about concerns or upcoming events.

That communication is not necessarily bad nor illegal.

Like a judge, a public service commissioner is not supposed to privately discuss a case they are considering -- such as a rate increase or proposed utility sale -- with one of the parties involved. If any communication occurs, the commissioner is supposed to publicly disclose it.

But Missouri law says commissioners may communicate with utility officials, the public and other governmental officials about any issue that is not the subject of a case pending before the commission at that time.

That's what occurred in January, when Aquila chief executive Richard Green met with Davis to explain the company's plans to request a rate increase and a sale to Great Plains, the parent of Kansas City Power & Light Co.

Whether Green revealed too many details -- and elicited any sort of pledge of support -- remains a point of contention. Davis denies any wrongdoing in that regard.

A code of conduct for the Public Service Commission requires employees to avoid any activity "which improperly influences, or give the appearance of improperly influencing, the conduct of their official duties."

It's that appearance of improper influence that Mills sites when suggesting that most of Missouri's other utility regulators also should step aside from deciding the proposed Aquila sale -- a move that could effectively kill the deal or force the companies to start over.

"I think the process has been tainted," Mills said.

That perception is why both Mills and Davis are now talking about changing the process.

In response to Blunt's request for a review, Davis sent the governor a letter Friday pledging to gather public suggestions for changes and to provide an answer to Blunt during the week of Jan. 7.

One solution, Davis said, is to develop some way to notify the public in advance of a private meeting between a utility official and a regulator and to publicly describe the purpose of that meeting.

Mills would like to go further, requiring a transcript to be kept of such meetings to provide an indisputable record about what was discussed.

But the state's consumer advocate isn't proposing an outright prohibition on private discussions between utility officials and regulators. That would be difficult to enforce, and there are times when such discussions might be appropriate.

Former PSC chairman Kelvin Simmons says he, too, had private discussions with utility executives. When that happened, Simmons said he often encouraged utility officials to share the same information with other PSC members.

If there is no case involving that utility pending before the commission, "that is not a big deal," Simmons said. "It is basically the utility industry giving you a heads up of what might be coming down the pipe."

But Simmons cautioned that commissioners must walk a fine line.

If, during that private meeting, utility officials say they "will be filing a rate case and this is what they are asking for, that's a big red flag," Simmons said.

Consumer advocates already have been waiving red flags over the proposed Aquila sale because of the potential for a resulting rate increase. If Aquila and Great Plains respond by altering their proposed merger, they might find it more difficult to provide a private briefing to regulators.