Regulatory Interface with the Judiciary: Experience from the West

1. Regulatory Interface with the Judiciary: Experience from the West Craig Glazer Vice President—Governmental Policy PJM Interconnection, L.L.C.

2. Regulatory Interface with the Judiciary • In U.S. electricity and telecommunications began as competitive industries • No regulation • By contrast, transportation industry deemed “affected with the public interest”

3. Regulatory Interface With the Judiciary • Regulation of utilities deemed a legislative function • Local municipal councils negotiated franchise terms • Rates, terms and conditions set by legislatures • Regulation existed by contract • Franchises could be exclusive or non-exclusive

4. Establishment of Regulatory Commissions • State public service commissions established: • Illinois, New York • Public utility functions added to oversight of railroads, wharves etc.

5. Establishment of Regulatory Functions • Regulatory Functions • Establishing tariffs governing rates, terms and conditions • Regulation the “quid pro quo” for the exclusive franchise • Service quality review • Review of capital structure

6. Independence of the Regulator • Regulator subject to appointment by executive with approval by legislature • Rise of elected commissions • Commissioners have fixed terms in office with limited grounds for removal • Salaries and staff are fixed through legislative protections

7. Accountability of the Regulator • Direct accountability to the courts • Appeal of commission decisions • Indirect accountability to legislative branch • Control over commission budget • Ratification of appointments • Indirect accountability to executive branch • Direct appointment of commissioners • Service as member of executive cabinet

8. Judicial Review of the Regulator • Age of substantive due process • Court reviews wisdom of regulation • Court reverses child labor laws, economic regulation etc. • Violation of the freedom to contract • Interpretation of “liberty” provision of U.S. Constitution

9. Post-1930’s Judicial Review in U.S. • “The switch in time that saved nine” • Adoption of federal laws that added regulation: • Filling the “Attleboro” gap—Federal oversight to supplement state oversight • Public Utility Holding Company Act—Federal regulation of corporate structure

10. Post 1930’s Judicial Review in U.S. • Court de novo review of procedural fairness • Was there notice and an opportunity for hearing? • Right of utility to present evidence • Mixed views on similar right of customers.

11. Post 1930’s Judicial Review in U.S. • De novo review of questions of law • Substantial evidence standard for review of questions of fact: Was there substantial evidence in the record to support commission’s decision?

12. Today’s Judicial Review in U.S. • Chevron Deference---Deference to expertise of administrative agency • Arbitrary and capricious standard

13. Today’s Judicial Review in U.S. • Today’s challenges • Commission role to establish markets • Commission making policy rulings in generic rulemaking proceedings • Lack of injunctive processes to stop market power abuses • Lack of expedited proceedings for addressing market power abuses

14. Procedural Issues/Impediments for Commissions • Ex Parte rules • Sunshine rules • Need for speed • Need for evidence in the record • Delay in regulatory/judicial processes out of step with the pace of the market

15. Other Judicial Models • Canada: • Provincial regulation of electricity with ISOs to serve regulatory role, no federal role • Alternative Dispute Resolution Models • Voluntary ADR processes—appointment of settlement judges • Use of technical conferences and other alternative means of gaining evidence

16. The Future: Regulation and the Judiciary • Inability of judiciary to keep pace with markets • Commissions ham-strung by judicial model • Market disruption caused by potential foundational challenges

17. For More Information:Craig GlazerVice President—Governmental PolicyPJM Interconnection, L.L.C.glazec@pjm.com