Understanding the Public Service Commission: Part 1

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As of March 1, 2018, NorthWestern Energy has one month to submit its distributed generation (i.e. rooftop solar) cost-benefit analysis to Montana’s Public Service Commission (PSC). The analysis is the latest in an ongoing debate over net metering policy that most recently resulted in House Bill 219. HB 219 passed in the 2017 Legislature and mandated NorthWestern Energy to study the costs and benefits of distributed generation customers. Throughout this process, a number of questions have come up: why is the utility overseeing the study and not the PSC? What happens once the study is finished? How will this affect Montanan’s ability to go solar?

Many of these questions circle back to the importance of understanding the Public Service Commission and its role.

Many Montanans do not realize the scope of influence the PSC has on renewable energy development in Montana, nor the opportunities they have to engage with the Commission. In this series, we will help you understand this important decision making body, what it does, and give concrete examples of how it operates using the distributed generation cost-benefit analysis as the basis for the discussion.

Where did the Public Service Commission come from?

The Montana Public Service Commission (PSC) dates back to 1907, when the Montana Legislature established a three-person Board of Railroad Commissioners, which was responsible for regulating the rail and transport industry in Montana. Similar to today’s PSC, their charge was to ensure safe and dependable utility services (at this time rails) at reasonable costs. In 1913, these three Commissioners became ex-officio members of the newly established Montana Public Service Commission. It’s been suggested that the PSC was created out of a desire for a body that had more resources and expertise than the Legislature to oversee and regulate the railroad and other utilities. Over the years, more and more regulatory responsibility was added to the PSC. This included overhead electricity development (e.g. power lines; 1917) and common carrier pipelines for transporting petroleum products (1921).

In 1971, an organizational restructuring of the executive branch resulted in the elimination of the Board of Railroad Commissioners. In 1974, the Legislature changed the structure of the PSC to its current form. What is that structure?

Who and Where is this Public Service Commission?

When many people refer to the Public Service Commission, they are often referring to the Commissioners themselves. The PSC has five commissioners representing separate districts around the state.Commissioners are elected officials, who are elected to four-year staggered terms. They can serve a maximum of two consecutive terms, and can serve no more than eight years in any 16-year period. They have a Chair, whom they elect from among themselves every other year at the first meeting of the year following a general election. Commissioner elections are also partisan, meaning candidates may choose a political party affiliation. There are no requirements for relevant professional experience or educational background in order to become a Commissioner. By contrast, some states require the commissioners to have experience or education in fields such as public or government administration, economics, utility regulation, consumer advocacy, engineering, law, etc. In many states, commissioners are appointed to their position by the governor. Montana is one of 11 states that elects their commissioners.

It is important to note the Public Service Commission is more than just the five commissioners themselves. The PSC includes support staff such as attorneys, economists, rate analysts, and more that advise the Commissioners and help them dissect and understand the complex issues they work on. The staff is organized into three divisions: regulatory, legal, and centralized services.

If the PSC is a regulatory body, who is regulating the PSC?

The PSC was created in the early 1900’s as a separate entity from the Legislature. The Legislature oversees the PSC. The relationship between the Legislature and the PSC is important to understanding key energy issues currently affecting Montana. The Legislature is the branch of government principally charged with creating policy. The PSC’s duty is to execute those policies, specifically the ones relating to supervising and regulating public utilities, motor carriers, and telecommunications companies. In essence, the Legislature’s role is to provide the framework under which the PSC executes its duties.

The PSC most often works with the Legislature’s energy committees. During the interim between legislative sessions, this is the Energy and Telecommunications Interim Committee (ETIC) – a bipartisan committee made up of four State Representatives and four State Senators. Upon request, the PSC will make presentations to the ETIC on relevant issues the Committee is researching and discussing.

Why does the PSC regulate utilities, but not the electric co-ops?

There are two types of electricity providers in Montana: investor-owned utilities (IOU’s) and rural electric cooperative (REC’s, or “co-ops”). When referring to “utilities”, we are most often referring to IOU’s. Residential and small commercial customers in Montana do not get to choose who provides their electricity. Their electricity provider is determined by where they live or operate, with the IOU’s providing electricity to most of the urban areas and the co-ops providing electricity to the rural areas. Importantly, this setup guarantees a monopoly on electricity service in geographical areas throughout the state.

The IOU business model is profit-based – like any other investor-owned business – and so without regulation there exists the opportunity for this guaranteed-monopoly company to charge as much for services as it likes. This is where the PSC regulation comes in. The PSC’s duty is to ensure just and reasonable rates for utility customers, while still guaranteeing reasonable profits for the IOU. Through various functions that we will describe in the next part of this series, the PSC is ultimately the one that determines the profit margins for the utility. Thus, this regulatory system seeks to protect customers (through oversight of the monopoly business) while still incentivizing the utility to provide good service (through profit returns).

The co-ops, on the other hand, are not investor-owned; they are member-owned. This is more akin to a non-profit model, and removes the potential for over-charging customers to generate larger profits. This negates the need for regulation as with the IOU’s.

This difference in regulation will be important when we begin discussing why the PSC is overseeing the distributed generation study, and why an IOU is conducting it.

Now, on to the distributed generation cost-benefit analysis.

This was the 10,000-foot view of some key foundational elements of the PSC and how it operates. Next, we’ll get into the specifics of its role in regulating IOU’s, and the various forms of renewable energy development in Montana it can impact. Specifically, we’ll get into distributed generation, net metering, and review the cost-benefit analysis. You can read Part 2 here.

Sources for this series are listed here. The purpose of these articles is to help inform the public about the purpose and function of the Montana Public Service Commission. MREA does not and is not endorsing any candidate(s) running for election.