By Arthur
O'Donnell, Editorial Director, Energy Central
By Arthur
O'Donnell, Editorial Director, Energy Central
There was one other set of state elections that held my interest, but not because the result necessarily portends any sweeping changes in energy policies for the affected populace. In fact, the people's choice of all four incumbents to the five-member Arizona Corporation Commission represents an affirmation of stability and civility after too many years of scandal and bitterness.
That the four commissioners-elect - Kris Mayes, Mike Gleason, Jeff Hatch-Miller and Bill Mundell - are all Republicans is secondary to my considerations here. They join ACC chairman Marc Spitzer, another Republican, who has two more years of his term to fill. Certainly, the commissioners faced spirited opposition from qualified Democrats and even Libertarians in their quest for election. But this is not a story about how "red state" sentiments in Arizona might have filtered to local elections.
Shared party affiliation seems less important in this instance than the fact that the commissioners all appear to have respect for each other, for their positions, and for the people of Arizona who elected them.
Unfortunately, that has not always been the case at the ACC.
For those who have not followed the situation, over the past several years the Commission had been tainted by the actions of its former chairman Jim Irvin. He also happened to be a Republican, but again, that is not a major factor in this story.
More important was that Irvin misused his position to try to influence the outcome of a bidding war for Southwest Gas Company between two rival firms, Southern Union and Oneok. In this regard, he was joined by his special assistant/consultant Jack Rose.
Influence is possibly an inadequate choice of words. According to an investigation ordered by the state House of Representatives to determine if Irvin ought to be impeached and removed from office, Irvin favored and promoted the lesser-valued Oneok offer at the expense of Southern Union. He attempted to lobby SW Gas board members as well as public utility regulators in California and Nevada to poison any Southern Union/SW Gas merger.
After both deals collapsed, everybody went to court for more than three years to sort through the wreckage in a staggering array of cross litigation. There were multiple settlements among the parties and one major judgment. In a suit brought by Southern Union, a federal jury awarded almost $1 million in compensatory damages against a number of defendants, including Irvin (who is responsible for 40 percent share of the damages), plus a whopping $60 million in punitive damages - all of it levied against Irvin. Of course, there are appeals pending.
In her decision upholding the unanimous jury verdict and setting what may stand as the largest fine ever assessed against an elected official, Judge Roslyn Silver did not hold back in her contempt for the defendant. A. Melvin McDonald, Jr., the special counsel looking into impeachment charges, quoted the judge’s use of such terms as:
“reprehensible, intentional trickery, deceit, evil mind, abuse of power, concealment, perseverance in hiding wrongful acts, intentional misconduct, egregious acts of reprehensibility, attempts to offer fabricated evidence, participating in a scheme to impede the jury’s search for truth, engaging in fraudulent and tortious conduct calculated to inflict willful and malicious injury, and disregarding the interests of the ratepayers of Arizona.”
McDonald had his own phrase for Irvin, calling him a “political charlatan.”
And that’s not all. A separate libel lawsuit brought by Jim Fisher, a former executive consultant for the ACC’s Utilities Division, alleged that Irvin not only forced Fisher from his job, but that he also made certain prospective employers got copies of a news release accusing Fisher of a “history of wrongdoing” while employed by the commission. After a Maricopa Country judge found that the news release was indeed libelous to Fisher, Irvin settled the case in February 2003, agreeing to a $380,000 payment to the ex-employee without admitting guilt.
Again, the impeachment investigator went into great detail to document what amounted to a four-year-long “unrelenting attack” by Irvin against Fisher for no legitimate reason. “No public employee should be subjected to the endless abuse and harassment that was experienced by Jim Fisher,” wrote McDonald.
There were findings of other improper actions taken by Irvin and bitter battles within the Commission - they are too many and too complex to recount here.
All the while, even after the lawsuits, Irvin refused to resign his position, despite demands from ACC colleagues, politicians of both parties and newspaper editorialists. Only on the verge of impeachment did Irvin leave the agency in September 2003, a few weeks before the legislative investigator reported “clear and convincing evidence” that the regulator had violated numerous state and federal laws.
The odd thing, from the investigator’s point of view, was that it was very difficult to discern Irvin’s motives in any of this. There was no evidence of the usual sort of financial shenanigans, no kickbacks, and no irregularities in the use of campaign contributions. In trying to decide whether Irvin received any “benefit” from his actions - a finding necessary to determine if criminal sanctions were applicable - the investigator pointed to vague “political expectations” that the disgraced regulator harbored ambitions to run for the governor’s seat or obtain a prestigious federal appointment sometime in the future. Oneok had promised to move the merged company’s headquarters to Arizona, and Irvin evidently felt that would be a political coup to enhance his reputation.
Separately, the investigator determined that the firing of Fisher was in retribution for some regulatory action properly taken against a firm that was run by a friend of Irvin’s.
But the kicker of the entire story was that Irvin consistently maintained that he had done nothing wrong and insisted that, besides covering some $5 million in his legal defense costs, the state should pay the $60 million verdict that had been rendered against him. The entire annual budget of the ACC is just $4.7 million.
It’s no wonder that the people of Arizona and members of the Commission might wish to put this sordid story far behind them and select a slate of more honest officials.
“We had become a black hole and an embarrassment,” admitted chairman Spitzer. “Irvin didn’t care about the facts or the law, aside from being abusive. That really demoralized staff and the parties to cases, too. Now, there’s a belief that they can get a fair hearing.”
The backgrounds of the commissioners might or might not tell you something about them. Mayes, a former journalist, was appointed by Governor Janet Napolitano to fill Irvin’s vacant seat but needed to run for election to complete the term. Both Gleason and Hatch-Miller are former members of the state House of Representatives. Mundell is an ex-judge, while Spitzer is a former member of the state Senate and a tax attorney. As a group, they have in recent years helped stabilize the agency despite the harmful effects of the Irvin affair - at one point joining together to demand his impeachment.
In looking over the various campaign statements of the ACC members who ran in this election (in particular, a set of answers to questions posed by the editorial board of the Arizona Republic) there is a consistency of responses for how the members view the role of the Commission and its oversight of utilities, securities firms and other corporations in the public interest. Each emphasized the importance of consumer protection and of safety regulation of natural-gas pipelines. All promised to balance the interests of consumers and utilities -- as mandated by state law and regulatory custom.
Spitzer commented that the balancing of interests sometimes frequently leads to differing opinions among his colleagues. “We have a very diverse panel, and it varies from case to case. On the company versus ratepayer continuum, Kris and Bill tend to favor ratepayers, while Mike and Jeff lean toward the companies. I’m a swing vote on some of these issues.”
Noting the reversal of ACC policies regarding electricity deregulation, some members expressed skepticism about the benefits of restructuring in the face of the California market meltdown that imposed significant costs on Arizonans, while others said they remained optimistic that restructuring of competitive markets for power could result in ratepayer benefits. There was a shared concern that federal agencies -- notably the Federal Energy Regulatory Commission and the Federal Communications Commission -- might be overstepping their jurisdictional limits but a range of responses to whether this was an overt attempt to “take power from local regulators.”
The Bottom Line: While you might expect a certain uniformity of positions from elected officials who share political affiliation, I detect more shading of differences that could prove interesting as the ACC decides some of the more important cases now on its docket. Big issues include a pending rate case from Arizona Public Service, in which he utility has proposed bringing back into ratebase a portfolio of generation assets currently under ownership of unregulated affiliate, Pinnacle West Generating. There is a settlement of that case on the table that appears to have broad if not unanimous support of parties to the case. In the responses to the Republic’s questions, the ACC members did not specify how they would treat this settlement, but each generally accepted the value of settlements while maintaining the responsibility of the commissioners to accept, condition or reject agreements based on their determination of the public interest.
Possibly more contentious will be the proposed takeover of Tucson Electric Power by Saguaro Acquisition Corp., a special purpose entity established by investor group KKR. Just this month, the administrative law judge presiding over the case recommended denial because the perceived risks of the transaction far outweigh the “minimal benefits” to ratepayers -- a ruling that reportedly has left TEP executives “shocked and disappointed.” The final decision rests with the panel of commissioners.
Non-energy matters include how to recoup and allocate the costs of more stringent water-quality standards for arsenic contamination that go into effect next year, and the continuing regulation of telecommunications and securities firms.
How the commissioners respond to these issues will say much about where the “balance” of interests comes out in the future at the ACC. Despite any honest differences of opinion, at least we can expect that they will operate from a sense of public duty rather than from twisted ambition.
Arthur O’Donnell is Editorial Director for Energy Central. The Business Electric is found exclusively on Energy Central.
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