Mission and Structure in a Changing Environment
Deregulation represents a significant challenge for PUC, one that has required the agency to rethink its processes and use of staff resources. Additional statutory requirements and deadlines imposed to address deregulation have increased the agency's workload. PUC has responded by making changes in both its structure and functions.
The challenges PUC faces are common to all utility agencies. A 1995 summit of state utility regulatory commissioners concluded that resource constraints would continue and possibly worsen as deregulation advances and that utility agencies would need to change their missions, organizational structures, and processes. With regard to agency operations and organization, "the status quo was not regarded as a viable option."[ 1 ]
TPR identified many strengths at PUC, the two most important are the commissioners and the employees. In light of competitive utility markets, the Commissioners of the PUC face a daily challenge of setting out new policy and a new regulatory environment. TPR observed they maintain a busy and full schedule of public meetings and workshops, they have a good working relationship, and they often exchange information with other regulatory authorities and industry experts. TPR also observed that PUC employees are dedicated and professional with significant technical expertise that often works long hours to ensure the agency meets its obligations.[ 2 ] These strengths will help PUC adapt to demands of deregulated markets outlined previously in this report.
Although the agency has made several changes to its supporting structures to back its transition to a more deregulated utility environment, its period of adjustment is not complete. Some of the changes the agency has already made to help support their transition include changes in their organization structure and the development of electronic information and document systems. These changes are an important step towards a new PUC, one that can support the changing needs of the industry and the customers. However, it is unrealistic to think that as changes continue to be made to PUC's statute and activities that they will not need to expand, adjust and improve changes to their underlying support structures. For example, as the time spent on rate cases declines, the agency will have need to relocate its resources which may require a more flexible or different organization structure. Similarly, as the need for information about the markets change, so may the way PUC collects this information. Until the market and the statute has completely evolved, PUC will have a need to make changes to its operations and structure.
TPR believes that, while PUC will continue to evolve beyond what is recommended here, it could benefit from changes to its stated mission, organizational structures, human resource programs, information management, and change management mechanisms in order to provide it with the flexibility to change. The recommendations in this chapter address each of these issues.
TPR recommends that the Public Utility Regulatory Act be revised to reflect PUC's changing purpose and activities, and proposes a new organizational structure for PUC that would eliminate a cumbersome tripartite management structure and consolidate technical staff to improve the efficiency and effectiveness of their operations. TPR also proposes that PUC take steps to reduce its ratio of management to line staff to levels in keeping with national averages for the service sector, and adopt formal work-alternative policies. Another recommendation calls for a revision of PUC's system of career ladders and paths.
Still other recommendations would reduce agency paperwork and eliminate reporting burdens on regulated utilities, and help the agency establish effective ways to manage change for the transition to deregulation.
PUC's governing statutes should be amended to better reflect its changing mission.
PUC's functions and responsibilities are governed by the Public Utility Regulatory Act (PURA), which was established in 1975 and has been revised several times, most recently and significantly in 1995. The 1995 amendments are noteworthy for introducing some competitive flexibility into Texas' previously monopolistic local telephone and electric markets.
This new flexibility requires PUC to change its operations and functions. As outlined elsewhere in this report, PUC has initiated new rulemaking proceedings, held arbitrations, and produced reports for the Legislature on significant issues relating to competition. PUC's traditional mechanism of rate regulation is becoming less important.
To reflect industry changes and its changing role, PUC crafted a new mission statement for its 1996 strategic plan. According to the plan, PUC's mission is "to assure the availability of safe, reliable, high quality services that meet the needs of all Texans at just and reasonable rates" through "the regulation of electric and telecommunications utilities as required while facilitating competition, operation of the free market, and customer choice."[ 3 ]
Despite the sweeping changes in the 1995 legislation, however, the statutes outlining PUC's mission are essentially unchanged. State law still stipulates that:
...traditionally public utilities are by definition monopolies in the areas they serve; that therefore the normal forces of competition which operate to regulate prices in a free enterprise society do not operate; and that therefore utility rates, operations, and services are regulated by public agencies with the objective that regulation shall operate as a substitute for competition.[ 4 ]
This statutory description of PUC's mission has not changed significantly since 1975. It no longer reflects the state of the industries, PUC's emerging activities, or PURA's current statutory substance.
Section 1.002 of the Public Utility Regulatory Act should be amended to more accurately reflect PUC's new purpose and activities and the changing nature of the utility industries.
This section of PURA should define PUC's growing role in supporting fair competition as well as its need to maintain a regulatory role where appropriate.
No fiscal impact should result from this recommendation.
PUC should adjust its organizational structure to provide it with more coordination and flexibility.
Throughout this report TPR makes recommendations to continue PUC's transition as a traditional monopoly regulator to one that uses different mechanisms to regulate competitive industries. These recommendations include process changes, such as the implementation of a staff report in contested cases. Additionally, TPR recommends increased focus on certain activities, such as consumer education. Finally, TPR recommends changes to allow the agency more flexibility to expand use of new techniques, such as alternative dispute resolution. The structure PUC needs to continue making changes and moving towards transition must be flexible and coordinated.[ 5 ]
Agency structure--past and present
PUC is overseen by three full-time, salaried commissioners who are appointed by the governor with the advice and consent of the Senate. Commissioners serve staggered six-year terms; appointments are made during odd-numbered years. The chairman of the commission is designated by the governor.
Commissioners serve in a quasi-judicial capacity on utility rate cases and other legal proceedings. As this quasi-judicial role has been the agency's primary mechanism for regulating utilities, until recently the commissioner's role was almost entirely that of judge. Over time, however, and increasingly so in recent years, commissioners also have played a quasi-legislative role by establishing rules, making legislative recommendations, and setting regulatory policy. Commissioners also develop agency long-range plans and goals and supervise agency management.
Prior to September 1995, PUC was divided into seven operating divisions organized along industry and functional lines--the Commissioners' Offices, Hearings, General Counsel, Electric, Telephone, Operations Review, and Administration. In 1995, the Legislature transferred the functions of the Hearings Division to the State Office of Administrative Hearings. In June 1995, the commission began to reorganize PUC based on the following objectives:
1. A shift in the agency's primary mission from rate cases to competitive issues.
2. Proactive rather than reactive policy development.
3. Integration of electric and telephone responsibilities by function.
4. Paperflow restructuring to account for the loss of the Hearings Division.
5. Prioritization of all PUC functions in light of its new mission and budget constraints.[ 6 ]
This reorganization resulted in PUC's current organizational structure (Exhibit 8). There are three offices, the Executive Director's office which is the administrative division, the Office of Regulatory Affairs which is the advocacy division, and the Office of Policy Development which is the advisory division.
PUC divides its managerial responsibilities between three executive managers. The executive director, a position mandated by state law, is responsible for administering the agency's day-to-day activities, including human resources, budgeting, information services, legal administration (which maintains the agency's docket of proceedings such as cases, open meetings, and rulemakings, as well as agency filings and records), consumer affairs, and public information.[ 7 ] Although the executive director also is responsible for coordinating and directing all agency divisions with regard to budget, personnel, and other general agencywide matters, in practice, the existence of three executive managers makes it difficult.
State law also requires PUC to employ a general counsel to guide the agency's regulatory functions.[ 8 ] The chief of the Office of Regulatory Affairs (ORA), although not officially called the general counsel, manages PUC's regulatory and advocacy functions through four divisions, including Competitive Issues, Legal (attorneys that represent the staff case in proceedings before the commission), Financial Review, and Industry Analysis. These divisions prepare and analyze information for cases before the commission and provide expert testimony and agency legal representation in these cases. Rate cases are a significant part of their mission; this activity is expected to decline somewhat, but competition will remain a patchwork in Texas for the foreseeable future, necessitating the continuance of old-style regulation in some places. ORA employees also conduct audits and participate in rulemaking and other agency special projects such as the preparation of legislative reports.
In 1995, PUC created a third office and third executive manager position. The Office of Policy Development (OPD) was created to provide commissioners with technical advice on matters before the commission without fear of breaching legal requirements governing so-called ex parte communication. The Texas Administrative Procedures Act, which governs the proceedings of state agencies, forbids communications between the commissioners (the decision-makers in cases before PUC) and any parties to the case unless all other parties are privy to the conversation.
Because ORA employees participate in many cases before the commission, conversations with commissioners on technical matters risk impinging on specific cases and might breach ex parte prohibitions. OPD, therefore, was created to provide the commissioners with such technical expertise. Its staff members, whose expertise often duplicates that of ORA employees, do not participate in cases and can freely advise commissioners on matters before the commission, and assist in the preparation of commission orders.[ 9 ]
Opportunities for improvement
While this organizational structure has done much to provide PUC with more technical support in policy making there are additional opportunities to support emerging functions through organizational changes recommended throughout the report. As outlined in Proposal 7 combining auditing and investigations functions that are now divided between ORA and the Executive Director's division would allow PUC to strengthen its compliance and enforcement efforts. Similarly, Proposal 13 provides a guide to enhancing consumer education efforts that coordinates these activities in a Consumer Affairs division. Finally, Proposal 16 encourages expanding the role of the Legal Administration section by increasing the use of alternative dispute resolution.
Problems with tripartite management
As already noted, PUC's three top management positions are coequal in rank within the organization and each report directly to the commissioners.[ 10 ] This tripartite arrangement has created some management challenges. Section 1.028 of PURA specifies that "the commission shall develop and implement policies that clearly define the respective responsibilities of the commission and the staff of the commission."[ 11 ] This language was recommended by the Texas Sunset Advisory Commission to prevent PUC's policy-making body from administering the agency as well.[ 12 ] At PUC, the Executive Director is responsible for directing the " administration of budgets, personnel matters, performance appraisals and training," in conjunction with the other top managers; however, PUC's substantive regulatory and policy programs are the responsibility of the ORA and OPD chiefs.[ 13 ] The fact that no single person is responsible for coordinating and overseeing all of these agency policy and regulatory matters means the commissioners must devote some time to coordination that a single executive could handle more efficiently.
Moreover, TPR interviews indicated that lack of coordination can lead to difficulties in budgeting. Fragmented leadership inevitably makes it difficult to ensure that division priorities are weighed appropriately across the agency. On substantive matters, only the commissioners are responsible for agency performance as a whole, in addition to their judicial and policy responsibilities. The Executive Director is responsible for PUC's administration.
In a review of other state utility agencies, TPR identified at least 10 with a single top executive who manages and coordinates the activities of all divisions, under the oversight of a commission.[ 14 ] In a review of the Pennsylvania Public Utility Commission, KPMG Peat Marwick found that its executive management structure, consisting of an executive director who oversees all operating units was a strength that, "provides the Commission with an effective means to coordinate the efforts of bureaus and manage day-to-day operations."[ 15 ] Similarly, other Texas regulatory agencies have a single position dedicated to coordinating business functions.
Separation of technical staff
PUC employs many persons with specific technical expertise, including engineers, accountants, financial analysts, economists, and policy specialists. These utility specialists are required in nearly every aspect of PUC's work, to provide expert testimony, analysis, and reports; assist in developing commission rules; and advise commissioners on matters before them.
While PUC's division of its technical expertise between ORA and OPD ensures strict adherence to ex parte communication guidelines, it can create a number of disadvantages. The National Regulatory Research Institute has noted that such arrangements often lead to inefficiency.[ 16 ] Part of that inefficiency is due to duplication of staff resources because the advisory staff in many cases share similar expertise as the staff in the advocacy role. Additionally, separation of technical staff hinders information-sharing and overall policy development. In rapidly changing industries, the latest information on trends and issues can be critical; separating technical workers impedes their ability to share news and ideas.
In interviews with TPR staff, PUC workers also indicated that the staff division between ORA and OPD has helped to create the appearance of OPD as an "elite" group, since OPD staff members were chosen to advise commissioners and help set policy. While some staff members recognized this was not the intended result of OPD's creation, they still expressed concern that the split had affected morale.
The separation of staff limits the flexibility PUC has to use its technical experts. In the future, the role of PUC's technical staff will change as the number of rate cases declines and the use of other regulatory mechanisms such as enforcement, rulemaking, and alternative dispute resolution increase. This change in activities will require additional policy development skills, and the staff separation will make the acquisition of these new skills more difficult. By limiting each group to an advisory or advocacy role long term, PUC ensures that both miss opportunities to expand their experience and skills.
All agency employees ideally should share a common philosophical outlook on the state's utility regulatory efforts. Separate technical staffs can only serve to disrupt such commonality. The technical workers that serve in an advocacy role by definition cannot benefit from regular communication with commissioners concerning their perspectives on legislative intent.
Any mechanism employed to address these problems should not reverse PUC's laudable effort to respect ex parte communication requirements. This requirement, however, can be satisfied without the strictest organizational barriers created by PUC's current organization. Instead, team structures would serve to maintain the necessary separation. Such teams are employed throughout the private sector and government and, indeed, even within PUC itself; the commission often assigns temporary cross-divisional employee teams to projects within the agency.
KPMG Peat Marwick's review of Pennsylvania's utility agency noted that that agency should "assemble, coordinate and empower multi-dimensional teams."[ 17 ] The Pennsylvania agency has, in fact, created a Fixed Utilities Division, in which most of the technical experts from across the agency have been assembled. Individual experts are assigned, as necessary, to advise commissioners, review utility findings, or support hearings examiners while continuing to respect ex parte restrictions. This consolidation has greatly improved the flexibility of staff to address its regulatory responsibilities.[ 18 ] This concept of a team structure can be taken a step further to ensure flexibility while clearly identifying those employees assigned to contested cases. Within the division of technical staff, a policy advisory team can be established. While the functions of this team remain constant, staff from the larger technical division can be rotated in and out on a regular basis. At any given time, different staff would be assigned to this policy team, but they would not be assigned to work a contested case at the same time. This concept allows more staff to participate in both advising and in advocacy, ensuring that staff skills are expanded, common regulatory philosophies are developed and technical information and ideas are shared. A July 1996 report by the National Regulatory Research Institute noted that utility agencies needed to employ structures like this which "allow more staff interactions, such as...team approaches," to meet the demands of the future.[ 19 ]
A. Section 1.028 of PURA should be amended to remove specific positions from statute and allow PUC to appoint an overall executive director and to assign all regulatory and administrative functions within a flexible organizational structure.
Removing specific positions from statute gives PUC the flexibility to establish any organizational structures needed during and after transition. One executive manager would focus priorities and ensure that agency resources are appropriately allocated (see Exhibit 9). A single executive manager for PUC would need significant technical understanding of the agency's functions well as industry issues.
B. PUC should merge its technical staff into a single Regulatory Affairs Division and establish a Policy Development Team within that division to advise commissioners.
This would elaborate on the team concept by establishing a permanent policy unit staffed with a combination of permanent and temporary staff (see Exhibit 9). The team will require several permanent members and a team leader, but other regulatory staff should be rotated in and out on a regular basis, as resources and specific skills are needed. Employees assigned to the policy team would not be assigned to any contested cases during their service on the team.
Placing utility technical staff members in a single division and allowing them to rotate through a policy team would facilitate technical information sharing, improve morale, provide cross-training, make more effective use of PUC resources, and create a more consistent regulatory philosophy throughout the agency. Making the policy advisory group a formal team with staff assignments within this division ensures the commissioners and other parties can immediately recognize staff available for technical assistance, a critical element in avoiding ex parte problems.
C. To implement TPR's other recommendations in this report effectively, PUC should redesign its organizational structure.
TPR's proposed structure (Exhibit 9) provides the agency with a single executive manager and merges technical staff so that they can coordinate activities and share information while maintaining a separate identity for advising the commission. This structure also merges the audit and investigative functions to improve coordination and planning. It also renames the Legal Division to distinguish its advocacy role from that of the coordinating and recommended mediation role of Legal Administration. Finally, it creates a separate Consumer Affairs Division to support the commission's belief that consumer information and assistance will be critical to ensuring a truly competitive utility market.
These recommendations would give PUC the flexibility to manage and assign resources in a way that best suits its needs. Although there is no cost associated with these recommendations, they should allow PUC to operate more effectively and efficiently.
[ 1 ] The National Regulatory Research Institute, Missions, Strategies, and Implementation Steps for State Public Utility Commissions in the Year 2000: Proceedings of the NARUC/NRRI Commissioners Summit (Columbus, Ohio, May 1995), p. 5.
[ 2 ] Public Utility Commission of Texas, "Consolidated Lost Report Period Ending 8/31/96, " Austin, Texas, September 12, 1996. (Computer printout); and Public Utility Commission of Texas, "Year to Date Activity Report from September 1, 1995 to August 31, 1996, " Austin, Texas, October 11, 1996. (Computer printout.)
[ 3 ] Public Utility Commission of Texas, Agency Strategic Plan For the 1997-2001 Period (Austin, Texas, June 1996).
[ 4 ] Vernon's Ann. Civ. St. art. 1446c-0, SS1.002.
[ 5 ] The National Regulatory Research Institute, Transforming Public Utility Commissions in the New Regulatory Environment: Some Issues and Ideas for Managing Change (Columbus, Ohio, July, 1996), p. 7.
[ 6 ] Memorandum from Pat Wood, chairman, to Robert W. Gee, commissioner, Public Utility Commission of Texas, June 21, 1995 (revised on June 27, 1995).
[ 7 ] Vernon's Ann. Civ. St. art. 1446c-0, SS1.028.
[ 8 ] Vernon's Ann. Civ. St. art. 1446c-0, SS1.028.
[ 9 ] Letter from Anita L. Fourcard, Public Utility Commission of Texas, December 10, 1996.
[ 10 ] Public Utility Commission of Texas, "Organizational Chart," Austin, Texas, October 1996.
[ 11 ] Vernon's Ann. Civ. St. art. 1446c-0, SS1.028.
[ 12 ] Texas Sunset Advisory Commission, Summary of Process and Procedure (Austin, Texas, 1995), p. 6.
[ 13 ] Public Utility Commission of Texas, "Organizational Charts," Austin, Texas, October 1, 1996.
[ 14 ] National Association of Regulatory Utility Commissioners, Profiles of Regulatory Agencies of the United States and Canada Yearbook 1994-1995 (Washington, D.C., August 1995).
[ 15 ] KPMG Peat Marwick, Pennsylvania Public Utility Commission: Comprehensive Operations Analysis, Final Report (McLean, Virginia, May 1995), p. 7.4.
[ 16 ] The National Regulatory Research Institute, Transforming Public Utility Commissions in the New Regulatory Environment: Some Issues and Ideas for Managing Change (Columbus, Ohio, July, 1996), p. 57.
[ 17 ] KPMG Peat Marwick, Pennsylvania Public Utility Commission, p. 5.12.
[ 18 ] Interview with John Dial, Executive Director, Pennsylvania Public Utility Commission, November 13, 1996.
[ 19 ] The National Regulatory Research Institute, Transforming Public Utility Commissions in the New Regulatory Environment, p. 6.
[ Continued ]
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