The New Orleans Office of Inspector General (OIG) performed a detailed assessment of utilities regulation in New Orleans. The purpose of the review was to answer several questions:
- Are utility customers in New Orleans best served by the city's unique regulatory authority? Or, would the Louisiana Public Service Commission (LPSC) be a more appropriate regulator for the city's energy utilities?
- How does the Council deploy its regulatory resources?
- Are the Council's regulatory processes designed to maximize effectiveness and transparency?
Evaluators found that despite the potential for lower regulatory costs by a shift to LPSC regulation, the interests of the city’s utility customers would likely be underrepresented. Ongoing changes to the Entergy system (i.e., dissolution of the System Agreement and shift to a regional transmission organization) could have significant consequences for the city’s utility. For these reasons, evaluators recommended the Council continue as regulator until there was greater clarity about how local customers would be affected.
The OIG identified several areas of concern in terms of how the city’s energy utilities were regulated. The Council carried out its regulatory responsibilities by relying almost exclusively on outside consultants. Regulatory commissions across the country use a mix of internal and external resources; more than 97 percent of the Council’s $7.7 million regulatory budget for 2013 was allocated to a group of outside consultants. This wholly outsourced approach resulted in higher than necessary regulatory costs because many activities could have been performed by a well-trained in-house staff at a lower cost. Beyond cost, the Council’s overreliance on outside consultants prevented the development of in-house expertise and institutional knowledge regarding critical regulatory matters.
The regulatory process in New Orleans relied on a limited number of participants and was largely driven by the efforts of outside consultants on behalf of the Council. Participation by non-Council entities was important because it would add independence to the regulatory process and provide checks and balances to the regulatory framework. The interests of residential and small business customers were not represented by a publicly-funded public advocate with adequate resources.
Further, the Executive Branch did not fulfill its regulatory responsibilities (i.e., recommending rates and performing investigations of utilities): the City eliminated the Department of Utilities in 2002. In the absence of participation by the Executive Branch, the nonexistence of a publicly-funded public advocate, and the lack of in-house Council regulatory staff, outside consultants fulfilled both roles in the regulatory process (i.e., trial and advisory). This dual role meant that the findings and recommendations made by the outside consultants went mostly unchecked.
The OIG found the Council’s regulatory approach and practices lacked basic controls to ensure transparency, prevent misconduct, and promote effective decision-making. For example, Councilmembers were permitted to engage in verbal ex parte communications with the utility and other intervenors. This practice had the potential to introduce bias and errors into the regulatory process because these off-the-record conversations went unchallenged and could have a disproportionate impact on regulatory decisions. The lack of transparency was further exacerbated by the Council’s use of settlements to resolve nearly all regulatory matters and the resulting lack of publicly available documentation to understand how and why decisions were made.
The recommendations presented in the report were intended to provide the Council and the City’s Executive Branch with ways to improve local utilities regulation, including increasing the number of participants with defined roles in the regulatory process, building in-house capacity while reducing the reliance on outside consultants, and implementing safeguards to protect the integrity of the regulatory process and promote effective decision-making.